Is It the End of the Liberal Trading Order — or a Recasting?
The risks posed by Trump’s policies — and ways that america’s asian trading partners might weather the storm.
US President Donald Trump’s combative ‘America First’ approach to trade relations has roiled countries around the globe, particularly in Asia, where Trump has complained of unfair deals.
The administration’s stance threatens to upend the very world trade order that the US was instrumental in crafting after the Second World War. Barry Eichengreen describes the risks posed by Trump’s policies and offers ways that America’s Asian trading partners might weather the storm.
AS ASIA CONTEMPLATES life after the liberal world trading order, one question looms above all others: Is it truly over, or is it simply the end of the era when the united states was the reliable leader of the multilateral system?
america’s position has unquestionably changed, for now at least. The us spearheaded the rebuilding of the multilateral trading system after the second World War, notwithstanding missteps such as the refusal of Congress to ratify the havana Charter that would have created the International Trade Organization in 1948. In 1971, President Richard Nixon imposed a unilateral 10 percent surcharge on all dutiable imports to cajole other countries into revaluing their currencies against the dollar. Ronald Reagan’s administration negotiated so-called voluntary export restraints on Japanese vehicle exports starting in 1981.
such aberrations aside, the us stayed a staunch supporter of the liberal trading order. It helped push successive rounds of the General agreement on Tariffs and Trade (GATT) to their successful conclusion. In the 1980s and 1990s, it counseled openness to developing and emerging economies as part of what came to be known as the Washington Consensus. While it was Canada that formally tabled the motion to create the World Trade Organization in the 1990s, the us backed it vigorously, including the initiative to create a disputesettlement panel with binding arbitral powers.
BRAVE NEW WORLD
To all appearances, the situation today could not be more different. It is not exactly clear what the current us administration wants: to replace the
ence on the us for its defense umbrella. but it was nonetheless able to successfully revise the agreement without having to offer major concessions. That outcome reflects the fact that the us needs seoul’s close co-operation in dealing with North Korea, which is why Robert lighthizer, the american trade negotiator, was told to tread lightly.
Other asian countries, specifically China, are unlikely to get off as easily. as the bête noire of Trump’s trade advisor Peter Navarro, the country has already been targeted by the administration’s steel and aluminum tariffs, by prospective duties on us$50 billion of exports and by the threat of duties on an additional us$100 billion of exports.
here China showed the appropriate reaction to us provocations. First, beijing carefully calibrated its response. It reacted to tariffs on us$3 billion of steel and aluminum exports by announcing tariffs on exactly us$3 billion of us exports. It responded to the list of tariffs on us$50 billion of us imports by announcing a list of tariffs on exactly us$50 billion of us exports. In each case it avoided escalation. second, beijing offered the us administration a way out. It offered face-saving concessions, for example, reiterating its earlier offer to modestly reduce motor-vehicle import tariffs. It then offered to host a high-level american trade delegation. Chinese officials can also promise to address the bilateral trade imbalance over time, since narrowing the trade surplus is entirely consistent with their ongoing effort to rebalance the Chinese economy away from exports and toward domestic consumption. The question is whether the promise of progress over time will be enough to satisfy an impatient us president. The answer appears to shift from week to week.
progress on intellectual property
a still harder nut to crack will be us complaints about Chinese treatment of american intellectual property, and about beijing’s “Made in China 2025” program intended to position China as a leader in artificial intelligence and other leadingedge technologies.
Critical will be distinguishing two issues: protection of us intellectual property and China’s high-tech ambitions. The us has no grounds for complaining about Chinese industrial policy. Washington is of course entitled to impose antidumping duties on Chinese exports if it can show, in a manner consistent with international law, that China is exporting goods at prices below their actual cost of production. but it cannot reasonably go beyond that. every country wants to move up the technology ladder. every government wants to promote the growth of high-tech industry. There is a name for the result: it’s called economic development. Only a politician who sees economic growth and development, like international trade, as a zero-sum game could possibly object. here China’s representatives are on strong grounds in defending their policies. They should talk sense and hope for the best.
Where the us has valid complaints is on Chinese treatment of american intellectual property. us companies are right to object that in order to invest in China they must find joint-venture partners and share their trade secrets. They are right to protest that those joint-venture partners continue to use their proprietary technology even after the partnership is terminated. They are right to complain about lax enforcement of patent protections and other intellectual property rights.
altering this state of affairs will require a sea change in how China does business. The good news is that this is not inconceivable. Chinese officials are aware that their economy is increasingly a producer rather than an appropriator of intellectual property. They will want to move to a system where ownership of intellectual property is more effectively and reliably protected to incentivize Chinese producers and safeguard Chi-