Trade
Can we stop the protectionist wave?
Author: Gary Clyde Hufbauer and Euijin Jung, PIIE
Globalisation was under threat even before the pandemic. US President Donald Trump set the tone by declaring himself ‘tariff man’, imposing bogus ‘national security’ tariffs on steel and aluminium imports from allies while launching a trade war with China and eviscerating the WTO Appellate Body. But Trump was not alone in attacking the global trading system.
Since the Global Financial Crisis (GFC), G20 leaders have repeatedly promised no new trade restrictions. Yet time and again they have broken their promises. Documented by the Global Trade Alert, each year for the last decade nearly every G20 country has added to its roster of trade restrictions. The pace of new restrictions has gathered steam as the years have rolled by.
Trade is not the only target of anti-globalist policy. Foreign direct investment (FDI) is a necessary complement to supply chains and the delivery of business services and has increasingly faced policy barriers. Starting in 2017, Trump reversed long-standing US policy which embraced both inward and outward FDI. He cast aspersions on US-based multinational corporations (MNCs) investing abroad by ‘outsourcing jobs’, despite contrary evidence. With the Foreign Investment Risk Review Modernization Act of 2018, he then implemented strict reviews on foreign MNCs — particularly Chinese ones— investing in the United States.
But there have been some positive initiatives during the anti-globalist decade (2009–2019). Despite America’s retreat, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was launched, and the Regional Comprehensive Economic Partnership was agreed, even without India. The European Union concluded major trade agreements with Canada and Japan, while China signed pacts with South Korea, and many other bilateral free trade agreements were concluded.
These positive policies were more than offset by negative policies: Brexit, the near-death of and subsequent renaming of NAFTA and Trump’s tepid phase one trade deal with China. Merchandise trade grew at 56 per cent, not much faster than world GDP of 40 per cent, between 2009 and 2018. Annual FDI inflows fell from their peak, from US$1.8 trillion in 2007 to just US$1.3 trillion in 2018.
Then COVID-19 struck. The worrisome rise of protectionism instantly transformed into a global financial rout. Travel came to a standstill as one country after another closed its borders. The European Commission imposed its own ban on exports of vital medical supplies to outsider countries.
Some 54 countries have now imposed export restrictions on medical goods. Lockdowns were quickly adopted by China, South Korea and Italy and are now becoming common among all advanced countries. Enforced social distancing has caused a sharp drop in world GDP during the first and second quarters of 2020. Major banks are forecasting US GDP losses up to 20 per cent in each quarter.
These calamities almost guarantee a surge both in import protection and export controls. China is likely to restore its economic engine before advanced countries. A flood of Chinese exports might trigger a new wave of trade protectionism — antidumping duties, countervailing duties and safeguard actions — even while supply chain shortages and isolating workers limit output elsewhere. Meanwhile, wherever supply shortages erupt, an instant political response will halt exports to keep ‘essential’ goods at home. Supply surpluses may end up closely guarded out of fear. Restrictive measures so far are prioritised to secure medical supplies, but other products cannot be far behind. Soon this practice will become almost as widespread as the virus.
Whatever political purposes might be served by protectionist responses, the economic cost will be greater. We’ve already seen the cost at a local level, as people hoard necessities and ensure supplies are not available for those in dire need.
At a macroeconomic level, trade disruption will foster costly ‘self-sufficiency’ campaigns. Arch-protectionist Peter Navarro has invoked the pandemic to demand that the United States make all medical supplies, pharmaceuticals and other ‘essentials’ at home. Even Emmanuel Macron urged that vital French goods stay in France. Least developed countries with weak healthcare systems will suffer a lack of access to medical supplies.
What can be done? The WTO machinery is too weakened to provide an effective response. Given its questionable track record in keeping markets open following the GFC, the call for…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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