Tag Archives: Global Trade

‘Killing the Golden Goose’ – Integration in the Global Economy

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Originally, I started this piece lamenting the ‘failed’ effort to bring China into the global economy following the failure by the CCP – the Party, and the Chinese government to continue early encouraging domestic economic reform efforts in the Chinese economy. That failure has given rise to very negative consequences for the global economy and the central economic players – the United States and the other North American economies, Europe and various players in the Indo-Pacific including Japan, South Korea and others.  I was preparing this week’s Post, reviewing in part a very good piece by Michael Froman, former USTR. And, in fact, I’ll get to that tale in just a moment. But it is impossible right now to overlook the destructiveness that President Trump is now bringing to the global economy, especially to America’s economic allies and partners with his thoughtless tariffs on steel and aluminum, now automobiles and very soon apparently reciprocal tariffs against seemingly all goods on what he, Trump, has come to call ‘Liberation Day’. Some liberation!

It is hard to look at Trump’s most recent tariff actions vis a vis cars and not reflect on the long – decades long effort – to integrate the three North American economies – Canada, US and Mexico – and despair over Trump’s sudden unprovoked effort to tear down the integrated economies of North America.   At least in Trump 1.0 he had the decency to renegotiate NAFTA and agree on USMCA terms of trade raising the percentage of North American content. But who cares about such negotiated free trade  agreements under Trump 2.0? As described by Damien Cave and Steven Erlanger in their NYTimes piece, these are Trump’s current tariff actions:  

“Many of the countries most affected by the new levies, such as South Korea, Japan, Germany, Mexico and Canada, are already reeling from the Trump team’s disregard for free trade deals already signed and his threats to long-established security relationships.” 

 

“Prime Minister Mark Carney of Canada said on Wednesday that Trump’s move on tariffs was “a direct attack.” Ursula von der Leyen, president of the European Commission, said the result would be “bad for businesses” and “worse for consumers.” Robert Habeck, Germany’s acting economics minister, said, “It is now important for the E.U. to respond decisively to the tariffs — it must be clear that we will not back down in the face of the U.S.”” 

As these reporters pointed out, the Trump actions and allied responses could end in the following very negative way: 

“The tariffs, which threaten both American and foreign carmakers, increase the likelihood of a global trade war. A chain reaction of economic nationalism with tariffs and other measures — perhaps adding costs for finance and services — could suppress economic growth globally, spread inflation and add rancor to already testy negotiations with Washington about security.” 

Ugh, a global trade war. Just what the globe doesn’t need. But Trump policy marches on and there is the real prospect for cranking up the drama: 

“The Trump White House has sought to use every tool of American power, including its military support and consumer market, to extract what Mr. Trump sees as a better deal for Americans. But for countries that have spent decades trusting America and tying their economies and defense plans to Washington’s promises, this feels like a moment of reversal.”

 

“American influence, long built on pronouncements about values and the shared riches of free trade, has hardened into what many analysts describe as “all stick, no carrot.” In the Trump team’s thinking, critics argue, American gains require pain for others — friends included.” 

So that’s the immediate dismaying state of the global economy largely brought to you by Trump 2.0. But there is still reason to dwell a bit on the impact to the global economy of China’s dramatic global economic emergence. This dramatic and in part negative influence on the US, and Trump for sure, but others as well, has added to the downbeat actions from the US and others.  

We’ve never quite recovered from it – that is China’s incorporation into the global economy. Even today strong echoes of a now rather distant debate still can be heard. That debate was, and is, a hard discussion by both experts and former officials. That debate was, and is, over China’s incorporation into the global economy and the decision to provide China with membership in the WTO. I was reminded of this in a strong review piece of China’s integration into the global economy by Michael Froman. Froman is today President of the Council on Foreign Relations. He served, however, as U.S. Trade Representative (USTR) from 2013 to 2017 and before that he was Deputy National Security Adviser for International Economic Affairs from 2009 to 2013. In an article in Foreign Affairs entitled,  “China Has Already Remade the International System: How the World Adopted Beijing’s Economic Playbook” he reviews China’s integration and its consequences for the condition of the global economy. While there are outstanding questions on whether more should have been insisted on by WTO members especially in terms of reform of China’s economy before permitting its entry to the global economy, it is largely in the rearview mirror today. There was a long discussion and back and forth at the time of discussions for China’s accession to the WTO, especially between the  United States and China. Much of it concerned whether China was a market enough economy to enable it to integrate into the global economy and to gain membership to the WTO. As Froman notes: 

“Jiang [Zemin] and Zhu [Rongji] declared repeatedly that China would inevitably continue to open up. Many in the West went so far as to believe that this economic liberalization would lead to China’s political liberalization, that a capitalist society would become a more democratic one over time.” 

 

“That assumption proved false. China’s leaders never seriously contemplated political reform, but China’s economic advancement was impressive nonetheless. The country’s GDP grew from $347.77 billion in 1989 to $1.66 trillion by 2003 to $17.79 trillion in 2023, according to the World Bank. Hopes were high that integrating China into the rules-based trading system could lead to a more peaceful and more prosperous world.” 

 

“Then President Hu Jintao entered the picture, followed by President Xi Jinping. China’s economic trajectory turned out to be less linear and less inevitable than initially expected. Under Hu, China leaned more heavily into state intervention in the economy by aiming to create “national champions” in strategic sectors through massive subsidies. In other words, the government expanded its role rather than pursuing further market liberalization.” 

 

“In 2004, China made up nine percent of the world’s manufacturing value added, leapfrogging to a massive 29 percent in 2023, according to the World Bank.” 

I am particularly reminded of all of this because of a very small role I played in the lengthy effort to secure China’s accession to the WTO. I worked with a former trade official in trying to address various questions over China’s economy and its reform trajectory following the many Working Party meetings on China’s accession at the WTO in Geneva. It was a several years process. As a successful conclusion approached I remember, vividly, the comment by that official after all those many gatherings and discussions over several years  that it was a mistake to permit China’s accession at that time. That official had reached the conclusion that China was not ready for economic integration in the global trading system.

