One hundred years ago this week, then-US president Woodrow Wilson began selling his “Fourteen Points” to a war-weary Europe and the Middle East. He started with an address to a joint session of the US Congress, proposing a new liberal international order to be installed at the end of World War I; one anchored, in part, around free trade.
To secure lasting peace in Europe and the world, point three called for “the removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the peace and associating themselves for its maintenance.”
Wilson believed that the so-called Great War resulted, in part, from the mercantilist empires that still controlled some of the European continent and their beggar-thy-neighbor policies that prevented free trade.
Last year, the new US administration took steps that began to undo much of Wilson’s vision. The day US President Donald Trump was inaugurated, his first act was to inform the members of the nascent Trans-Pacific Partnership (TPP) that the US would not be ratifying the regional trade pact.
With the demise of the Doha round of trade negotiations under the WTO, the TPP was positioned as a new era of trade — one that bound together 12 countries around the Pacific Rim. Former US president Barack Obama had staked his administration’s foreign policy on a “pivot to Asia” of which the TPP was a main pillar.
Also last year, after threatening to withdraw from the North American Free Trade Agreement (NAFTA), the regional trade pact that the US had entered into with Canada and Mexico in 1994, Trump demanded renegotiations — talks that have reportedly not gone well. Canada and Mexico are preparing for what is likely to come: a world without preferential free trade with the US.
The US trade representative, US congressional leaders and other economic nationalists stateside are targeting the WTO and its inability or unwillingness to hold the People’s Republic of China accountable for failing to follow international trade regime rules.
None of this should come as a surprise. Since June 2015, when Trump announced his candidacy for the Republican Party nomination to be US president, he railed against “horrible free-trade deals,” including the 24-year-old NAFTA and the TPP, the negotiations of which had just been concluded by Obama.
Trump’s “America first” speech at the APEC summit in November last year in Vietnam made clear that his administration will agree to trade agreements only when they benefit the US.
“We are not going to let the United States be taken advantage of anymore,” he said.
However, self-interested bargaining has always been the mainstay of international trade agreements. It is the basis upon which the entire global trading regime has been constructed.
In 1817, British political economist David Ricardo explained the theory of comparative advantage — all countries can benefit from trade, even though each might be at a different level of development and technological progress.
Trump recognized this in his APEC speech: “I am always going to put America first, the same way I expect all of you in this room to put your countries first.”
In the end, he is right: No country will enter into a trade agreement if it is to its detriment.
Yet, the Doha round of the WTO to create a new set of trade agreements is essentially stillborn, locked in failed negotiations over nationalistic agricultural policies of countries to appease farm lobbies, the harmonization of some service sectors and the problems associated with harmonizing rules among developed countries and less developed countries.
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