Last week, the administration of US President Donald Trump announced its withdrawal from the world’s oldest international organization, the Universal Postal Union (UPU), in protest of its unfair rates favoring China. This latest assault by Washington is not only designed to target the preferential treatment enjoyed by China under the global postal system, but also to indicate another radical attempt to overturn the existing multilateral trading system.
With the capacity to process about half of the world’s mail, the US is a heavyweight in the 192-member multilateral organization. Despite its significance, the US’ appeals to reform the global postal rate system, which gives preferential advantages to developing countries, including China, have been largely ignored over the years.
If it were not for White House trade adviser Peter Navarro’s open letter published in the Financial Times last month — which pointed out the odd reality that it costs more to ship a package between cities in the US than to ship the same package from China to the US — many people would not have realized that the export competitiveness of Chinese goods overseas, to some extent, is caused by the twisted global postal rate system.
The Trump administration has decided to pull out of the multilateral organization, demonstrating its firm resolve to address the unfair shipping system, and revealing its firm determination to defend and protect US interests.
As global economic prospects are being increasingly overshadowed by the ongoing trade war between the US and China, many Western mainstream media, liberal economists and commentators have unequivocally lashed out at Trump’s trade policies.
They claim that Trump’s unilateral approach would not only have devastating impacts on the global trading system, but will eventually undermine the US economy and sabotage US interests.
Despite the disparagements, Trump’s tough trade stance toward China has largely received bipartisan support in the US Congress.
The finalization of a revamped US-South Korea free-trade agreement and the US-Mexico-Canada treaty, or NAFTA 2.0, suggest that Trump’s unilateralism has made significant achievements in making better trade deals for the US.
Nevertheless, Trump’s economic nationalist proclivity, and preference of unilateralism and trade protectionism have dramatically collided with the fundamental principles of the current global trade order, which was mainly orchestrated and established by the US after World War II, with visionary goals of constructing a multilateral trade system to facilitate a free and open global market.
Against this backdrop, the so-called Bretton Woods system emerged to become the most influential economic structure in fostering global economic growth and stability in the post-war period.
The IMF, World Bank and General Agreement on Tariffs and Trade (GATT), which became the WTO in 1995, are the most significant pillars in the post-war liberal economic world.
With its predominant economic position after the war, Washington’s unwavering support for the liberal economic order has been key to sustaining it for more than six decades.
It is not because of Washington’s altruism, but because the liberal elites genuinely believed that a free and open multilateral trade order would benefit the US in the long run.
As a result, the US supported the GATT to undertake a series of tariff reductions and the formation of the WTO. To maintain and expand the liberal trade order, the US opened its domestic market to foreign goods and established the Generalized System of Preference to offer favorable tariffs to developing countries, among other measures.
However, Washington’s generosity in providing these “international public goods” has not been due purely to being a “benevolent hegemon,” but because doing so serves its national interests and helps consolidate its economic supremacy in the world.
Now, the situation has changed. The dysfunctional WTO cannot force its members to abide by the principles of non-discrimination and market mechanisms.
Neither can it tackle countries like China that pursue unfair trade practices with massive state subsidies and industrial policies.
Furthermore, the WTO has also fallen short of making significant progress since the failure of the Doha negotiations in 2012.
Given that the global trade system is unable to provide sufficient interests to the US, and a fair amount of Americans consider that they are being exploited by globalization, it is no surprise that Trump, upholding his “America first” policy, has gained broad support among middle-class Americans, which enhanced his momentum to demolish the global trade order.
Essentially, Trump’s trade policy has had four dismantling effects on the global trade order.
The first is dismembering regional trade agreements and to prioritizing bilateral trade negotiations over multilateral trade negotiations.
Since his inauguration last year, Trump has pulled the US from the Trans-Pacific Partnership, suspended the Trans-Atlantic Trade and Investment Partnership with the EU, and launched renewed trade talks with South Korea, Mexico and Canada.
By utilizing bilateral trade negotiations, Trump believes that the US could strike better deals with its trading partners and gain more than what it could get in multilateral trade negotiations.
The second is undermining free trade and to prioritizing the importance of fair trade and reciprocity.
On numerous occasions, Trump has said: “Trade should be fair and reciprocal,” and “I believe strongly in free trade, but it also has to be fair trade.”
These remarks imply that Trump regards fair and reciprocal trade as a prerequisite for free trade.
As some nations pursue unfair trade practices, Washington is justified in adopting punitive trade measures against them, without consideration of violating the spirit of free trade. That is because the Trump administration values fair and reciprocal trade more than free trade.
The third is utilizing unilateral trade measures to leverage the US’ bargaining power.
Despite the US Trade Act of 1974 granting the US president a prerogative of utilizing trade sanctions to punish any “unjust” trade practices by foreign countries, Washington has rarely initiated trade investigations since the formation of the WTO.
However, in the past two years, the increasing number of cases suggest that the Trump administration is more willing to impose unilateral trade retaliations to compel concessions from its trading partners, rather than appealing to the WTO’s dispute settlement mechanism.
The last is undermining the authority and legitimacy of the WTO.
Since his election campaign, Trump has been slamming the WTO, saying that it is malfunctioning.
He has repeatedly threatened to pull the US out of the WTO if the organization fails to reform.
Trump’s 2017 Trade Policy Agenda clearly indicates that if a WTO dispute settlement report is “adverse to the United States ... it does not automatically lead to a change in US law or practice.”
In other words, the Trump administration’s policy is to disregard the WTO’s legitimacy.
Furthermore, his administration has also questioned the power of the WTO’s dispute settlement system and the findings of its appellate body.
As a result, by refusing to approve the judges of the WTO appellate body, Washington has deliberately debilitated the function of the WTO.
The four points indicate that Trump has intended to dismantle the legitimacy, authority and functions of the WTO by emphasizing fair and reciprocal trade, utilizing unilateral trade measures, deserting multilateralism and paralyzing the WTO’s dispute settlement mechanism.
Those destructive impacts are likely to bring the global trade order to a chaotic predicament.
As it is unlikely that the WTO will undertake significant reforms and the US-China trade conflict will end in a truce, there seems no instant solution to prevent the global trade order from further toppling.
So, what is the future of global trade?
One scenario is likely: If the trade war continues to escalate, an anti-China trading bloc led by the US might emerge to contain Beijing, which would certainly invoke countermeasures.
This bleak development would further split global trade into two blocs and pave the way for further escalation of conflict.
Eric Chiou is an associate professor of international political economies at National Chiao Tung University.
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