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What’s At Stake as Rules-Based Trade Comes Under Fire
It seems fitting that the untimely death of
this week should have occurred on the eve of the 100th anniversary of President
14 Points speech.
The former Irish politician served as the European Union’s competition commissioner during the 1980s when the rules for the EU single market were set, and then as the founding director general of World Trade Organization in the 1990s. Mr. Sutherland is rightly considered one of the architects of the modern rules-based trading system, laying the ground for the triumphant phase of globalization that lasted until the onset of the world-wide financial crisis.
But the origins of that trading system can be traced to Mr. Wilson’s speech on Jan. 8, 1918, in which he laid down the principles he believed should underpin the postwar order. These included the “removal of all economic barriers…and the establishment of equality of trading conditions” and the right of the peoples of European empires to “autonomous development.” He also proposed “a general association of nations…for the purpose of allowing guarantees of political independence to great and small countries alike.”
Of course, it took decades for a version of Wilson’s vision to come to fruition. Although new states emerged out of the ashes of the Austro-Hungarian, Russian and Ottoman empires, the world order that emerged from the Treaty of Versailles proved highly unstable. Punitive damages imposed on Germany put intolerable stains on a global economic system, based on the gold standard, that eventually collapsed. In the ensuring economic misery caused by beggar-thy-neighbor protectionism, weak new states succumbed to nationalism, dictatorship and border disputes that escalated into war.
Only after the World War II did multilateral institutions come into being that would allow small states to survive and prosper: the North Atlantic Treaty Organization, the General Agreement on Tariffs and Trade (the WTO’s forerunner), the International Monetary Fund, and the European Coal and Steel Community, which became the EU. The key to the success of this post-World War II system was that the new institutions had real rule-making power, unlike the prewar League of Nations, which the U.S. itself never even joined.
These days, almost everybody professes to believe in the “global rules-based trading system.” But it isn’t always clear if they mean it. Brexiters, for example, talk enthusiastically about global trade but seem to have a problem with it being rules-based. Their demand that new trade deals be based upon mutual recognition rather than the EU system of harmonized standards often sounds like a call for a world in which the U.K. should be able to set its own rules, which the rest of the world should be obliged to respect.
Indeed, their constant evocations of Britain’s glorious history as a “great free-trading nation” recalls exactly such a world in which the British Parliament mostly set the rules of 19th-century global trade and the ultimate dispute-resolution mechanism was the Royal Navy.
also claims to support the global free-trading system. His new National Security Strategy, published in December, says the international economic system the U.S. and its allies built over the past 70 years “continues to serve our interests.” But it goes on to make clear that this support is conditional on the system being reformed to protect American workers and innovation and to address trade imbalances. At the core of the new strategy is the belief that American prosperity and security is being challenged by unfair competition from China.
Like the Brexiters, Mr. Trump wants to rewrite the rules of global trade to suit what he sees as American interests. He has already withdrawn the U.S. from the Trans-Pacific Partnership, a trade deal agreed among 11 countries bordering the Pacific Ocean, and has said he would either renegotiate or withdraw from the North American Free Trade Agreement with Canada and Mexico. He is frustrating the working of the WTO by blocking the appointment of new judges to its appeals tribunals. Meanwhile Washington, citing national-security grounds, is threatening to impose punitive tariffs on a range of Chinese imports, thereby inviting retaliation on the basis that such measures would amount to discrimination.
Mr. Trump is right that China has never fully played by the rules it sign up for when it joined the WTO in 2001. It is also true that its large-scale state subsidies to certain sectors have caused real economic harm in the U.S. and Europe, even as American and European consumers have benefited from cheaper Chinese products. Similarly, Brexiters may be right that some EU regulation is too inflexible and discourages innovation.
But the key question is whether Mr. Trump’s America First agenda—and the Brexiters’ de facto Britain First version—will improve the operation of the global economic system or undermine it.
If the global rules-based trading system is weakened, the biggest losers will be those smaller states that have flourished in the era of globalization—not least Mr. Sutherland’s Ireland. More broadly, however, a world in which doubts emerge about the rule of international law—one in which even large countries question how far they can rely on markets to provide them with food and resources—will be an inherently a more unstable and dangerous place for everyone, including the U.S. and U.K.
Mr. Sutherland’s untimely passing and the 100th anniversary of Woodrow Wilson’s 14 points is a good moment to reflect on this reality, before it is too late.