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Friday, June 05, 2020

All major economies will be drawn into US-China contestations over international trade

Significant political contestations within the US and between the US and China to reform, reorient or bypass the WTO system are at hand. All major economies will be drawn into this conflict.

Written by C. Raja Mohan | Updated: May 12, 2020 9:15:34 am
All major economies will be drawn into US-China contestations over international trade Even without the COVID-19 emergency, the questions of foreign trade and China would have been quite central to Donald Trump’s re-election campaign. (File)

Abolish the World Trade Organisation is the kind of demand you would expect to hear from diehard opponents of free trade on the left and right extremes of the Indian political spectrum. But it has come in a forceful article published last week in The New York Times by a US senator, Josh Hawley, from Missouri.

In his essay, Hawley says the emergency triggered by the corona pandemic is not a mere health crisis. With millions of Americans unemployed, “it is also an economic crisis. And it has exposed a hard truth about the modern global economy: it weakens American workers and has empowered China’s rise.”

Opinion | Both US and China face internal credibility crisis

Calling for a sweeping reform, Hawley wants the US to begin by abandoning the WTO. Hawley acknowledged that under WTO, “capital and goods moved across borders easier than before”; but added, “so did jobs”. “And too many jobs left America’s borders for elsewhere. As factories closed, workers suffered, from small towns to the urban core.”

Hawley’s attack is not limited to the trading system. He takes on the mythos of the “liberal international order”. He derides America’s post-Cold War crusade to overturn the system of sovereign states into one without borders and supra-national institutions in the name of lasting peace and prosperity.

“That new order’s universal peace never quite arrived”, says Hawley. “Instead, the internationalists embroiled America in one foreign war after another. And their liberal economic order fared little better. It sent American production overseas, compromised American supply chains, and cost American jobs, all while enriching Communist China.”

Opinion | COVID-19 has sharpened US-China conflict

Hawley’s critique of the WTO and liberal international order was quickly panned by economists and editorialists as wrong in fact and theory. But Hawley is not looking for good grades from his professors. He is making an important political point amidst a major crisis within the US that has come bang in the middle of a general election.

Even without the covid-19 emergency, the question of foreign trade and China would have been quite central to Trump’s re-election campaign, as they were in the 2016 elections. The choice of former Vice President Jo Biden as the Democratic nominee has made trade and China even more important in this election.

Unlike Bernie Sanders, the Democratic rival for the nomination, Biden has been a strong champion of free trade and of economic integration with China. The Trump campaign is determined target his record on these two issues to secure the crucial vote of working people in the American heartland. Hawley is simply channeling the essence of that argument that is expected to be decisive in this election.

As the Trump campaign whips up the theme of “Beijing Biden”, the Democrats can’t afford to be seen as defending China and will find hard to be more hawkish than the Republicans. On trade issues, the Democrats are signalling a tilt to the left, but can’t afford to break with powerful backers in the Wall Street and Silicon Valley, who are deeply committed to globalisation. Trump is eager to probe these contradictions.

After his OpEd in the ‘Times’, Hawley has moved a resolution in the US Senate asking Washington to walk out of WTO. The last time the US congress discussed such a resolution was during 2005. The House of Representatives had thrown it out with a massive margin of 338-86.

But trade politics in the US have evolved significantly in recent years. Under Trump, the Republican Party has turned from the champion to a critic of free trade. The Democratic Party, which embraced globalisation since the early 1990s, has seen the erosion of working class support. Elections this year could reveal if the shifting alignments on trade are now cast in stone and if anti-trade sentiment in America is deep and wide.

In replacing the WTO, Hawley says, “the United States must seek new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty”, he suggests. This in turn involves, “building a new network of trusted friends and partners to resist Chinese economic imperialism”.

As it takes a fresh look at the global economy battered by the coronavirus, Delhi should pay close attention to Hawley’s theme on working with “trusted friends and parters” to restructure international trade. Hawley is not alone in articulating this view. Last week, Reuters reported from Washington that the Trump Administration is “turbocharging” an initiative to rearrange the global supply chains currently centred on China.

Significant political contestations within the US and between the US and China to reform, reorient or bypass the WTO system are at hand. All major economies will be drawn into this conflict. Hobbled as it was by shaky political coalitions and preoccupied by multiple domestic challenges, India in the mid-1990s struggled to cope with the profound changes in the global economic order. As the world trade system arrives at a contingent moment a quarter of a century later, India is hopefully better prepared.

The writer is Director, Institute of South Asian Studies, National University of Singapore and contributing editor on international affairs for The Indian Express.

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