But China’s accession did occur. And it became clear that the market reform process in China had slowed and then died. And the US actions are now in part as a result. Again here is Michael Froman:   

“In 2009, the Obama administration led an effort to terminate the Doha Round—a multilateral trade negotiation under the WTO launched in 2001. It did so in large part because the resulting agreement would have enshrined China permanently as a “developing country” under WTO rules. This would have allowed China to enjoy “special and differential treatment,” which meant that China would have been able to avoid assuming the same level of obligations and disciplines—on market access, intellectual property rights protection, and other issues—as the United States and other industrial countries.”

 

“Similar concerns motivated the Obama administration to pursue the Trans-Pacific Partnership (TPP), a high-standard trade agreement negotiated among 12 countries around the Pacific Rim. This initiative was designed to give countries in the Asia-Pacific region an attractive alternative to the model China offered.” 

 

“By the time TPP negotiations were completed in 2015, however, trade agreements—even those designed to counterbalance China—had become politically toxic at home, and the United States ended up pulling out of the agreement.” 

As Froman then summarizes his trade role and his warnings to China: 

“From 2009 to 2017, I served first as deputy national security adviser for international economic affairs and then as U.S. trade representative. During that time, I consistently warned my Chinese counterparts that the benign international environment that had enabled China’s success would disappear unless Beijing modified its predatory economic policies. Instead, China largely maintained its course of action. If anything, it doubled down on its approach. When Xi came to power in 2012, he effectively ended the era of “reform and opening” that had already stalled under Hu, set China on a course to dominate critical technologies, increased production to the point of overcapacity, and committed to export-led growth.”

And he concludes: 

“Today, as the economist Brad Setser has noted, China’s export volume is growing at a rate three times as fast as global trade. In the automotive sector, it is on a trajectory to have the capacity to produce two-thirds of the world’s automotive demand. And its dominance extends beyond cars; China also produces more than half the global supply of steel, aluminum, and ships.”

 

“Eventually, even American businesses, which had always been the ballast in the bilateral relationship, soured on China as their intellectual property was stolen or forcibly licensed, their market access to China was severely restricted or delayed, and China’s subsidies and preferences for domestic firms ate into their opportunity. Without any semblance of reciprocity, the relationship deteriorated. Politicians of both parties and the American public hardened their stance on China. European and major emerging economies grew hostile to Beijing’s policies, as well. In short, the benign international environment disappeared.” 

So that then is in part how we got to the difficult situation we are now in in global trade and why Froman concludes that Trump global economic policymaking mirrors today China economic policy: “The United States and others are imitating China in large part because China succeeded in a way that was unexpected. Its success in electric vehicles and clean technology did not come from liberalizing economic policies but from state interventions in the market in the name of nationalist objectives. Whether or not the United States can compete with China on China’s playing field, it is important to recognize a fundamental truth: the United States is now operating largely in accordance with Beijing’s standards, with a new economic model characterized by protectionism, constraints on foreign investment, subsidies, and industrial policy—essentially nationalist state capitalism.” 

Where we are today is certainly not where advanced economies at least believed we should be. The Trump aping of state nationalist efforts through repeated rounds of tariffs and other protectionist measures has the feel and smell of defeat and bad, very bad Washington global economic policy making.  

Image Credit: it.china-office.gov.cn

This Post first appeared at my Substack, Alan’s Newsletter. https://globalsummitryproject.substack.com/p/killing-the-golden-goose-integration

The Trump Battering of the Order

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As much destruction, it seems, as this second Trump administration can engineer! And fast! One can’t avoid ‘reeling’ from the current Trump administration actions and plans. And yet we are only 30 days into the second Trump administration. It is truly amazing! 

The real dilemma for me – and for many others –  is the inability to determine whether there is method in Trump’s foreign policy actions; or, whether it is just madness that leads to few good outcomes. Read through  all the experts and you come away completely confused . Some do see method, maybe somewhat accidentally, perhaps, but nevertheless some positive direction – whether with respect to:  trade, Ukraine, Gaza, relations with the allies, especially Europe and Japan, or adversaries – be it Russia or China. But it is very hard to uncover any consistency of approach and any likelihood of valuable or even redeemable outcomes. 

Let’s take Tom Friedman. In a NYTimes piece entitled: “Why Trump’s Bullying Is Going to Backfire” he writes: 

And if all of this is just Trump bluffing to get other countries to give us the same access that we give them, I am OK with it. But Trump has never been clear: Some days he says his tariffs are to raise revenue, other days to force everyone to invest in America, other days to keep out fentanyl.

 

As the Beatles sang, I’d love to see the plan. As in: Here’s how we think the global economy operates today. Therefore, to strengthen America, here is where we think we need to cut spending, impose tariffs and invest — and that is why we are doing X, Y and Z.

 

That would be real leadership. Instead, Trump is threatening to impose tariffs on rivals and allies alike, without any satisfactory explanation of why one is being tariffed and the other not, and regardless of how such tariffs might hurt U.S. industry and consumers. It’s a total mess. As the Ford Motor chief executive Jim Farley courageously (compared to other chief executives) pointed out, “Let’s be real honest: Long term, a 25 percent tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we’ve never seen.”

 

So, either Trump wants to blow that hole, or he’s bluffing, or he is clueless. If it is the latter, Trump is going to get a crash course in the hard realities of the global economy as it really is — not how he imagines it.

And quite rightly Friedman points out that today’s global trade complex is nothing like the past where the conception was: one manufactured and exported  X while importing from another, Y. As Friedman describes what he nd others see as the world of global trade today: 

My favorite tutor in these matters is the Oxford University economist Eric Beinhocker, who got my attention when we were talking the other day with the following simple statement: “No country in the world alone can make an iPhone.”

