American-style protectionism is undermining global trade and the economic development potential of developing countries

文章信源：Project Syndicate

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Over the past half-century, the World Trade Organization (WTO) and the multilateral trading system, which have been key drivers of global economic growth, are now under serious threat from the growing fragmentation of global economies. The paradox is that the threat comes from the United States, an old advocate of trade liberalization.

In the nearly 50 years since the end of World War II, the United States has led global trade liberalization through the General Agreement on Tariffs and Trade (GATT). In 1994, the United States convened 123 countries to sign multilateral treaties and established the World Trade Organization, which included GATT and expanded its scope to include trade in services and intellectual property.

Paradoxically, America's current industrial policy poses an existential threat to the multilateral trading system it has worked so hard to build. In Washington, there is now a bipartisan consensus: the WTO has failed to defend America's vital economic interests and has inadvertently created a formidable geopolitical adversary by allowing other powers to exploit the system. This consensus has prompted both Democratic and Republican-led governments to take steps to shake the foundations of the World Trade Organization.

Beginning in 2016, the United States began refusing to appoint new judges to the World Trade Organization's dispute settlement body and preventing judges whose terms of office had expired from continuing to serve. As a result, by December 2019, the number of judges in the body had been reduced to just one, well below the standard of a minimum of three judges needed to try cases. As a result, there is currently no effective mechanism to resolve trade disputes between WTO members, significantly increasing the likelihood that member countries will violate their legal obligations.

Unsurprisingly, the United States itself is a serial violator. In 2018, then-President Donald Trump imposed tariffs on imported washing machines and solar panels as the dispute settlement body effectively shut down. This was followed by the Trump administration's announcement of additional tariffs on aluminum, steel, and a wide range of Chinese goods.

Instead of removing Trump-era tariffs, Biden has erected more trade barriers: such as a $1 trillion industrial policy that subsidizes the production of semiconductors, electric vehicles, and offshore wind power (which would give these industries a price competitive advantage in the global market, potentially hurting their counterparts in other countries). Putin's invasion of Ukraine has led to massive Western economic sanctions against Russia, which has further complicated the already uncertain outlook for global trade. In addition, Trump has vowed to impose a universal tariff of 10% on most imports if he returns to the White House in 2025.

So far, these measures have not significantly harmed international trade. Global merchandise exports rebounded strongly after the pandemic, growing from $19.5 trillion in 2018 to $22 trillion in 2021 and $25 trillion in 2022. The impact of U.S. tariffs and retaliatory measures taken by its trading partners on the economy has been relatively small. U.S. merchandise trade – even with China – remains strong, despite the impact on imports of steel, aluminum and Chinese goods. Most importantly, the U.S. economy continues to grow rapidly, thanks to a large and highly competitive domestic market.

The situation is not the same for most developing countries. With rare exceptions, such as South Korea, Singapore, or other small East Asian economies, the entire Third World began to embrace trade openness after the establishment of the WTO. As a result, domestic support for the foreign policies of these countries remains very weak.

In such a situation, the U.S. shift to trade protectionism will covertly undermine trade openness in two ways.

First, it fosters a protectionist mentality. When the United States, the world's leading advocates of trade liberalization, begin to adopt protectionist measures, it will send a signal to other countries that they may also benefit from protectionism, which may encourage them to return to the development strategy of "substituting imports with local production".

Protectionism is an economic policy that imposes higher tariffs, caps on imports, or other reductions in imports in order to protect domestic industries from foreign competitive pressures. ）

Second, leaders in developing countries often face domestic political pressures to respond to U.S. tariffs that hurt their exports. India, for example, has also imposed tariffs on U.S. imports in response to Trump's tariffs on steel and aluminum. But even large economies like India lack the market power to hurt the U.S. economy, or that the main costs of such retaliatory tariffs fall on its citizens, which seem to matter more than responding to nationalist sentiment.

Given that developing countries' domestic markets are much smaller than those of the United States, free trade policies have played a more important role in driving their economic growth. The rapid growth of China, India, Bangladesh and Viet Nam since the establishment of the World Trade Organization (WTO) has highlighted the benefits of open trade – and how recent disruptions to the multilateral trading system could jeopardize the economic prospects of many developing countries.

While there are potential solutions to global trade fragments, geopolitical dynamics and the self-interested agendas of the great powers pose significant challenges. Still, in the face of a disintegrating global economy, those countries that manage to keep their markets open and conclude free trade agreements with as many partners as possible have a higher chance of weathering the current storm.

About the Author:

Arvind Panagariya is a former vice president of India's National Institute for Transformation, former chief economist at the Asian Development Bank, and professor of economics at Columbia University's School of International and Public Affairs.

Translator:

Xiao Gena: A reserve who is unemployed after graduation, but still full of leisure (or urgency) to do a lot of things other than survival.