Nothing sums up the abject failure of this year’s WTO Ministerial Conference more than attempts to support e-commerce taking place without reference to Europe and the US simultaneously working on domestic restrictions. These countries also proposed “reform” apparently as a way of trying to return their economies to some sort of 1950s manufacturing paradise while stopping others.
Clearly no successful outcome is possible while the previous hegemons focus on holding on to their previous status with regard to the new challengers, the US openly coercively and the EU in denial. Tensions were bound to come out in some way, not least given the lack of incentive for others to then find compromises to at least keep discussions moving.
Internet-enabled trade should continue as it has for over 30 years in the absence of much by way of WTO rules, with or without the moratorium on duties. China will remain a trade powerhouse, and others will continue to grow. The EU, US, and others will take more protectionist measures while also making further digital agreements. All of which shows the chasm between discussions in the WTO Ministerial and what members are actually doing, and between both of those and actual trade.
In the mean-time trade ministers largely ignored the clear and present threat to today’s global trade that is countries increasingly trying to use connections to actively harm others. Weaponisation is the danger to the world economy of the 2020s and 2030s as tariffs were in the 1920s and 1930s. Something that countries think is necessary to protect their own interests in a climate of mistrust while actually offering the potential for a spiralling set of actions that causes major economic harm.
History never exactly repeats but rhymes, as may have been said by Mark Twain. Nowadays most countries know that tariffs are a tax on their own consumers so they don’t want to particularly retaliate against the US even under domestic pressure to show strength. Instead they think they should prepare for battles over supplies, informed by the lessons from Iran and China that control of choke points is indeed a potent weapon, rather than trying to facilitate openness.
Worryingly too many countries and commentators seem to have forgotten that creating economic dependencies is the core of mutually beneficial trade. This is not some sort of new danger which modern politicians have just discovered, but much of the reason for having global trade and rules. Specialisation is what leads to economic gains, going beyond the distribution of national resources to allowing different countries to focus on areas of strength in creating more global prosperity.
Today’s technology-enabled global markets are clearly further reaching than Ricardo’s original vision, but are in line with the founding premise of the GATT and now the WTO, the Most-Favoured Nation principle. Countries should treat other countries equally and fairly because trade at best is about a web of mutual dependencies that will make us all poorer if broken. The last 30 years have delivered unprecedented range of goods and services to consumers across the world as a sign of success.
Unfortunately the rich countries that benefitted most from the post-1945 economy have started to feel their superiority waning, and don’t like it very much. With some justification and far more hypocrisy they are claiming China’s rise is down to cheating or not being a market economy. Meanwhile China does not want to be dependent on other countries either given the memory of being humiliated in the 19th and early 20th centuries, and other rising powers like Brazil and India see even less benefit than usual to compromise with those wanting to keep them down.
All of this was already a tinderbox even before President Trump’s impulsive actions both on trade and security made matters worse. The book “Underground Empire” details how the US previously tried to weaponise their role as the world’s leading technology provider, behaviour now becoming more widespread under the laughably false pretence of stopping other countries exploiting the US. Brussels tried to deliberately weaponise the Brussels Effect in using its market power to force other countries to follow its regulations, failing because businesses pushed back against higher costs. Now it faces an internal split with outright protectionists pushing on steel and cars among others.
All of which leads to a serious and growing problem of mistrust in world trade politics. No country can be confident that some essential supplies will not be held to ransom by others. Even the companies that run the world’s supply chains are being increasingly pushed by governments to work for their interests. An oil-price recession may deepen fears. At best this accelerating mutual fear is going to be a drag on growth across the world, at worst it is going to intensify into open conflicts.
Trade ministers and the WTO DG among others have been trying to ignore this bigger picture in the hope that progress in less important areas could somehow carry over into major relations. At most EU and CPTPP Trade Ministers “share concerns” about economic coercion but only alongside similar, coded, language about the dangers of China winning. Countries like the UK and Canada that claim to be great supporters of open trade meanwhile have nothing useful to say, leaving the “reform process” as obviously the wrong vehicle for dealing with major geopolitical tensions.
Serious discussion about dependencies, global markets, and weaponisation is now urgently needed in more senior forms. To be successful these must accept the change in trade dynamics, in which somehow the EU, US and China reach a compact as to handling their mutual needs without supply threats. This seems unlikely to be possible until there is a major change in their domestic politics. In its absence these issues need to somehow be raised by smaller powers, businesses, think-tanks, academics and others. They also need to be showing the real costs that will be associated by continuing down the current part of thinking everyone needs to be armed and ready with their own choke points.
If the world’s trade ministers can’t talk about the major issue facing their countries then they and the WTO are barely in survival mode. One hundred years ago it took a series of wars of terrifying destruction to bring constructive action. That can hopefully not happen again, but leaders need to be doing a lot more to be sure of preventing that. Someone needs to be showing leadership hitherto absent. Weaponisation of trade in an atmosphere of mistrust is a clear and present danger to the global economy that seems likely to worsen until it is taken seriously.
Excellent analysis and diagnosis; thanks David.