 

Think about that sentence for a moment: There is no single country or company on earth that has all the knowledge or parts or manufacturing prowess or raw materials that go into that device in your pocket called an iPhone. Apple says it assembles its iPhone and computers and watches with the help of “thousands of businesses and millions of people in more than 50 countries and regions” who contribute “their skills, talents and efforts to help build, deliver, repair and recycle our products.

We are talking about a massive network ecosystem that is needed to make that phone so cool, so smart and so cheap.” 

The big difference between the era we are in now, as opposed to the one Trump thinks he’s living in, is that today it’s no longer “the economy, stupid.” That was the Bill Clinton era. Today, “it’s the ecosystems, stupid.”

Or turn to regional conflicts, Ukraine for instance. Here is the reaction to recent statements and Trump actions as described by Nicholas Kristof. In a piece titled, “With Trump’s Prostration to Putin, Expect a More Dangerous World”from the NYTimes on February 19th Kristof writes: 

I’m not sure most Americans appreciate the monumental damage President Trump is doing to the post-World War II order that is the wellspring of American global leadership and affluence.

 

He’s shattering it. He’s making the world more dangerous. He’s siding with an alleged war criminal, President Vladimir Putin of Russia, and poisoning relations with longtime U.S. allies. The trans-Atlantic alliance is unraveling. 

 

When I was a young reporter, we referred to countries like Poland and Romania as Soviet satellites; now Trump is doing Putin’s bidding and seems determined to put the United States in the Russian orbit. 

 

The Trump administration has lately sided with Moscow on one issue after another: Ukraine must cede territory, can’t join NATO and should hold new elections just as Russia insists. (Meanwhile, there’s no call for Russia to hold elections.) Trump even suggested that Russia should be readmitted to the Group of 7.

 

In a falsehood-filled rant on Truth Social on Wednesday, Trump went further. He denounced Ukraine’s elected president, Volodymyr Zelensky, as a “dictator” who had squandered money and had “better move fast or he is not going to have a country left.” Trump’s post had the tone of statements from the Kremlin.

Now Dan Drezner in a piece from WPR suggests that Trump’s approach to allies in Europe may possibly incorporate a strategic logic: 

Even Trump’s second-term threats directed at longstanding allies can be seen as an example of what Ketian Zhang has labeled “coerce to deter”: In bullying smaller states, Trump is trying to signal what the U.S. could do to great powers if provoked. I have previously expressed deep skepticism about whether this will work during Trump’s second term—but the possibility cannot be ruled out.

This optimistic view, if you want to call it that, was employed by Trump in the first term. As Dan argues: 

Let’s start with the most optimistic scenario for the second Trump White House: that his application of the so-called madman theory works. According to this logic, which Rosanne McManus has critically examined, Trump’s norm-breaking and bullying tactics inject unpredictability into any kind of crisis-escalation calculus, ostensibly deterring other actors from challenging the United States.

However that is only one possible view as Dan suggests. Less optimistically Dan also suggests: 

The other scenarios paint a bleaker picture for the United States. The second possibility is that the Trump administration’s weakening of the U.S. national security state will be interpreted as an invitation for more aggressive Russian and Chinese expansionism. 

And there is even one further possibility as pointed to by Dan: 

There is one final possibility, and it is the most disconcerting outcome for the U.S.: that neither Russia nor China decide to take any provocative action while Trump is president. This is not because he represents a formidable deterrent, but rather the opposite. In this scenario, Trump so weakens the United States’ standing in the world and is so keen to appease autocrats like Putin and Xi that their best option is let him do whatever he wants.

The motivation and consequences of Trump’s actions leave us bewildered. It is at the moment not possible to draw firm conclusions on the Trump approach or the outcomes from administration actions. But most analysts are greatly worried. One other area of concern draws immediate attention. That is Trump’s attachment to, and US policy toward, international institutions and the current global order. My good colleague, Patrick Stewart from the Carnegie Endowment for International Peace (CEIP) has raised some real concerns in a recent CEIP Commentary titled, “The Death of the World America Made: Donald Trump’s war on multilateralism is misguided and dangerous”. He writes: 

On February 4, 2025, President Donald Trump signed a sweeping executive order with the potential to upend decades of American global engagement. The directive mandates a comprehensive review within 180 days of all current multilateral organizations of which the United States is a member and all international treaties to which it is party. The explicit purpose of this exercise is to determine whether such support should be withdrawn. … 

 

Of far greater import is the order’s decree that the secretary of state shall review “all international organizations” of which the United States is a member and “all conventions and treaties” to which it is party, to determine whether these “are contrary to the interests of the United States and whether [they] can be reformed.” The secretary will then recommend to the president “whether the United States should withdraw” from those commitments. In principle, the directive could lead to a U.S. abrogation of thousands of treaties and a departure from hundreds of multilateral organizations.

 

It is even plausible that the Trump administration will conclude that an “America First” foreign policy requires pulling the United States out of the UN—and kicking the UN out of the United States. Both are long-standing objectives of conservative nationalists who contend, speciously, that the UN threatens American sovereignty.

Now there seems to be a debate among experts as to whether the Trump administration can actually do so; nevertheless as Stewart suggests: 

As Trump’s first weeks in office have shown, this White House doesn’t do ambiguity—and there are many ways to wreck institutions without formally leaving them.

For my part I am equally worried about Trump’s actions with the Informals – the G7 and especially the G20. Particularly with regard to the latter, the hosting schedule for the G20 ends its first cycle with Brazil this year holding the Presidency and then the G20 returns to the beginning of the cycle with the United States scheduled to host in 2026. The G20 is critical in part because it draws together the significant advanced countries, like the US, Germany, France, Japan and now increasingly influential countries from the Global South such as China, India, Brazil, Indonesia, South Africa and others. Already the Trump administration, because of its apparent dislike for South Africa’s ‘domestic policies and its theme focus for this year’s G20 Summit  – Solidarity, Equality, Sustainability – has led Secretary of State Marco Rubio cancelling his appearance at the first Foreign Ministers gathering in South Africa as apparently has Scott Bessent, the Treasury Secretary for the first Finance Ministers gathering. As Rubio suggested in his cancelling his attendance, as reported in the Hill: 

I will NOT attend the G20 summit in Johannesburg,” Rubio wrote in a Wednesday post on the social platform X. “South Africa is doing very bad things. Expropriating private property. Using G20 to promote ‘solidarity, equality, & sustainability.’ In other words: DEI and climate change.

