Is It the End of the Lib­eral Trad­ing Order — or a Re­cast­ing?

Global Asia - - CONTENTS - By Barry Eichen­green

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-

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