4 SpecialreportWorldtrade TheEconomistOctober9th 2021
cludedthata 1%riseinparticipationinglobalvaluechainsis
linkedwithanincreaseinincomeperheadofmorethan1%inthe
longrun.A surveyoftheliteraturebyDouglasIrwinofDartmouth
Collegefoundthatpoorcountrieswhichliberalisedtradeenjoyed
highergrowthof11.5percentagepoints,cumulatingto1020%
aftera decade.TheUnitedStatesInternationalTradeCommission,
anindependentgovernmentagency,reckonsAmerica’sbilateral
andregionaltradeagreementshaveraisedrealincomesby0.6%.
Stretchandprotect
Somemovestowardsfurtherliberalisationhavecontinued.InNo
vember 202015 AsiaPacificcountriessignedtheRegionalCom
prehensiveEconomicPartnership,theworld’sbiggesttradeblock.
TradingintheAfricanContinentalFreeTradeArea,a dealratified
by 38 countries,beganonJanuary1stthisyear.PostBrexitBritain
istryingtocover80%ofitstradewithpreferentialdeals,albeit
aftererectinglargenewbarrierswithitsclosestneighbour,the
EuropeanUnion.AndAmericaandtheeuarediscussingcommon
internationalstandardsforthedigitaleconomy.
Yettheappetiteforfreertradeisnotwhatit was.Therehasnot
beena generalroundofliberalisationsincethemid1990s.Other
dealmakinghasalsoslowed.Partlythatisdowntoa widespread
perceptionthattheideologyoffreetradehasfailedtodeliverits
promises.Intherichworld,politicianshaveseenfuriousback
lashesagainsttradeagreementsandcomplaintsthatliberalisa
tionhascreatedlosersaswellaswinners,leavingmanyworkers
behind.President DonaldTrump embodiedarejection ofthe
rulesbasedtradesystem.AlthoughtheBidenadministrationno
longerhandsoutrandomtariffthreats,fewthinkAmericaisinca
pableofelectinga protectionistlikeMrTrumpagain.
Meanwhilethewtofacesgridlock.ManybelievethatChina
tookmostofthebenefitstheywerepromisedwithoutoffering
enoughinreturn.Ithasbecomeimpossibletoupdatetherulesin
a groupwith 164 membersthatallneedtoagree.Andthesystem
thatismeanttostoptradedisputesspirallingoutofcontrolno
longerworks.Thecovid19pandemichasrevealedhowquickly
panickednationalismcangumupglobalsupplychains.Overtwo
thirdsofcountriesapplyingexportcontrolsonmedicaldevicesin
2020 stillhadrestrictionsinplaceinAugust2021.
Forallthepostwarembraceoffreetrade,politicalsupportfor
itseemsto restonfragilefoundations.Thatcouldjeopardise
growth.Accordingtoonestudy,theuncertaintyassociatedwith
MrTrump’stradewarsmayhavedepressedglobalgrowthby0.75
percentagepointsin2019.Thewto’seconomistsreckonthatbe
tween 2000 and 2016 thecostoftradeassociatedwithpolicyfell
fromtheequivalentofa 9%tariffin 2000 toa 6%tariffin2016,but
thisincludesanupticksince2012.Asimulationfromtheimf
foundthattheequivalentofa 10%tariffwouldreduceglobalout
putbyaround1%afterthreeyears,andby1.5%if productivityloss
esfromtheprotectionofinefficientfirmsareadded.
Asfreertradelosesfavour,otherprioritieshavecrowdedin.
Therewassomuchfocusonliberalisationandwhatit wouldbring
that,astimewenton,“tradebecamea negotiatingthing—tradefor
tradeitself,”saysNgoziOkonjoIweala,directorgeneralofthe
wto. Now,shenotes,nontradegoalsthathadlostouttothecause
ofgreaterliberalisationarecomingback.Thisspecialreportex
ploreshowtradepolicyisbeingusedtoachievenontradeobjec
tives,includinggreaterresilience,humanrightsanda healthier
planet.Anditaskswhethertheopentradingsystemcansurvive
thisshift.Theplacetostartiswitha lookatthestrainscreatedby
America’sturnawayfromtherulesbasedmultilateraltradingsys
temthatit didsomuchtocreate.n
Liberal logic
Sources:“TwoCenturiesofBilateralTradeandGravityData:1827-2014”,
byM.FouquinandJ. Hugot(2016);OurWorldinData;WorldBank
*Newseries
†1990-2017 ‡1992-2019
*
25
20
15
10
5
0
1827 501900 2020
World,merchandiseexports
%ofGDP
-20-40-60 200
Trade-weighted average tari rate
1990-2019, percentage-point change
Tariff rate, 2019 or latest, %
6.6
2.5
8.0
2.6
1.8
1
.8
India
China‡
Brazil
World†
EuropeanUnion
UnitedStates
India
China‡
Brazil
World†
European Union
United States
Trade law
A fraying system
M
itchell taylor, an Australian winemaker, got advice from
his agent when he tried to uncork the Chinese market in the
1990s: “it’s all about relationships.” But after Australia became Chi
na’s top wine supplier in 2019, this fruitful relationship soured. In
November 2020 the Chinese government imposed tariffs on wine
from Australia of more than 200%, allegedly because it was being
“dumped” on its market at excessively low prices, but in reality as
a response to the Australian government’s call for an investigation
into the origins of covid19. Mr Taylor lost a third of his export
sales. He reckons the Chinese were sending a message to the
world: “don’t upset us.”
This is by no means the first time that China has flaunted its
market power. But today’s context is different. Over the past few
years, even as China has defied the spirit, if not the letter, of the
wto’s rules, America has also broken the organisation’s dispute
settlement mechanism, brandished tariffs against allies and im
posed trade restrictions for national security. As the two giants
have become locked in economic conflict, both have flouted the
underlying principle of the multilateral system, which is that
trade should be governed by rules not power.
America has long been central to the system, as both an archi
tect and an enforcer. Despite flirting with unilateralism in the
1970s and 1980s, it accepted that a more stable trade system served
its interests. After helping to write the wtorules in the early 1990s,
it beckoned China into the club in 2001. And it worked to preserve
the wto’s core principle of nondiscrimination. Between 1995 and
early 2017 American governments filed 114 complaints against oth
er countries at the wto, over fourfifths of them for problems that
affected other members too. (For comparison, over half of the 434
disputes filed by other countries were purely bilateral.)
Yet critics always said this permissive approach hurt American
workers. And in 2017 they came to power. Robert Lighthizer, a for
mer United States Trade Representative (ustr), reckons one of the
Trump administration’s big contributions to trade politics was its
interest in matters other than maximising company profits. In
2017, rejecting the idea that rulesbased dispute settlement serves
In global trade, power increasingly trumps rules