 

Rubio added that his job is to “advance America’s national interests, not waste taxpayer money or coddle anti-Americanism.

Now the G20 has not operated very effectively as  a so-called Steering Committee but it has displayed value as a Crisis Committee. Without it, I don’t know but I worry.  

Who knows if Trump will show up to the G20 Leaders Summit. And who knows what he will do if in fact he does show up to the Leaders’ Summit on November 22-23rd. Moreover, will the United States take on the hosting for 2026, especially if it has failed to participate in most gatherings. There is much to worry about. But we will follow it closely. 

This Post first appeared asa Substack Post at Alan’s Newsletter: https://globalsummitryproject.substack.com/publish/posts/detail/157647801/share-center

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Leadership – or Not

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The killing of Yahya Sinwar in Gaza, as many observers have suggested, may impact on the continuation, or a possible cessation of the conflict in Gaza. Some like Tom Friedman of the NewYork Times, and other commentators have even suggested that it could have possibilities beyond just the Gaza conflict. But all this rightly raises again the influence – and dare I say the leadership – of the United States. This question of US leadership brings attention not just to Israel and the region but beyond and raises real questions of US leadership with the global order.

On the Middle East front the US has expressed strongly its belief that it is time to end the war. As David Sanger of the NYTimes suggested in his  analysis of the current state of relations:

Within hours of the death of the Hamas leader Yahya Sinwar on Thursday, President Biden and his aides scrambled to design one last push for a broad de-escalation of violence in the Middle East: a cease-fire and hostage deal in Gaza, a pullback from Israeli attacks on Hezbollah in Lebanon, a confident declaration of victory by Israel that might allow it to forgo a major retaliation against Iran.

It is time for this war to end,” Mr. Biden said as he emerged from Air Force One when it landed outside Berlin late Thursday. He added that he had called Prime Minister Benjamin Netanyahu of Israel and urged him to “move on” from the war and focus on building a new political landscape for the region.

Tom Friedman elaborated on what was required beyond just a ceasefire, if the cessation is to have a real impact on international stability:

The broad idea is for the Palestinian Authority president, Mahmoud Abbas, to agree to appoint the economist and former P.A. prime minister Salam Fayyad — or someone of his sterling reputation for incorruptibility — as the new Palestinian prime minister to lead a new technocratic cabinet and reform the Palestinian Authority, root out corruption and upgrade its governance and security forces.

Such a reformed Palestinian Authority would then formally ask for — and participate in — an international peacekeeping force that would include troops from the U.A.E., Egypt, possibly other Arab states and maybe even European nations. This force would be phased in to replace the Israeli military in Gaza. The Palestinian Authority would then be responsible for rebuilding Gaza with relief funds provided by Saudi Arabia, the U.A.E. and other Arab Gulf states, Europeans and most likely the U.S.

 

A reformed Palestinian Authority, with massive Arab and international funds, would attempt to restore its credibility in Gaza, and the credibility of its core Fatah organization in Palestinian politics — and sideline the remnants of Hamas.

The problem, at least immediately, however, is as David Sanger points out is that there is no interest by Prime Minister Netanyahu, it seems at this moment, to accept even a ceasefire let alone steps beyond:

Nothing in his face-offs with Mr. Netanyahu suggests that the Israeli prime minister will take his advice or seize the chance to turn the military victories into a lasting political accomplishment. One of Mr. Biden’s senior aides said the administration’s concern was that the killing of Mr. Sinwar, and before him the killing of the Hezbollah leader Hassan Nasrallah, ratifies in Mr. Netanyahu’s mind his certainty that he was right to deflect American calls for de-escalation over the past few months.

These observations seem to target the immediate difficulties that such a US plan envisages. But it is beyond that. The underlying question that is there, and ultimately more impactful, is the influence of the US in this situation but beyond it in other international arenas such as the Ukraine, the South China Sea and Taiwan. What is the capacity and policy chops of the US to influence and indeed to pressure allies and foes alike to accept outcomes that the US identifies as improving the state of relations and hopefully terminating conflict and stabilizing, or even possibly improving relations among the countries and more broadly the system?

As Ross Douthat of the NYT recently wrote in an article titled, “America needs a President”:

In neither case, though, does the world’s most powerful country seem to have a real handle on the situation, a plan that it’s executing or a clear means of setting and accomplishing its goals.

He further argues:

Scenarios where great powers end up led around by their allies and clients are not historically unusual. But it’s hard to escape the impression that America’s current difficulties are linked to a very specific problem: the vacuum at the heart of this presidency, the slow fade of Joe Biden from the normal execution of his duties, the general uncertainty about who is actually making decisions in U.S. foreign policy.

But it seems to me that a focus on the twilight of the Biden years as an explanation for US inability to shape conflict outcomes is a bit of a cop out. Rather as I see it, it seems to me that the US has come to a point where it is unwilling to fashion credible threats on friends and more importantly on foes. The key action mechanics of leadership – credible threats and equally credible assurances – are increasingly missing.  As noted by Douthat:

Today’s restoration of deterrence could become tomorrow’s overreach or quagmire. For another, America has global responsibilities, not just regional ones, and a widening war in the Middle East could be bad for the American position in Asia and Eastern Europe no matter its outcome for the immediate participants. If the United States can’t exert real leverage over countries that it arms and supports, a weakening Pax Americana will end up hostage to too many interests not our own.

