(Editor’s Note: This is the second of two parts delving into the complexity of the modern global trading system. In case you missed it, read Part 1 here.)
The results of trade agreements with South Korea and other nations have been similarly lopsided; America’s trade-in-goods deficit with the world is now approximately 4% of GDP.
In tandem with this, the system seems to have legitimized and empowered dictatorships in China and Russia. Rather than spreading liberal values with rising prosperity, the system has actually entrenched autocracy and cronyism in many emerging economies.
Even those arguing in The Economist debate for the principles of free trade and the global trading order acknowledge there are deep-seated problems that need to be resolved. The debate is now about not if but how to fix them.
President Trump’s approach appears to be the rather simplistic one of the dealmaker, of threatening and even imposing the harshest of conditions and then leaving the door open for a deal or renegotiation to find a solution acceptable to America. Only time will tell if this tactic works. It is crude — it may be effective, or it may cause lasting damage.
Supporters of the World Trade Organization (WTO) would see the fight taken up within the WTO courts, feeling that America has plenty of ammunition to force change.
They point out the WTO has ruled against China more often than for China, and that China has subsequently complied to WTO rulings. But it is possible politicians are being driven by a sweeping populist domestic tide that is railing against the ever more evident income disparity with the top 5% and the loss of well-paid shop floor jobs this globalization has caused.
Part of this trend was inevitable, anyway, with automation taking the place of manual labour. However, the pace and extent has been accelerated by the outsourcing of jobs and investment to low-cost labor markets, lured not just by low-cost labor but lax environmental standards and a host of other attractions, extended to local joint venture partners with state approval.
Liberalizing global trade has bought immense benefits to many, including lifting hundreds of millions out of poverty and raising the living standards of hundreds of millions more middle-class Westerners.
Those benefits, however, have come at a price, and the cost is rising.
The system can be fixed, but the strength of the system is in its near universal set of agreed rules and means for arbitration. Rather than ripping through decades of careful evolution, America should lead a revolution within the WTO and force through fundamental change. It is not as easy as laying down an ultimatum and handing over a bilateral negotiation to a team of officials.
Rewriting the WTO’s rules of engagement will take time and immense patience. but maybe the shockwaves of President Trump’s tariff announcements have created a more dynamic atmosphere in which to push through such changes. The world knows he is not to be messed with — never has there been a better time to rewrite the rules of a flawed system that, nevertheless, remains the best of all flawed systems.