President Biden will enter the White House to considerable goodwill from an international community mostly relieved that they don’t have to put up with another four years of President Trump. The tone from the new administration in waiting has already changed from the incumbents, to one of working with allies to solve common problems. Immediate threats to global bodies like the WTO has been lifted. Trade commentators have started looking forward to a new WTO DG and resolution of the Appellate Body impasse.
That relief should not blind us to the formidable challenges ahead. We would be wise to see this as a reprieve, a Trump delivered non-fatal heart attack for the world trade system, but which could easily be followed by worse if we cannot resolve the issues that led to the problems.
For a start it is worth recalling that the US election was fought between two candidates sceptical of open trade. Polls may suggest that well over half the US population favour free trade, but since they also show overwhelming support for Buy America policies their definition of free trade is probably not a classical one, referring most likely to the ability to sell, not buy, internationally. Close wins for Biden in rust belt states such as Pennsylvania, Michigan, and Wisconsin would also suggest an administration that will want to promote domestic manufacturing.
The problem Biden will face is that there is no obvious way for 21st century government to shape their own economies such as bringing back manufacturing to particular regions. Global production and trade is dominated by complex supply chains run by the private sector aiming to deliver high quality products at competitive prices to the consumer, which they largely succeed in doing. This process is indirectly influenced by all sorts of government policies, for example in infrastructure, skills, and tariffs, but the effects of particular actions is far from clear. That of course is not what the voters want to hear, or governments with their currently popular talk of ‘green manufacturing’ jobs.
To some commentators on both left and right of US politics the rise of global supply chains, and associated loss of US manufacturing, is the fault of the creation of the WTO, as if the revolution in communications that most would see as primarily responsible never happened. It is in this context that we should ask whether it is really such an obvious step for a new administration to make WTO reform or a new Director General the priority. For while there are plenty of technocratic solutions being offered for the WTO, none will obviously lead to factories reopening in the US mid-west, and the administration could easily be blamed for failing to use their leverage on these issues to deliver US wins.
We can also see relations with China and the EU in this context. The new administration will need to decide whether to maintain the trade conflict with China, in particular in terms of tariffs. Trade economists may know that these harm US consumers, but removal is going to lead to accusations of letting down US factories. China’s recent threats towards Australia, potentially following the Trump playbook, make the situation worse. You have to be very optimistic to see Chinese economic reform, including on state subsidies, any time soon.
We can expect talk of greater US-EU cooperation towards China, but the bilateral problems in the US-EU relationship will not go away. It really is past time to settle the Boeing Airbus case, but suspicions remain on both sides. US farmers still believe the EU is behaving unfairly, and that isn’t necessarily helped by the issue being raised again in US-UK talks. Differences on data have still not been resolved. So we could go on, and while the talk from both sides is warm right now, expectations that either can seriously compromise are not particularly high.
Before 2016 we might perhaps have accepted all of this as the normal tensions within the global trade system. But the politics have changed that. It isn’t just the US public that are increasingly sceptical of trade, the EU’s contradictory “open strategic autonomy” vision comes from a similar place. Brexit and the election of Trump in 2016 were the warnings that were not heeded. We now have a reprieve, but it may only be of four years. It has to be used well, and the early signs are not promising.
Quite simply we are in a battle to demonstrate that the world trade system is appropriate to the politics of the 21st century. A consensus based World Trade Organisation that has been unable to come up with a significant agreement since 1995 is not a promising start. It isn’t clear there are any better alternatives, but we need to ask the question without the justification being the protectionism of a hundred years ago. The transformation of trade since the formation of the WTO has arguably been coincidental, which perhaps tells its own story.
We also need to recognise the challenges that today’s global trade brings to democracies under pressure to deliver more jobs. It may be globally beneficial, and good for consumers, to have companies able to source the best and cheapest wherever they find it. But voters expect more, including domestic production, and we are either going to have to explain better why this isn’t going to happen, or do something to change that.
Above all, global trade politics needs to be able to deliver results for politicians. Technocratic fixes at the WTO aren’t going to be sufficient, not least because they aren’t addressing the underlying issues, just some of the symptoms. I wouldn’t want to be the Democrats going into the next election without having managed to make some progress on the economics of the rust belt, however difficult this seems.
Relief is fine for a moment. But there seems to be too much complacency about President Biden and the global trading system. We can’t afford four more years of drift, otherwise what follows may be even worse than what we have just seen.