And that is the concern and the nub of the global order issue. And while there is a reflection, as noted above, that it is this President who has lost influence recently as he comes to the end of his Presidency, the weakness of America’s efforts extend beyond this, it appears to me.

The dilemma in my mind lies more with the rise of nationalist, even populist politics. We need not go to the most extreme versions of this populist view, as expressed by Donald Trump.The fact is it has spread to Democratic politics with Biden but it would appear with his advisers and to Democratic Presidential candidate, Vice President Harris as well. It can be seen most prominently with US trade policy. You need go no further than this administration’s determined effort to neuter the international trade dispute mechanism, the WTO. In addition, it extends to the growing willingness of US administrations, starting with Trump but infecting the Biden administration also to use tariffs, and increasingly so, as a trade policy. Michael Froman, currently President of the Council on Foreign Relations, and who served as the U.S. Trade Representative from 2013 to 2017 during the Obama Administration has examined current US trade policy:

For much of the last century, in response to the disastrous 1930 Smoot-Hawley tariffs, the United States’ international economic policy was focused on liberalization and integration. Competitiveness, efficiency, and growth were the metrics of success. This framework achieved many of its objectives, contributing to the biggest reduction in poverty in human history, opening vast new markets to U.S. exports, and greatly strengthening the comparative advantage of U.S. firms. At the same time, attention it paid to particularly vulnerable groups of workers and their communities. The advent of China as a strategic competitor further highlighted the limitations of that approach. The rules-based system was not designed to accommodate an economy that is so large and so integrated and yet is determined to follow a fundamentally different set of rules.

The result is the enlargement of protectionism signaled by National Security Adviser, Jake Sullivan:

April 2023, U.S. National Security Adviser Jake Sullivan delivered a critique of the neoliberal consensus that had served as the foundation for international economic policy for nearly a century. In a prominent speech, Sullivan suggested that the United States was moving on from an agenda of global integration and trade liberalization.

 

To protect Americans and to take on China, Sullivan contended, Washington would no longer shy away from raising tariffs, imposing restrictions on exports and foreign investment, and engaging in domestic industrial policy. It was an important speech for a number of reasons, not the least of which was that it was delivered by the national security adviser, not the treasury secretary, commerce secretary, or U.S. trade representative. …

 

Consistent with Sullivan’s framework, the Biden administration has embraced a range of economic tools: export controls, restrictions on inward and outbound foreign investment, tariffs, industrial policy, and antitrust enforcement. Many of these tools enjoy broad bipartisan support.

 

If they are to form the basis of a new, enduring Washington consensus, however, the next president—whether Trump or Kamala Harris—will need to develop a more systematic approach to using them. That means understanding their limitations, developing principles to guide their use, and grappling fully with the tradeoffs they involve.

But I am not heartened by this approach on trade, and the wider implications of a nationalist approach to policy well beyond trade policy. The direction of US leadership is troubling. We are only too aware of where it could go with Trump but the signals are not positive for a Harris administration either.

Image Credit: US Institute for Peace

This Post first appeared at Alan’s Newsletter and is a Substack Post from there. All comments and free subscriptions are welcome.

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The Enduring Weakness of Multilateralism: An Aspect

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Though it was heartening to see the Presidential debate this past week with a strong performance by Vice President Kamala Harris, it was disheartening to see that Donald Trump remains a major force in US politics and still a strong contender notwithstanding some of his wild statements and his conspiracy theory assertions. While the event highlighted the ‘weirdness’ of Donald J Trump, the candidate, the game is not yet won. We may yet see him reoccupy the White House. Such an outcome would threaten the alliance(s) system, global trade and continuing US presence in the current multilateral system driven by Trump’s transactional model of US foreign policy behavior.

Trump’s return would likely drive current US foreign policy ‘over the cliff’. But changes have been underway for some time and many of them are weakening the multilateral system built over many decades. Many foreign policy analysts have focused on the structural elements – notably the decline in the international measures of power of the United States and its impact as a result on the global order. I was struck by a letter titled, “Muster Global Majorities”  prepared by Mark Malloch-Brown. This is just one of nine requested by FP to greet a new US president. Now, Malloch-Brown was the former deputy secretary-general of the UN well aware of the multilateral system and he targeted the decline of the US:

But whoever prevails on Nov. 5—and congratulations, by the way—this will not change the much deeper shifts underway in the distribution of global power and values alignment that are now surfacing at the U.N. and its Bretton Woods cousins, the World Bank and the International Monetary Fund (IMF). They have seen an approximate quadrupling of membership since their post-World War II founding; a more than tripling of global population; and a global GDP that is more than 10 times bigger.

 

But you must see there is a global shift underway, and the United States, more than ever, is not an unchallenged No. 1 but rather a precarious first among equals in a multilateral system and which in responding to wider intellectual and political change in the world resents any claim to monopoly leadership. As Shakespeare observed in his great play on succession and power, Henry IV, Part 2: “Uneasy lies the head that wears a crown.”

Malloch-Brown in his letter, in fact, is pointing to two evident declines: the decline in power of the US in the context of the global system, the structural elements with the rise of China and with the emergence of a number of the Large Emerging Powers, the likes of India, Brazil, Indonesia and more.  But the decline is also evident from a diminishment in US leadership in the global order, the behavioral aspect of any analysis.

While there is a relative decline in the power dimensions for the United States, it is the decline in policy leadership that is in some ways most evident. Take trade. As Alan Beattie has written just recently in the FT article entitled, “Can Globalization Survive the US-China Rift”:

Multilateralism is weak. The US is undermining the WTO by citing a national security loophole to break rules at will. The EU won a case against Indonesia over its nickel export ban, but the WTO’s dysfunctional dispute settlement system has delayed compliance.

 

But this does not mean regional or geopolitical trading blocs will start setting the rules of trade instead. The US talks a good game about building alliances, but the political toxicity of trade deals in Washington stops it offering market access to incentivise countries to join. The Indo-Pacific Economic Framework, the US’s main initiative in the Asia-Pacific, is widely regarded as all stick and no carrot.

