Strategic Reglobalization: Great Power Rivalry Comes for the Multilateral Trading System
This educational program, developed by The Association of Foreign Press Correspondents (AFPC-USA) in partnership with the Hinrich Foundation, provided foreign correspondents with the opportunity to learn from Dan Ikenson, Director of Policy Research at ndp | analytics, about the current trends in our multilateral trading system. Dan Ikenson unpacked for foreign correspondents all the critical points of his latest research on "Strategic Reglobalization: Great power rivalry comes for the multilateral trading system.
The educational program took place on December 8th and was moderated by Patrícia Vasconcellos, U.S. and White House correspondent for Brazilian TV network SBT. The Association of Foreign Press Correspondents (AFPC-USA) is solely responsible for the definition and development of this program.
Dan Ikenson is an economist and renowned international trade expert who has spent over 30 years analyzing, communicating, and influencing the formulation of U.S. and global trade policy. Dan joined ndp | analytics after nine years as director of the Cato Institute’s Center for Trade Policy Studies, where he led a team of lawyers, economists, and political scientists conducting research on all manner of trade policy. On subjects spanning from free trade agreements to international investment treaties, trade laws to customs procedures, and digital trade to the manufacturing economy, Dan has written dozens of policy papers, given congressional testimony, submitted statements and comments on proposed regulations to federal and state agencies, appeared on national news programs, and published scores of op-eds and articles in prominent media outlets. Prior to joining the Cato Institute in 2000, Dan was director of international trade planning for an international accounting and business advisory firm. In 1997 he cofounded an international trade consulting firm in Washington, and from 1990 to 1997, Dan was a trade policy analyst at international trade law practices. In addition to his many studies and articles, Dan is coauthor of the book Antidumping Exposed: The Devilish Details of Unfair Trade Law. He earned an M.A. in economics from George Washington University.
Below, readers will find a summary of the most important takeaways from the presentation;
Dan Ikenson noted that a central premise upon which the multilateral trading system was founded is that voluntary trade is not a zero-sum game but a positive-sum game, a win-win exchange that mutually benefits the parties involved. While this premise remains true, we no longer have the luxury of considering only the economic benefits and costs of trade. The analysis must account for the strategic benefits and costs, as well. The case for freer trade, despite the insistence of many fellow free traders, cannot be made in a vacuum that seals off the geopolitical impact.
He explained that the multilateral trading system is in danger because the world’s largest economies are in a strategic competition where the winning tactics are perceived to require measures that violate the trade rules and reduce absolute trade levels. Ikenson cited the infamous U.S. tariffs imposed on imports from China in 2018 as evidence the United States was willing to flout the trade rules to defend its perceived strategic interests. He explained why the concepts of “most-favored nation” and “national treatment” – both bedrock WTO commitments to non-discrimination with respect to the treatment of imports and investment – are increasingly likely to be disregarded going forward.
Ikenson’s session discussed how we got here and what might the future hold. He suggested that neither the conditions nor the perceptions that have brought us to this point are likely to change anytime soon, as the US-China battle for technological and hegemonic preeminence continues.
He noted that U.S. policymakers began to worry about the geopolitical and national security implications of trading with a rising China as far back as the George W. Bush administration, intensifying in 2008, as the U.S. economy was going through a financial crisis and a deep recession. Meanwhile, China’s continued economic progress during the same timeframe fed perceptions that the US and China were trading places. Since then, China’s turning away from market capitalism in favor of an increasing embrace of state capitalism has generated enormous negative externalities, including reactions (and possibly overreactions) to perceived threats to U.S. technological primacy and national security.
The possible splintering of the global economy over intensifying U.S.-China strategic competition – a “new cold war” – portends a battle between Washington and Beijing to win the hearts and minds of the rest of the world. While US leaders have been somewhat tone-deaf in the past on the question of allies and may seem overconfident at times about the likelihood that other countries will side with the United States, cultivating and keeping allies through the use of carrots and sticks may become an increasingly important tactic, and a skill to hone when it becomes evident that many governments prefer not to have to choose between the United States and China. These considerations will dominate future discussions on trade and will guide strategic reglobalization.
ON STRATEGIC REGLOBALIZATION
● Ikenson noted that a central premise upon which the rules-based trading system was founded – that voluntary trade is not a zero-sum game, but a positive-sum game – has changed.
● The current system is in disequilibrium because it is premised on outdated conditions.
● Neither the conditions nor the perceptions that have brought us to this point are likely to change anytime soon, he noted.
● He dove into the recent history of the trading system showing data and explaining facts that sowed strategic reglobalization.
ON HOW COVID-19 AND THE WAR IN UKRAINE AFFECT THE TRADING SYSTEM
● He argued that the shortages of medical supplies during Covid amplified concerns that supply chain interdependence bred economic vulnerability, and was a catalyst for the supply chain resilience movement. Ikenson explained that the answer to supply chain vulnerability is diversification, which does not necessarily mean repatriation of supply chains or friend-shoring or making everything at home. It means having a variety of options. In his view, the war in Ukraine and the varied responses of countries to it have revealed that despite having a broad consensus on issues, countries may differ in their approach to solving problems. There is a very wide range of opinions out there and we cannot assume that we have commonality of interests.
● Covid and the war in Ukraine, are ‘momentous’ issues. They increase levels of insecurity and induce governments to look for the best alternatives.
ON SANCTIONS
● Ikenson said that, in general, sanctions are an expendable resource and they have to be multilateral in order to be effective. All the major economies need to be on board including all the major buyers or producers of a particular commodity that has been embargoed or boycotted.
● He warned that sanctions have costs and downsides. And noted that they must be multilateral, not unilateral to be effective and they should be used in rare circumstances, not as an everyday tool.
· Despite acknowledging their limitations, Ikenson argued that sanctions are a tool of warfare that is preferable to conventional warfare.
ON THE FUTURE OF THE WTO AND TRADING SYSTEM
● Ikenson said that the WTO is a great resource, a clearinghouse for trade knowledge and solutions, where economists, lawyers, and academics can share their expertise and where governments can convene to discuss trade, climate, and gender issues, but that its function as a forum for liberalizing trade and adjudicating trade disputes may be a thing of the past.
Achieving consensus, which is what the system requires, is much more difficult given persistent geopolitical tensions and disparate economic conditions and objectives among WTO members.
● However, the WTO may not go back to its original form but it can be morphed to serve a different purpose.
