WHEN ELEPHANTS FIGHT- GRASS SUFFERS – RIP WTO

We generally accept fact as everybody’s truth while fiction becomes story with a twist and then equality & justice are amorphous concept, and at best, is a subjective truth. We find these ideas often at loggerheads with most religious beliefs, cultural moorings and social practices.

The world was never created equal; we should have fundamental clarity on this. All resources across the globe are cornered by men by power of their swords & never by equality and justice principles. Till date, the conflicting tendencies are visible across continents and would remain- it is our DNA and it is our history. It is our nature and is our social moorings to “have more”.

This same propensity to “have more” has extended itself as trade wars as incongruity is not out of greed, but is in the absence of finding a common ground. Sovereigns often forget that grip to power lies in not using it, but in ceding a bit of it to others to retain a podium position. 

Trade wars are the new conflict zones and potential time bombs that are bound to lacerate the world orders of dominance. Tariffs hikes are the first salvo fired in bilateral tensions that are multilateralizing and injuring global economic integration, coupled with ever more intense technology competitions and worse- thefts of it.

The evolving global trade and technology conflicts are the outcome of ever more worried Sovereigns discarding its multilateral cooperative stances for dominance in trade policies.

In the worst case, these conflicts may escalate into a “decoupling” of global economies and cause long lasting global recession and new geopolitical confrontation. It has potential to destabilise Far East, Asia, Middle East, Europe and America itself.

Trade frangibility could easily convert the world to universal conflict zone where any “ism” would need to be defined afresh.

Let us now get in the specifics of these globalised conflicts- USA- China- West & others.

In 2000, China’s economy was barely a tenth of the U.S. GDP. But after China became a member of the World Trade Organization in 2001, its export-led growth soared in the course of less than two decades; China rivals GDP of USA to the extent of two thirds by nominal GDP count. By PPP method, it is a different story altogether.

Globalization peaked after China joining the WTO in 2001 and the global financial crisis in 2008. Due to rising trade tensions and increased economic uncertainty, the WTO warned that global trade growth is losing momentum and that downside risks have grown in the global economy.

From Trade Tensions to Trade War has a short but a swift history that escalated only in 2016 when China peaked in global trade and Trump got up on pedestal.

If multilateral free trade is no longer what the United States wants, what does it want now? The U.S.-Mexico-Canada Agreement signed recently may serve as a blueprint of the USA’s new muscular trade stances. The Agreement is has restrictive clauses for Sovereign States to prevent deals with China!!!

USA has already dropped a bombshell by declaring that it may ignore WTO rulings that are not in its favour. That is an alarming signals that the bell would toll for world trade orders under WTO. But there is no surprise here when one traces the WTO history to UNCTAD from 1964 onwards- It has a history of missteps, regrouping and walkouts.

Clearly, I see, a collapse of multilateralism in world trade order and significant changes in WTO trade rules much before the pandemic din dies down- that would be swift.

The casualties would not be China or USA or G7 or G20 nations, but would be the Least Developed Countries (LDC) that are allowed hiking of tariff under “Bound Rate” Rules under WTO. They were insulated to a large extent by trade rules that provided them gateways to hike import tariffs to protect domestic industries and some extent bilateralism and regionalism trade orders that existed prior to WTO rules at concessional tariff sidestepping WTO rules.

The economies of emerging economies and LDC’s would undergo a gravel shift- weakening them further. They would lose their toehold in global trade completely, especially the African, Latin American and parts of Asian countries.

They were the “Birds of a Golden Cage” who were unable to fly but were fed just enough to keep them alive. These countries never had sufficient “critical mass” to meet their domestic needs, yet were part of WTO multilateralism trade orders.

It defies wisdom that how they could possibly ever benefit from such trade deals, when their sustenance models are based on global grants and subsidies, how could they possibly participate in global export markets when they have insufficient to meet domestic need?

I have been questioning such wisdom for last twenty five years when WTO came in fruition that how such LDC & weaker economies could benefit with a WTO trade deal?

Now, with the golden cage about to go soon, they would lose their ability to fly as well and would lead to a massive collapse of such economies, pushing millions and millions of people in such countries below the poverty lines as defined by UN- less than a dollar a day income!!!

China is still an export oriented economy and for more than a decade, they are trying to rebalance by drawing increased support from domestic demand, China be better able to withstand the pressure of tariffs and other actions that are aimed at its exporters and the truth is that China need not be so worried about US, as it also depends on China to support its own exports. The supply chain matrix is so complex today that no nation that is in export & Import is insulated from the intractability of interdependence of global trade orders. 

China also is the largest holder of U.S. Treasury securities – some $1.5 trillion that has given China a leg up in even managing currency & therefore, US would ultimately get out of its hostility post this election by year end 2020.

