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Trade war undermines global economic institutions

The rules-based international order is good for all. A trade war is disruptive to it.

Proponents

Context

The US played a critical role in establishing the post-WWII global economic order. The Trump Administration has now adopted a foreign policy that is hostile to that order. The trade war with China is a significant step in this direction.

The Argument

Traditionally, the US has been a powerful ally of the global economic institutions that have shaped international free trade since the Second World War. Some analysts fear that the Trump administration’s foreign policy will undermine those institutions. The trade war with China represents a significant movement in this direction. There are three main steps to this argument. The first step is the claim that strong global economic institutions are good for the world. This is because economic institutions promote a global order built on a shared set of rules, rather than an order structured around military strength and allegiance [1]. This ensures that countries are treated fairly on a wide range of economic issues, including market access and the protection of intellectual property rights. These are fertile conditions for investment and growth. An additional reason to celebrate global economic institutions is the shared facilities they provide [1]. These facilities lubricate commerce, as with systems which handle currency conversion, enforce customs rules, or allow for dispute arbitration [1]. Free-flowing international commerce is good for businesses and consumers worldwide. The second step is to recognize the centrality of the US in bolstering global economic institutions. The US was a central figure in the creation of the Bretton Woods institutions, including the International Monetary Fund and the World Bank (and what would eventually become the World Trade Organization). Some analysts attribute this involvement to the strategy of liberal hegemony, i.e. that the US would strengthen its global position by the proliferation of market-oriented democracies [2]. The US also plays a significant role in holding these institutions together in the current day, and correspondingly has the ability to seriously trammel their operations (more on this below). The third step is to understand the trade war with China as emblematic of a broader foreign policy direction by the Trump Administration. President Trump’s “America First” rhetoric, and the isolationist logic it embodies, represents a rejection of the rules-based global economic framework on the basis that they are ‘bad deals’ for the US (in his words) [1]. Among other things, he has threatened to withdraw from NAFTA [3] and has vetoed the appointment of judges to the WTO’s Appellate Body (severely hampering its functioning) [4]. The US is uniquely poised to damage global economic institutions – first, because it can directly interfere with their operations (as with the WTO), and second, because it can undermine confidence, diminishing buy-in and participation. This is why the trade war with China is significant. Taken in isolation, it might be construed as a bilateral dispute without further consequences elsewhere. In context, it is a significant step in a broader foreign policy which seeks to undermine global free trade and the institutions which secure its smooth functioning. For example, the WTO is intended as a dispute-resolution mechanism for international trade [5]. By engaging in a trade war as a means of dispute resolution outside of WTO arbitration, the US undermines faith in the WTO's ability to fulfil its function, thus diminishing buy-in and participation. [1] Posen, Adam S. Foreign Policy, “The Post-American World Economy” [2] Posen, Barry R. Foreign Policy, “The Rise of Illiberal Hegemony” [3] Levy, Phil. Forbes. “White House Eyes Explosive NAFTA Withdrawal Policy – What Could Go Wrong?” [4] Miles, Tom. Reuters. “Trump’s bonfire of the treaties sweeps towards the WTO” [5] World Trade Organization. "Understanding the WTO: settling disputes". https://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm

Counter arguments

There are two premises in this argument. The first premise is that the trade war undermines global economic institutions. Three problems stand out with this claim: First, this link is tenuous at best: a large number of trade disputes regularly occur around the world that don’t flow through global economic institutions, so it’s difficult to maintain the claim that this particular dispute undermines their credibility in any unique way. Second, this claim misattributes the source of the damage to global economic institutions. Even if it is true that the Trump Administration has attacked global economic institutions, the trade war did not cause those hostilities – it is the effect of a pre-existing antagonism with the global economic order. The trade war is the effect, rather than the cause, of this antipathy. So it is difficult to attribute the broader attack on global institutions to the trade war specifically. Third, this claim conflates the ‘global international order’ with the ‘US-led global international order’. If it is true, as the argument claims, that a rules-based international order is beneficial for countries in general, then they will continue abiding by a rules-based order – just without the US at the helm. We see this already with free trade agreements like the Trans-Pacific Partnership proceeding, absent the US. The rules-based order will survive, with a potential reorganization without the US at its center. The second premise is that global economic institutions are good for the world. If it is true, as President Trump claims, that these institutions stack the deck unfairly, then this premise is not obviously true, though it is worth noting that the Trump Administration has not supplied strong evidence to that conclusion.

Premises

1. The trade war undermines global economic institutions 2. Undermining global economic institutions is bad for the world

Rejecting the premises

Response to [1]: The trade war does not undermine global economic institutions in any serious way; they will endure, potentially without the US at their center. Response to [2]: Global economic institutions are not of serious importance to the world.

References

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This page was last edited on Monday, 20 Aug 2018 at 01:12 UTC