The Politics of World Trade – Collision or Tactics?

W.T.O. was designed to be the new era of world trade, replacing GATT, which had maintained a fairly protective veil over nation’s imports with high tariffs for imports. But it had regulated the global paths and inter-actions and generally enabled the West to dominate the terms of trade with the developing world.

As the U.S.A., for political dependency reasons, allowed its consumer goods and assembly business to transfer increasingly to ASEAN and Japan, South Korea and Taiwan, so it found that its increasingly global corporations were being confined from free market entry into many of those countries and many others, by high tariffs.

The U.S.A. moved to create W.TO. in a world of globalisation to enable the free supply chains and easy and low cost sales chains to develop globally, providing the biggest ever boost to U.S.A. stock market world share. For the Europeans as well it provided significant opportunities to their major and powerful global corporations.

But the balance of power went too far and the U.S.A. and the UK in particular went aggressively along the road of creating monster financial services groups who knew no limit to their profit making and bonus creating businesses. At the same time the developing world, particularly China, but not just them, was beginning to awake to the inverted terms of trade as they sold cheap products to nations who sold them expensive ones.

This clash of interests came to a head at the Hong Kong meeting in 2005 of the Doha Round, when the new wave of lowering tariffs and barriers came to a sudden halt, and led to an outbreak of bilateral and regional trade deals, which go on today – ASEAN is one of many, many examples.

The USA refused to reduce and remove agricultural subsidies, as did the E.U., and the world was set from 2005 for an increasing politicisation of trade as the Americans, in particular, railed against cheap imports. Somewhat strange, as the main reason for having a highly valued reserve currency is to allow you to run a deficit with imported cheap raw materials and goods.

But the U.S.A. was faced with two challenges – trade and fiscal deficits which threatened the supremacy and confidence of the dollar. When the 2007 recession was followed by the 2008 financial crashes, the U.S.A. felt it had to act and return the world to a U.S.A. led world. This meant countering the emergence of ASEAN plus1/2/3 which had given China such a strong position in Asia, and BRICS, which had given those nations a developing power in the world, and SCO, which whilst initially a security based body in Central Asia to keep the Americans out, was increasingly becoming a trade and investment force spreading West and South as well as East.

The U.S.A. response has been, predictably (I first wrote about this in 2007) to circle the developed wagons by proposing a EU-NAFTA Free Trade Area and TPPA – a Transatlantic Pacific alternative to ASEAN which would include ASEAN members but exclude China and Russia, but especially China.

This is where we stand now with Japan deliberating accession to TPPA, and the U.S.A. pushing fast and hard to finalise these two new protectionist groupings within this year or early next year. I would guess two thirds of the world’s GDP would be within these two new groupings and access would then be limited to those who did not join up to the new rules.

The effect of this on countries like China could be very serious, although they anticipated this five years ago and started switching their trade away from the U.S.A. and the E.U. so that now less than 50pc of their trade is with those two blocks.

But China wants and needs to be in trade with these blocks and countries like Germany are not going to want to be part of a cartel that excludes the China market, especially when Snowden has shown that it has at its centre a non-trusting leader.

Such moves have led to war in previous eras of the world’s history as those who have circled the wagons towards those who do not and wish to climb aboard.

Has the world learned enough of 75 million deaths in the first half of the last century to work to avoid clashes of the rising and risen.

We shall see as the U.S.A. and China try to find a new basis and the Doha Round appears to be finalising, albeit with more limited goals. But the hard hats in Washington are now increasingly being matched by hard hats in China whose choice of weapons have been developed for the last 20 years in different theatres.

A conflict of power could lead to the collapse of the internet and global communications and systems.

It could lead to a massive death toll and destruction.

Let’s hope this is all scare talk and there is no real intent or thought of war. Let’s hope that President Xi knows where to make the concessions without impairing China’s long term goals. Let’s hope those in the U.S.A. and EU knows where to make the concessions to enable global growth and local growth to offset social disruptions, which are close to the surface.

As we know defeating the rise of Germany and Japan was handled with terrible consequences, and only for them to rise anyway. We have lessons to learn from history.

China and the UK as two Security Council Members can usefully broach this subject, so long as the UK is not too committed to the U.S.A. Special Relationship to the point of negating its global potential.

China will negotiate with the U.S.A. and the West, and the UK can be the honest broker if it wants to use its diplomatic skills to advance world trade and peace.

The U.S.A. cannot afford these wars and fights even though it has an enormous military budget. It needs its resources to rebuild old industries and restart others, and build the new ones of the future. American leadership will continue because of its innovation and business capability, not because it has big guns.

The Chinese will compromise with American power but not if a gun is held to its head. Knowing the difference between pressing China and threatening China is not something that comes naturally to the Americans.

A new role for a new Foreign Office approach perhaps?

Categories: Politics, UK, USA

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