Rather than a continued reliance on the multilateral rules and the WTO, the multilateral trade institution – of which the US is one of the primary creators –  responsible for managing trade and trade friction, the United States has chosen to neuter the global trade rules by collapsing the trade dispute mechanism of the WTO. The US has turned away as well from promoting freer trade and free trade agreements and has come to rely more and more on protectionism. As pointed out by Bob Davis in his FT piece, “How Washington Learned to Stop Worrying and Embrace Protectionism”, he described the US turn to protectionism:

… the president [Biden] made a decision that upended decades of Democratic White House rule. He ordered heavy new tariffs on Chinese imports of high-tech items and continued the massive tariffs he inherited from his Republican predecessor.

 

The significance of the moves—and the challenge that it presents to Biden’s successor—was obscured by the roller-coaster news cycle. But it bears noting: The Biden administration is the first since at least President John F. Kennedy’s time to fail to negotiate a major free trade deal, instead embracing tariffs. Even Trump, the self-proclaimed “Tariff Man,” concluded a significant free trade pact when he replaced the North American Free Trade Agreement with a U.S.-Mexico-Canada deal (USMCA), which toughened rules on auto imports but established liberal rules on digital trade. He also negotiated a smaller digital agreement with Japan.

 

The turnabout is emblematic of a broader change in the U.S. economic and political thinking that is unlikely to be reversed under either a President Trump or Harris. The era of hyperglobalization, which began around 1990 and saw global trade jump by 60 percent in 20 years as supply chains spread across the earth like spiderwebs, has come to an end. We are now in an era of growing protectionism, and as trade growth has stalled, the United States and many other advanced economies have hiked tariffs and begun subsidizing industries that they view as critical to their well-being.

The turnabout with an increasing reliance on tariffs and a more full throated rise of US protectionism in fact ties the US, that is US economic policy to its political-security policy and actions. Davis makes the pointed linkage today between the two for US policy action:

Peter Harrell, the White House’s former senior director for international economics, said the change marks a fundamental rethinking of U.S. trade policy. “We are in an era of geopolitical competition with China,” he said. “That means we aren’t going to accord China the same trading privileges and rights” accorded to allies—despite World Trade Organization requirements to treat members equally.

 

It boils down to the fact that the economic juice [from cutting tariffs] was not worth the political squeeze,” said Evan Medeiros, a Georgetown University China expert who had been an official on Obama’s National Security Council.

 

In the second part of its decision, the administration ramped up some tariffs to block Chinese imports in areas where the United States was spending billions of dollars on subsidies to create or strengthen a domestic industry.

Tariffs were quadrupled to 100 percent on Chinese electric vehicles this year, as [Lael] Brainard had advocated, doubled to 50 percent on Chinese semiconductors and solar cells, either this year or next, and tripled to 25 percent on EV batteries this year. Even low-tech Chinese syringes, which had previously been shipped duty-free, now face 50 percent tariffs as a spur to boost domestic production.

 

The primary reason for the U.S. turn to protectionism is the growing economic and military challenge from China. But it also reflects a profound change in ideology: The gains from trade—lower prices, overall improvements in living standards, greater competition—are no longer seen by many political leaders as worth the downsides in the loss of manufacturing jobs, dependence on imports from adversaries such as China and Russia, and political polarization. The Trump administration, packed with anti-free traders, gave a big push to this neo-protectionism; the Biden administration has confirmed and deepened the shift.

The bottom line is that geopolitical tensions, particularly the deep US-China competition, has undermined US commitment to a multilateral system that the US was a principal architect in creating and maintaining over many decades. This outcome to date is deeply troubling.

Image Credit: CNBC

The Trouble with Today’s Multilateralism: An Intro

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So in this week’s Post I was all set to hone in on the struggles over reenergizing faltering multilateralism in the current global order. Today’s  troubles encompass the formal institutions – the Formals – from the UN, and many of its specialized agencies to the international financial ones – the World Bank, the IMF and the WTO. And the troubles extend to the Informals, the G7, the G20 to the BRICS+ and more. The struggles over multilateralism are the flip side of the return, seemingly ever more strongly power politics – the wars in the Ukraine and Gaza, and geopolitics, especially the rise in bilateral tensions between China and the United States.

But before I could go there, I couldn’t ignore the just excellent article – recommended by my colleague, and China expert, John Gruetzner – in Foreign Affairs by Zongyuan Zoe Liu, titled, “China’s Real Economic Crisis: Why Beijing Won’t Give Up on a Failing Model”. This very good piece leaned strongly into the discussion I had raised in my previous Alan’s Newsletter Post, ‘China, Seemingly, Stays the Course’. The Post chronicled the disappointment expressed by analysts and experts in the West primarily but in a rather more modulated form in China as well. The disappointment according to these experts emerged over the failure in the Third Plenum to initiate significant economic reform in the Chinese domestic economy and a clear determination to tackle domestic consumption.

Liu gets it right:

The Chinese economy is stuck. … But there is a more enduring driver of the present stasis, one that runs deeper than Xi’s growing authoritarianism or the effects of a crashing property market: a decades-old economic strategy that privileges industrial production over all else, an approach that, over time, has resulted in enormous structural overcapacity.

 

Simply put, in many crucial economic sectors, China is producing far more output than it, or foreign markets, can sustainably absorb. As a result, the Chinese economy runs the risk of getting caught in a doom loop of falling prices, insolvency, factory closures, and, ultimately, job losses.

 

Since the mid-2010s, the problem has become a destabilizing force in international trade, as well. By creating a glut of supply in the global market for many goods, Chinese firms are pushing prices below the breakeven point for producers in other countries. In December 2023, European Commission President Ursula von der Leyen warned that excess Chinese production was causing “unsustainable” trade imbalances and accused Beijing of engaging in unfair trade practices by offloading ever-greater quantities of Chinese products onto the European market at cutthroat prices.

