Is a rules-based trading system worth saving?

Editor's note: Professor Brad MacKay is the Chair in Strategic Management at the University of St. Andrews. The article reflects the author's opinions, and not necessarily the views of China Plus.

In recent months the US administration has launched trade wars on, well, just about everyone. From solar panels and washing machines, to aluminum and steel, and imminently the possibility of autos and parts, few countries that trade with the US have been spared.

While the stated reasons for these actions have ranged from unfair trade agreements to national security concerns, underneath the surface are much more significant existential anxieties about the future. These anxieties are manifest in philosophical tensions between those advocating multilateralism versus those advocating unilateralism, and those who subscribe to a globalist approach to international affairs, versus those who assume a nativist and protectionist stance.

US ambassador to the WTO,  Dennis Shea, talks with Chinese ambassador to the WTO,  Xiangchen Zhang, before the General meeting at the WTO, Switzerland, July 26, 2018. [File Photo:VCG]

Multilateralism, as epitomized in the 70-year-old trading regime embodied in the World Trade Organization (WTO), which regulates world trade, holds that a rules-based global approach to international affairs is the optimum vehicle for achieving peace and prosperity. When countries agree to abide by a commonly shared framework, predatory state behavior is constrained by creating a level playing field and an agreed process for de-escalating and resolving the inevitable disputes that arise between nations.

Unilateralists, on the other hand, take a different view. Rejecting a rules-based order, they subscribe to a "might-is-right" approach, where the key mechanism for resolving tensions is the imposition of one sovereign will on others. It rejects globalism, often finding succor in nationalism, and increasingly, nativism, which laces protectionist instincts with xenophobia.

Since World War II, multilateralism and globalism have dominated thinking in the West, and the United States has been the chief architect and guarantor of a rules-based order. Increasing global trade over this period of time has lifted millions out of poverty. One only needs to look at the rise of China as one of the most significant global players on the world stage for evidence.

Yet, economic and technological change has also come at a cost, such as the redistribution of certain types of jobs, particularly in heavy industry, between countries around the world, imbalances of trade, coerced technological transfers, environmental degradation and growing concentrations of wealth in fewer and fewer hands.

The emergence of the digital age, novel forms of state-backed capitalism, different standards of trade-policy transparency and rapid technological change have also created strains on the multilateral institutions designed to referee a rules-based global order.  

With the collapse of the 14-year Doha round of trade negotiations in 2015, an opportunity to modernize the increasingly antiquated WTO, and to address many of the structural challenges resulting in such existential anxieties that have resulted in the ascendency of protectionist sentiment and unilateralism at a more local, or national level, was missed.

The nameplate of United States on the desk during General Council meeting at the World Trade Organization(WTO), Switzerland, July 26, 2018.  [File Photo:VCG]

Specifically, the cumbersome and slow dispute resolution mechanisms of the WTO, and its reliance on consensus, do not address the need to respond flexibly and nimbly to a quickly changing world, or to different, and at times incompatible national approaches to trade.

Attacks by the administration of the United States on the very system they were pivotal in creating have added to the strains on the current international trading system, and their abdication of their leadership position has left a leadership vacuum globally. The key question, however, is whether the multilateralism, rules-based approach to global trade is worth saving?

While some companies in the US, primarily major steel producers, have clearly benefited from, for example, the steel and aluminum tariffs levied on trading partners by increasing prices, many key businesses in the US and, more importantly, consumers, are not. Major companies such as General Electric, General Motors, Coca-Cola, and 3M have seen their profits eroded due to increasing costs as a result of the tariffs. Even companies such as Whirlpool, one of the early cheerleaders supporting tariffs, have found that they have boomeranged back on them through higher commodity costs, which has diminished their profits.

In addition to the obvious benefits of free trading to individuals, communities, companies and nations, in a world where key challenges such as environmental degradation, resource scarcity, poverty and human migration, technological disruption, and indeed, trade and the opportunities and costs it brings, are global, multilateralism, and a global perspective is a necessity for addressing humanities' most pressing concerns. Data supporting the benefits of globalization are irrefutable. However, so are the costs and the anxieties they create, perceived or otherwise.

There is an opportunity for countries committed to multilateralism and globalism, and who are prepared to support a rules-based order, such as China, to fill the current global leadership vacuum. Unilateralism and nativism are not a viable path to a more peaceful and prosperous world.

Global institutions need to be modernized and strengthened, and local anxieties recognized and addressed. And as for the re-engagement of the US in a multilateral, rules-based approach to addressing international affairs, to paraphrase a quote often attributed to the former British Prime Minister Winston Churchill, in the end, we can always count on our American friends to do the right thing, occasionally after some of the other options have been exhausted.