Trade Wars and De-Globalization

0
144

When China joined the World Trade Organization (WTO) in 2001, it was still a developing country. More than 15 years later, its circumstances have changed and it has turned into the world’s second-largest economy. The WTO has served not to discipline China, which is what the United States’  President Donald Trump, and to some extent the European Union, albeit more discreetly, now seeks, but rather to give it global thrust.
President Trump wants to stop China overtaking the United States technologically. Andres Ortega, a senior fellow at the Elcano Royal Institute stated that underlying the trade war unleashed by the current United States President, there is a clash of perceptions. It is said that President Trump sees China as a wealthy country with many poor people, while China sees itself as a poor country with many wealthy people.
According to Andres Ortega, this clash of perceptions extends beyond the United States-China dimension. The Trump Administration views Europe as a group of wealthy countries that the United States defends at its own expense. This is why it is asking the Europeans to spend more on their defense, with the mercantilist catch that they buy United States weaponry.
The European Union will spend more, but predominantly on the European Union member countries’ own systems. If the €13 billion earmarked by the European Commission for the new European Defense Fund is approved, it will be spent on European projects.
The Trump Administration also views Europe through the prism of Germany, even though that country’s trade surplus is first and foremost a concern for Germany’s own partners in the European Union. United States tariff increases are primarily aimed at Germany, with the sword of Damocles hanging over the automotive industry, a fundamental component of German exports.
Beyond Europe and China, the Trump Administration perceives the North American Free Trade Agreement (NAFTA) with Canada and Mexico not only as outmoded, but as having benefited its two partners more than the United States side. That is more than debatable. The Europeans, meanwhile, tend to view President Trump more as a cause than a symptom of what’s going on. That yields yet another clash of perceptions that makes it more difficult to find solutions.
From the European Union perspective, it should not be assumed that, even if President Trump were to lose the next presidential elections to be held in 2020, United States trade policy will undergo substantial change. According to American political analysts, it is important to remember that the Democrats do not embrace free trade with any great enthusiasm either. In fact, politically they have been the stronger defenders of the victims of free trade in the past.
According to data published by the Circulo de Empresarios, the main countries with which the United States runs a trade deficit are China (47.1% of the total), Mexico (8.9%), Japan (8.6%), Germany (8.1%) and Vietnam (4.8%). With the European Union as a whole, the figure is 19%.
However, Professor John Hikes of Sheffield University argued that the statistics tend to reflect an outdated model. Digital transactions do not appear in many accounts, nor does a growing and currently crucial component of such transactions, namely the trade in data, which is not covered by the WTO. The rules applied to offline trade are not the same as those applied online.
According to Professor John Hikes, the Trump Administration has used national security as the pretext for its protectionism. But, in point of fact, what does national security have to do with, for instance, importing cars or olives in peacetime? As the German Foreign Minister, Heiko Maas, likes to point out with more than a hint of irony, United States streets and freeways “are more secure with German cars.”
Moreover, President Donald Trump has deliberately deadlocked the WTO, where trade disputes are supposed to be settled. Financial Times recently reported that for the last year, his administration has vetoed all judicial appointments to the organization’s seven-member appeals chamber, which is charged with resolving trade quarrels.
That said, the WTO is in dire need of in-depth changes. As Pascal Lamy, the WTO’s Director-General between 2005 and 2013, pointed out at the recent Global Solutions 2018 in Berlin, Germany, the WTO is an organization in which its member states rule supreme. In other words, its board and Director-General have little scope for taking the initiative. In this respect, and others, change at the WTO is in order.
Many of these problems predate President Donald Trump. Not everything can be laid at his door. Since 1994, the WTO has achieved little in terms of multilateral trade agreements. Previous United States administrations, including President Obama’s, favored bilateral trade agreements, with the exception of the transpacific (TPP) and transatlantic (TTIP) treaties. The latter was undermined in the 2016 election campaign not only by Trump, but also by his Democratic rival, Hillary Clinton.
According to economic analysts, it is also evident that the G7 is not the appropriate forum to start settling these issues. But the G20 is unlikely to be the right forum either. They are useful for expressing disagreements, talking and clearing the undergrowth. But real institutions are needed, a requirement that neither the G7 nor the G20 fulfils.
Are we witnessing a process of de-globalization? As Jorge Arguello of the Argentine think tank Embajada Abierta points out, the costs of de-globalization are much higher today than 20 or 30 years ago.