 

Despite vehement denials by Beijing, Chinese industrial policy has for decades led to recurring cycles of overcapacity. At home, factories in government-designated priority sectors of the economy routinely sell products below cost in order to satisfy local and national political goals.

Now there continues to be some contention over whether in fact production is below cost but I I was pleased by Liu’s ‘recommendation’ that the two – the West and China – consider options other than just piling on the tariffs. Liu correctly points out the negative consequences of such trade policy:

A China that is increasingly cut off from Western markets will have less to lose in a potential confrontation with the West—and, therefore, less motivation to de-escalate. As long as China is tightly bound to the United States and Europe through the trade of high-value goods that are not easily substitutable, the West will be far more effective in deterring the country from taking destabilizing actions. China and the United States are strategic competitors, not enemies; nonetheless, when it comes to U.S.-Chinese trade relations, there is wisdom in the old saying “Keep your friends close and your enemies closer.

That is why I have suggested negotiating – and one aspect in this case could be Voluntary Export Restraints or VERS. VERS are not super policy  actions – I get that  but they do encourage bilateral discussions rather than just unilateral penalties. As Liu suggest:

The U.S. government should discourage Beijing from building a wall that can sanction-proof the Chinese economy. To this end, the next administration should foster alliances, restore damaged multilateral institutions, and create new structures of interdependence that make isolation and self-sufficiency not only unattractive to China but also unattainable. A good place to start is by crafting more policies at the negotiation table, rather than merely imposing tariffs. … If the government [China] also implemented voluntary export controls, it could kill several birds with one stone: such a move would reduce trade and potentially even political tensions with the United States; it would force mature sectors to consolidate and become more sustainable; and it would help shift manufacturing capacity overseas, to serve target markets directly.

While working through the WTO might be preferable, and many analysts suggest such an approach for multilateral trade frictions, realistically that course of action is out of reach for the moment.

So there you are on the Third Plenum and global trade.  Let me at least turn to the original subject for this Post; let’s at least open the discussion on multilateralism and its problems. I was particularly attracted to a piece published recently by Pascal Lamy. Pascal Lamy (pascallamy.eu) is currently the Vice-President of the Paris Peace Forum, and coordinator of the Jacques Delors Institutes (Paris, Berlin, Brussels). Importantly, Pascal Lamy served two terms as Director General of the World Trade Organization (WTO) from September 2005 to September 2013. He is someone that is very familiar with critical aspects of the multilateral system. Recently his piece, ‘Reshaping the Global Order’ was published in a large edited volume by colleagues from the Center for China & Globalization, CCG,  Henry Huiyao Wang and Mabel Lu Miao, Enhancing Global Governance in a Fragmented World: Prospects, Issues, and the Role of China. Now Lamy sets out the critical structural issues that impair today’s multilateralism efforts. As he says:

The main long-term, structural factors at play can be summarized by sovereignty as a founding principle of an international order, by the obsolescence of the previous order, and by the US-China rivalry.

It is not surprising that he identifies ‘sovereignty’ as the first key to multilateralism’s problems:

Sovereignty has been, is, and will remain the main obstacle to building a fully fledged international order as long as it is accepted as the core principle of international law.

So many analysts acknowledge the burst in new actors in the international system: substate actors, regions and cities and also non-state actors like NGOs, large public and private corporations but all struggle against dominant state actors. National sovereignty dominates international relations and often leads to unilateral actions that undermines wider cooperation.

Then there is ‘obsolescence’.  This focuses around the elements of the system, especially the Formals that were put in place at the end of World War Two at a time when the Global South that has had such a recent impact on international relations existed primarily as colonies of the West:

Obsolescence has to do with the origins of the current global system, the architecture of which dates from arrangements made after the Second World War. The ‘universal’ nature of these arrangements is increasingly seen as a product of a past pattern of Western dominance at a time when new nation states are now reshuffling the old power distribution …

Lamy then targets the impact of the evolving international order:

All in all, the previous international order is being shaken by increasing North-South and East-West tensions and frustrations, and by a change in the balance between geoeconomics and geopolitics, the former losing the force it had gathered in recent decades, and the latter regaining its past dominance over world affairs. We are thus moving toward less of a rules-based system, and more toward the use of force. This context obliges us to consider new paths, tentative as they may be.

And finally Lamy underlines the rise of geopolitical tensions, especially between China and the United States, and the impact that these tensions have had on the current multilateral order:

The intensification of the US-China rivalry is the third main factor shaping the demise of the international order, as this rivalry increasingly pits the two main world superpowers against each other. Indeed, they now believe they have become dangerously vulnerable to each other—hence a change of view on both sides about globalization. Whereas the US and China previously celebrated the benefits of increased economic interdependence in fostering development and reducing poverty, they are now trying to address what today they consider as overdependence and have embarked on a decoupling journey which challenges the rest of the world with hard binary choices and which permeates international life in the form a sort of ‘cold war 2.0.’

So what is to be done? How can a multilateral system be revivified and made effective – bringing greater stability to the global order and energizing transnational global governance efforts?

That’s where we will start in the next Post.

Image Credit: Geneva Interdisciplinary Centre for Economics and Law

This Blog originally appeared as a Substack Post at Alan’s Newsletter – https://open.substack.com/pub/globalsummitryproject/p/the-trouble-with-todays-multilateralism?r=bj&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true

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China, seemingly, stays the course

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It is hard to resist not commenting on Donald Trump’s views, so I will if just briefly. In this instance the comment is over Kamala Harris’s racial makeup. It is ‘weird’ as the Democrats have started saying. In fact that barely describes his comments on her. Mind you, I doubt that it is the last time we will hear such ‘jaw dropping insights’ from Trump when it comes to his likely opponent Kamala Harris.

