The economic consequences of the pandemic have been devastating. Lessons from past crises, however, have meant that fiscal and monetary policy, as well as a modest degree of international cooperation, put a floor on the economic downturn. But a necessary condition for full economic recovery is to maintain open markets. The Great Depression of the 1930s showed that retreat to protectionism prolongs economic downturn.
That long stagnation of the 1930s led to the rise of nationalism, fascism and then world war. The Bretton Woods institutions were forged in the aftermath of the world war to avoid these mistakes and the breakdown in international cooperation that led to global disaster. The foundation of the post-war global order also saw the declining power — the United Kingdom — working with the rising power — the United States — and others to enmesh the United States in rules to protect Britain’s core interests in a new multilateral economic order.
In the face of a rising and more assertive China, the United States under Trump has been trying over the past four years to undo the existing rules and rewrite them unilaterally. The Bretton Woods institution that was most seriously threatened has been the multilateral trading regime.
This year was the World Trade Organization’s (WTO) 25th anniversary after it expanded in scope and scale from its predecessor, the General Agreement on Tariffs and Trade (GATT). There was little to celebrate on the WTO’s miserable 25th birthday. Its rules are out of date, its appellate body no longer has judges so rulings are no longer binding, and the world’s largest economy was undermining it, including by doing a deal with the world’s second-largest economy that violated the WTO’s core principles.
Many hope that President-elect Joe Biden will return the United States to a leadership role in the global economy. But will multilateralism return?
A Biden administration can have a prompt and positive impact by rolling back the Trump administration’s unilateral trade actions and ‘provide immediate oxygen to the WTO’, as Bernard Hoekman argues in the first of our two feature articles this week.
Removing all of the Section 232 ‘national security’ measures that Trump imposed and freeing up and facilitating trade in goods — including vaccines — that can help COVID-19 recovery, will make an immediate impact. ‘The Biden administration stands to gain immediate international goodwill’, Wendy Cutler argues in a recent piece, ‘by lifting the US reservation on Ngozi Okonjo-Iweala for director-general [of the WTO]’. The United States can lift its veto on the new judges for the WTO’s appellate body, as well as for the director-general.
It’s moving beyond the easy wins from ceasing to play spoiler that may be more difficult.
Hoekman explains that ‘consensus decision-making and member driven governance have diminished the WTO’s effectiveness’. The single undertaking where nothing is agreed until everything is agreed no longer delivers progress.
Progress on rules and new institutions may be more easily made in plurilateral agreements — groups of countries making progress in particular sectors. There have been some promising signs with investment facilitation, e-commerce and environmental goods.
Rules are being developed and trade liberalisation is advancing beyond the WTO as well, for example in mega regional agreements. Some large bilateral agreements have set standards and used to open up markets, but larger groupings hold more promise and make a clearer positive global impact.
One big question is whether a Biden administration is able to rejoin the Trans-Pacific Partnership, to the negotiation of which the United States was central until President Trump nixed participation during his first days in office. In a second feature this week, Phil Levy explains that ‘popular aversion to the TPP [in the United States] had more to do with its symbolic nature than its actual content’. Rejoining would seem unlikely, Levy suggests, given that Biden would ‘need to expend political capital on trade agreements at a critical, early stage of his presidency — exactly what he vowed not to do’.
Japan, with help from Australia, New Zealand, Vietnam and Singapore, saved the TPP after the US-sized middle fell out of it. Those countries have also recently signed the Regional Comprehensive Economic Partnership (RCEP) agreement along with all other ASEAN members plus China and South Korea. Levy explains that ‘while there may be a willingness to bring the United States back into TPP, there may be limited appetite for new negotiations’.
Much of the US approach to trade policy and the WTO will be driven by strategic positioning vis-a-vis China. Biden’s choice of Antony Blinken for Secretary of State and Katherine Tai as US Trade Representative point to a continuation of Trump’s China policy under Biden.
The difference from Trump is likely to be that a Biden administration will work with allies to confront China and use theatres like the WTO to effect that global economic alliance. Biden will have a number of willing partners, with Australia first in line. That doesn’t necessarily bode well for multilateral outcomes and broader global interests.
WTO rules need updating and much of the updating that is needed has to do with the pressures that a rising China is putting on the system. But there are many issues of mutual interest between China and the United States that arise from new challenges including in technology, digital trade and climate change. Those issues will require give and take on both sides and not alliances that merely seek to force China into unilateral concessions.
The return of multilateralism will be short lived if it consists of a US-led alliance against China. China is not the source of everyone’s problems — it is part of the solution to many of them. As the world’s largest trading nation and largest source of growth that is leading the recovery from the coronavirus recession, it is neither an enemy or a country that can be contained. To try to force China into a set of modern-day unequal treaties will end in tears.
The United States will have to work with China and the rest of the world to enmesh both into new rules before the rising power becomes too big and isolated. Some believe that China already has no appetite for being bound by international rules. China’s commitment to Asia’s RCEP agreement and declared interest in joining CPTPP offers hope that things might be otherwise.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.