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7 Days That Shook 7 Decades Of World Trade

It took seven decades after World War II to put together a system of free trade around the world. That system has been rocked in just the past seven days.

Last Tuesday, congressional Democrats agreed to an updated trade agreement with Canada and Mexico. Three days later, China agreed to its own, preliminary trade pact with the United States.

“Friday was probably the most momentous day in trade history ever,” U.S. Trade Representative Robert Lighthizer told CBS.

Both deals purport to foster cross-border trade, but they also include protectionist measures. And to get there, Trump put up roadblocks — ordering stiff tariffs against Canada, Mexico and China.

“It does show that President Trump’s example of being a tough, hard-nosed bargainer on trade and economic matters works,” White House economic adviser Larry Kudlow told Fox News.

That same week, conservatives in the U.K. won a resounding victory in parliamentary elections and Prime Minister Boris Johnson vowed to push forward with Brexit, “no ifs, no buts, no maybes.”

On both sides of the Atlantic, populist leaders are challenging long-established notions of how trade should be conducted.

“We have leaders today saying they want to be connected to the world, but only on terms that they dictate and only according to the criteria for what constitutes ‘winning,’ ” said Matthew Slaughter, an economist who served in the George W. Bush White House.

That zero-sum approach is at odds with the rules-based international order that the U.S. spent decades helping to build.

While Johnson is bent on withdrawing from the European Union, Trump is kneecapping the World Trade Organization. Trump has blocked appointments to the WTO’s appellate body, which lost its ability to referee trade disputes last Tuesday.

With no referee, Trump is freer to follow his own protectionist instincts, slapping tariffs on friends and foes alike. Critics say when other countries follow that example, the global economy suffers.

“If we’re all going to go out unilaterally and just impose tariffs, it’s going to have friction. And friction can explode,” said former U.S. Trade Representative Carla Hills.

Tariff battles in the 1930s contributed to the Great Depression and the war that followed.

“Most historians look back and say the economic frictions were the match that ignited the fire,” Hills said.

After the war, the U.S. and other countries worked to build a rules-based international trading system in hopes of fostering peace and prosperity and preventing stronger countries from taking advantage of others.

To be sure, that system hasn’t worked equally well for everyone. While some American industries have thrived with greater access to global markets, others have suffered from overseas competition.

Slaughter, who is now dean of the Tuck School of Business at Dartmouth, said populist leaders like Trump and Johnson may be well-intentioned in catering to those who feel hurt by globalization. But he warned that protectionist trade agreements and a withdrawal from global engagement are not the answer.

“Most people don’t want just walls,” Slaughter said. “They get that globalization in general is good. What they really want are bridges that will build ladders of opportunity at the same time so people have a chance to thrive and benefit from all the dynamism of innovation and globalization.”

The last seven days have exposed deep cracks in the global trading system. The months to come will show whether those cracks can be repaired or the system is bound to crumble under populist pressure.

Copyright 2019 NPR. To see more, visit https://www.npr.org.
 
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