(Editor’s Note: This is the first of two posts addressing the global trading system. Check back tomorrow for Part 2.)
The Economist asked the question in a debate that has been running over the last few weeks, stimulated in part by President Trump’s unprecedented actions on tariffs and quotas aimed at perceived cheaters of the global trading system.
The article summarizing the debaters’ arguments (with contributions by guest contributors) makes fascinating and very appropriate contemporary reading for anyone interested in the topic. Few would argue that in its earliest guise the multilateral, rules-based system managed by the World Trade Organization (WTO), to lift the article’s words, has built up and delivered unprecedented prosperity across the world.
But even ardent supporters would also concede it has contributed to the decimation of the industrial base in many rich countries. Other factors have played a role, like automation and environmental policies, but the global trading system has played its part in this transfer for manufacturing capability and accompanying jobs.
The article questions whether the global trading system is broken, whether we should do away with it altogether, and whether a return to national tariffs and bilateral trade agreements is the solution to the perceived problems it has caused.
But the reality is that while the WTO and its rules-based system has significant faults, it is not bust in the way the world order of the 1930s, which was complete chaos and, as one of the arguments points out, fraught with government-imposed tariffs, quantitative limits on trade, discriminatory deals and foreign-exchange controls. It got so bad at times that some international commercial relationships even devolved into barter. This writer can remember his firm dealing with the Soviets in the 1980s, bartering ship loads of hot rolled coil steel from Russia and shipping back cold rolled steel coil from British Steel in the U.K.
But if the system is not busted it is certainly flawed, and those flaws have resulted in multiple problems.