Global trade is being reshaped by Western sanctions on Russia, COVID-inspired tightening of supply chains, and Western apprehensions about China, but none of this means the end of globalization.
This only increases the competition between the United States and China over who will lead. The process will disrupt the International Monetary Fund, the World Bank and the World Trade Organization, as great power competition will come through an emerging Asia-centric regime.
The IMF was created to maintain fixed exchange rates to allow trade and short-circuit a repeat of the competitive currency devaluations of the 1930s. With the advent of market-determined exchange rates, it turned out ineffective in resolving complaints about governments suppressing monetary values to gain competitive advantage.
China’s Belt and Road program and European and American responses are militarizing development finance, and there is little the World Bank can do about it.
President Donald Trump’s bilateralism with China was not new. President Bill Clinton obtained concessions from Japan with 100% tariffs on luxury sedans, and complementary regional agreements that paralleled the entire history of the WTO.
The General Agreement on Tariffs and Trade was created to reduce tariffs to encourage market-oriented trade and promote democracy. As tariffs fell, he tackled product standards, subsidies, intellectual property protection and other issues. Renamed the WTO in 1995, it formalized a dispute settlement process that had evolved ad hoc.
Now read this: America would rather brag about “exceptionalism” than pursue it, leaving its people with an inflated view of their position in the world.
In the early 1950s, Germany and Japan were only admitted after the restoration of democracy and market economies. In contrast, Russia and China were admitted to the WTO after the Cold War on the assumption that trade would help establish democracy.
Moscow has found vast markets for oil, natural gas, non-ferrous metals and agricultural products. President Vladimir Putin imprisoned dissidents, enriched oligarchs and invested in a large army, military technology and computer tools to undermine Western elections, subvert US efforts to stabilize the Middle East and invade Georgia, Crimea and now Ukraine.
China has exploited the letter and spirit of WTO rules with huge state subsidies, technology theft and opaque barriers to market access, and skillful subversion of the dispute settlement mechanism of the WTO. It aspires to global dominance in semiconductors, 5G wireless, electric vehicles and artificial intelligence.
Meanwhile, Beijing is underinvesting in public health and rural development, squandering wealth on an internal security system, and persecuting Muslims in Xinjiang. It is building the largest navy in the world to intimidate its Western Pacific neighbors, project its power around the world, and perhaps take Taiwan by force.
China offers its autocratic market socialism as an alternative to democracy and has no more place in the WTO than Russia or North Korea, which fortunately is not a member.
Especially in semiconductors and electric vehicles, the US and EU are shaping counter-initiatives to China’s industrial policy aggression, but that doesn’t mean the end of globalization. The economies of scale needed in these and other leading industries require large markets and exports for national industrial policies to succeed.
Fearing strategic dependency, the Trump and Biden administrations have tried to stifle the development of the semiconductor industry and a new arms race. Massive subsidies to chip factories in China, America and Europe have emerged, and Asia will be the logical destination for all the silicon that domestic markets cannot absorb.
President Barack Obama has championed the Trans-Pacific Partnership to provide an outlet for American exports and foster trade between like-minded nations, but Trump and now Biden do not want to participate.
Biden’s policies appear to be hostage to progressive intellectuals and organized workers who see free markets and free trade as the devil’s workshop. They present them as detrimental to the interests of minorities and women and aggravate inequalities.
Biden launched an Indo-Pacific Economic Framework, which allows countries to individually opt in to deals on trade, supply chains, green transition and anti-corruption. Details are limited, but it offers little additional incentive to the US market.
Treasury Secretary Janet Yellen touts ‘support of friends’ among like-minded nations to secure supply chains from disruption but, again, offers few carrots to inspire the cooperation.
In Asia, China has created its own regional Comprehensive Economic Partnership. He has applied to join the Trans-Pacific Partnership, but is unlikely to become a member if the United States joins.
With China or the US in the Trans-Pacific Partnership, a new Asia-focused trade organization would compete with the WTO – the UK joins and pressure is mounting for the EU to apply.
America can lead globalization by re-embracing free trade through the Trans-Pacific Partnership or leave the door open to China and its undemocratic values.
Pierre Morici is an economist and professor emeritus of business at the University of Maryland, and a national columnist.