While the leaders of China and the United States meet this week to begin hammering out their differences over a range of contentious trade issues and work to establish a diplomatic framework for future relations, fundamental challenges to the rule-based trading system that has underpinned global economic growth for decades have arguably never been greater.
In an op-ed published recently by the Project Syndicate online venue, Oonagh Fitzgerald, Director of the International Law Research Program at the Center for International Governance Innovation, and Hector R. Torres, a former executive director of the International Monetary Fund, argue that so-called middle powers – countries with modest GDPs but global influence – need to push back against the rising tide of trade protectionism and nationalistic anti-globalization epitomized by Donald Trump’s chaotic “anti-trade firestorm.”
Trump’s rejection of the Trans-Pacific Partnership (TPP) by executive order, his promise to renegotiate the North American Free Trade Agreement (NAFTA), and his claim that the World Trade Organization (WTO) is “a disaster,” all foreshadow likely trade tensions. In more ways than one, these could trigger trade conflicts that middle powers would wish to avoid and deescalate.
Deterring Trump will not be easy. Given his trade vision, he may adopt a tough, take-no-prisoners negotiating stance. He apparently believes that the US has lost ground as China has advanced; that China cannot afford prolonged economic confrontation with the US; and that the European Union and Japan are unfairly competing with the U.S. because they are free riding on America’s defense expenditures. Just as others have benefited at America’s expense, the US will become “great again,” in Trump’s view, only at the expense of others.
A similar analysis might lead Trump to view the United Kingdom’s Brexit referendum as an opportunity to lure others away from the EU. He may embark on a strategy of divide and conquer by negotiating a mutually beneficial free-trade agreement with the UK, in the hope that other EU members will be tempted to desert the bloc to obtain attractive trade deals with the U.S. and Britain.
Although Trump surely knows that trade-restrictive measures come at a cost, he seems undaunted by this prospect. Some manufacturing firms may move production back to the U.S., creating some new jobs, but probably far fewer than have been lost over the last 30 years of globalization and automation-driven productivity growth.
The authors call on Prime Minister Justin Trudeau, whose government will host the the G7 summit in 2018, and Argentina’s President Mauricio Macri, when his country assumes the G20’s rotating presidency and the group’s leaders meet in Buenos Aires next year, to step up an “maintain the stabilizing project of international cooperation by advancing a progressive trade agenda based on the rule of law.”
Suggesting that international financial institutions, the WTO and even the American business community may all potentially emerge as “formidable counterweights” to a wave of protectionism by stressing the benefits of international trade and regulatory cooperation, the authors contend that it is “middle powers – those economies with the most to lose – that may be best positioned to preserve a system that Trump seems inclined to dismantle.”