A trade war that threatens the rule of law

By Yves Faguy April 5, 20185 April 2018

A trade war that threatens the rule of law

The Economist offers up some numbers:

According to the Peterson Institute for International Economics, a think-tank, America’s list covers Chinese products worth $46bn in 2017 (9% of that year’s total goods exports to America; see graphic). China’s covers American goods worth around $50bn in 2017 (38% of exports).

David Parkinson, while not dismissing the impact on traded goods, argues that there is a bigger story at play:

During this shoving match, many missed the moment when China crossed a meaningful line. China’s retaliation, while pretty small potatoes in terms of trade value, quite consciously skipped the WTO’s recognized process for adjudicating trade disputes. That is a troubling precedent – not just for the two countries embroiled in this squabble, but for the entire global trading order.

If the WTO as an institution embodies the rule of law in international trade, then its dispute-resolution mechanism is the justice system that enforces those laws. Without an agreed-upon system of enforcement, the rules become toothless very quickly. China, one of the WTO’s most important and powerful trading citizens, just went vigilante.

Reihan Salam expects that the two sides will likely pull back a little at first (and indeed the U.S. is already trying to dial things down) but he remains gloomy about the long-term prospects of the U.S.-China trade relationship:

It’s more likely that the symbiotic relationship between the U.S. and China, in which U.S. firms rely heavily on Chinese intermediate inputs and vice versa, will unravel in slow motion. Automation will, over time, offer U.S. multinationals an alternative to China-centric global production networks. And perhaps Trump’s America First agenda will give way to an Americas First agenda, in which U.S. dependence on Chinese manufacturing prowess is supplanted by deeper integration with neighboring economies, not unlike the way German industrial firms are enmeshed with suppliers in central and eastern Europe. All this may sound fanciful. But China only entered the World Trade Organization in 2001; our mutual entanglement is not quite old enough to vote. The forces pulling the U.S. and China apart are more powerful than those keeping them together. 

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