Therefore, to single out China as the villain in the American conundrums, when in USA should take a hard & careful look in the mirror to reflect upon its series of mistakes that has weakened the US position globally for decades and blaming China alone of its mess would not be right.

A low-saving economy can't escape without trade deficits. The net domestic saving rate in USA is headed toward zero or even lower & that should be the topmost worry for US.

The US trade deficits are likely to widen sharply in coming days and if reckless protectionist actions are not kept in abeyance, then global recession would just prolong much longer because two large Sovereign nations decided to fight a trade war.   

But it takes two to tango- China’s dishonest commercial practices are far more dubious than the legitimacy that it wants to project. Intellectual property theft and state aid issues are a significant source of controversy. The western economies know this day one and yet allowed to continue such practices without raising and acting on the red flags.

Industrial copying & Intellectual property thefts are not only the result of cutting-edge industrial espionage but also a widespread practice that is encouraged by state in China.

The problem of state aid is common in all countries to compete globally, but Chinese government giving local businesses an advantage over their competitors opaquely. There is no level playing field when one is trying to compete with Chinese goods.

 The rise in bilateral agreements entails both opportunities and risks for the multilateral negotiating system. The WTO will then become a chatterbox where nothing meaningful can be agreed. USA by this rhetoric is definitely harming multilateralism that it espoused and helped form WTO. The political will of major powers is a prerequisite for reforms & systemic changes in the global economy.

WTO was fit to regulate 20^th and early 21^st century trade, which was based on cross-border product sales and market access, but current 21st-century trade is a multi-way flow of goods, services, knowledge, investments and professionals that builds an eco system for trade.

Eventually, WTO might remain in place for the resolution of old-fashioned disputes of the likes of ethical work practices, pollution, fair compensation etc, but more complex issues, zonal trade balances, country specific trade deficits & reciprocatory trade would get resolved through bilateral agreements. WTO would see its role getting diminished.

This is where we finally come to the real problem of trading with China, which is not unique to the US—Europe, but the other innovation centres also faces identical risks. As national security partners, the US and the EU also share more specific concerns, such as over-reliance on China’s ICT infrastructure or other future technologies. This imbroglio in essence is the fight for dominance over 5-G technology that US & West is not willing to cede to China.

While China sees 5-G as an opportunity in multi trillion Dollar trade and USA is unwilling to accept relegation that it claims at its own & blames China just being a plagiariser.

When it comes to who triumphed in the multi trillion global races to launch the world’s first 5-G next generation wireless network, the winner is depending on who you ask as there are many claimants to the fame- AT&T, Verizon, Samsung, Huawei, Ericson & others as well.

Given the rise in Europe of political populism, their supporters are broadly similar to those of US in socio-economic terms; the broader trade-policy concerns of the US and the EU appear almost identical and have a common adversary- China.

Countries would need more political space to defend their domestic economic priorities and that must be respected. The trade relations framework needs to be made more flexible to encompass national interests instead of creating more inflamed conflict zones.

 Globalisation, if doesn’t embrace all in a society, is a failure if in developing countries the worker class has not  benefitted from more income as the country improves its global trades. To that extent, China has done remarkably well and has moved to middle income country.

This has sadly not happened in real term basis on a global basis. In the US context, the main losers from globalisation are unskilled workers, whose real income has remained unchanged for last 30 years. 

The tale of such woes in developing economies in Asia, Latin America, Africa & European nations, outside EU, is a sordid tale of exploitative practices. Migrant workers’ crisis of India is stoic and sordid reminder of exploitative labour practices in developing economies.

It has become a trendy political rhetoric to blame other countries for trade deals & yet international trade has played an essential role in the economic success of the US, Europe, many others and China. However, despite commercial and financial successes, specific marginalised group there faces an existential threat to their way of life and income.

The core of current trade wars are not over toys for the big boys & flying machines or metal tubes spitting fire or over resource cornering in Antarctica or in Africa or just seeking incremental market shares- those are interchangeable resources having no one’s monopoly, but are pivoted around technologies that have potential to generate trillions of Dollars make for years whosoever is able to claim that fame and patent it by making the first strike.

The economic effect of the trade war imposing trade restrictions inevitably brings about an economic recession. Thus, one of the possible short-term consequences of the escalation of the trade war is an economic crisis, accelerated by COVID 19, where doing trade a near impossibility and if blame game & propaganda politics by two largest economies doesn’t stop, the intricate clockwork of the international economy stops.

The common enemy that the world has today is the pandemic & its contagion effect on global economies that is crippled to a point of desperation for most countries- that needs a solution & not trade & tariffs wars.

There is no place and time in a busy world for hostilities, animosity and trade wars. There won’t be a redeemer after this as in finality the crisis of dominance of leadership pole position.

They say in Africa- WHEN ELEPHANTS FIGHT- GRASS SUFFERS. The less endowed nations- the grass, on which the elephants fight is silent and clueless and is suffering.

 

June 17 2020