All right, let’s turn to today’s focus – the state of US-China relations following China’s Third Plenum – really focusing on the Third Plenum. This gathering is the Third Plenum of the 20th Party Congress, which brought together the Party’s top leadership, including all the members of the Central Committee and the Politburo of the Chinese Communist Party.  Third Plenums in particular have especially been closely followed. Why? Well, it really began with the Third Plenum of the 11th Party Congress in December 1978. That Third Plenum ushered in a series of policy changes championed at the time by Deng Xiaoping. This Plenum was in retrospect the start of the ‘Reform and Opening Era’ which was followed by the Third Plenum of the 14th Party Congress when the leadership identified the goal of creating a ‘socialist market economy’. And, at the 18th Party Congress in November 2013, the CCP emphasized in that Third Plenum,  “the decisive role of the market in allocating resources,”. So, it is not unreasonable for experts, officials, etc. to look at each 5-year Third Plenum to identify signals for domestic economic reform which many then anticipate impacts on the global economy with China’s increasingly central role on the international economy.

It’s not a surprise, then, that there was a degree of anticipation for this Third Plenum which had been postponed for months, especially given the flagging Chinese economy. Our colleagues at CSIS including Jude Blanchette and Scott Kennedy described the tortured passage of policy creation:

According to a CCP website, the document went through 38 drafts. Right after the conclave ended, the CCP issued a communique (English, Chinese) summarizing the results of the meeting. On Sunday, July 21, the text of the full, far more detailed Decision (English, Chinese) was issued, which provides a stronger foundation for evaluating the meeting’s significance.

So where are we and what consequences are likely to follow the policy pronouncements?

There was a lot of anticipation. As pointed out by Bert Hofman in his Substack Post: 

This year’s third plenum was highly anticipated due to several factors.  The multitude of structural challenges that China’s economy is facing—debt, demographics, demand, deflation, and decoupling—require the robust economic reforms that third plenums tend to deliver. Second, China’s propaganda machine had built up the plenum’s importance, comparing it with breakthrough plenums of the pasts.

But for most analysts the outcomes have been rather disappointing. As pointed out, again by Bert Hofman, the hoped for policy tilt and more toward markets and/or greater domestic consumption is not evident in the Declaration:

This year’s plenum has dropped the decisive role of the market.  Instead, it  proposes that the party should “better leverage the role of the market.” This is hardly an encouragement of the private sector, whose confidence is still recovering from regulatory crackdowns and COVID lockdowns.  At the same time, in a press conference after the conclusion of the plenum Han Wenxiu, deputy director of the Central Financial and Economic Affairs Commission’s general office, and a main drafter of the plenum decision document, said that it was “necessary to create a favourable environment and provide more opportunities for the development of the private sector” in China.

Nevertheless, the omission of the market’s decisive role is in line with the more statist view on development that has been gaining grounds under Xi Jinping, and that the private sector will be increasingly guided by the party and restricted by regulation.

 

But the nature of reforms has changed—whereas in previous plenums reforms were predominantly aimed at facilitating marketization and liberalization of China’s economy, they are now meant to strengthen the policies and institutions that underpin Xi Jinping’s view of the world.

The party-state dominance seems to be fully in charge. And China can be expected to stay the current course for domestic economic growth and prosperity. As Scott Kennedy argues:

The Communique and Decision give the distinct impression that despite the economy’s various structural problems and cyclical downturn, the CCP is not going to change course, but instead will intensify its efforts to steer the economy on to a sustainable long-term path. The central focus for generating “high-quality development” will be on expanding focus on advanced technologies, what are now ideologically described as “new productive forces” (新质生产力).

 

That said, the Plenum’s analysis and policy proposals on the economy are likely to draw a more skeptical reaction from a variety of corners, domestic and international, because of its deeply statist focus: 1) A strong emphasis on the central role of China’s party-state in directing the economy; 2) The prioritization on investment and production as the drivers of growth and far less attention to consumption and households; 3) Continued support for the “public sector” and state-owned enterprises (SOEs) even while pledging to create a level playing field for private firms; 4) A discussion of the global economy that proposed incremental expanded market access to China while stressing the need for China to leverage its large market for its own benefit; and 5) The expansive discussion of national security and the need to align economic policy with national security, which as Jude Blanchette notes, is centered around the security of the CCP.

Scott’s colleague at CSIS, Claire Reade, underlines that trade partners are unlikely to be fooled by this Plenum Declaration and trade tensions as a result are unlikely to abate and that’s without taking into account the likely economic earthquake of a second Trump Administration:

The latest Third Plenum Decision declares that “overall, we have accomplished the reform tasks” set out in 2013. Since this is patently not the case, it is particularly discouraging. The decision ironically then highlights the gap between its triumphant conclusion and reality by going on to pledge that by 2029, the market will determine the allocation of resources, and private domestic and foreign enterprises will obtain equal treatment with state-owned enterprises.

On balance, trading partners need to continue to be savvy and proactive in taking steps to protect their economies against this massive, state-heavy economy, and companies need to look carefully at their own risk management.

It is not surprising that various Chinese experts are suggesting that a more incremental approach was always a more likely approach of the President and the Party. Here is Huang Yiping, who is the Dean of the National School of Development at Beida, or Peking University, assessing on the Pekinology Substack Post the policy approach coming out of the Third Plenum:

The first point you probably all saw is that the Asian market dropped after the Third Plenum, especially after the full document was out. So some people felt a little bit pessimistic. My own sense, my take, is that the market was probably too optimistic about what they should expect.

So some people felt a little bit pessimistic. My own sense, my take, is that the market was probably too optimistic about what they should expect.

 

In fact, if you were paying attention to what the President himself was saying and the message government officials were trying to convey to the public. It was pretty clear this would not be a grand-scale liberalization program. This will be about reform, about modernization. But the key approach, the President outlined himself very clearly. He called it running towards the problems and trying to correct them. So it’s more like a down-to-earth and very practical approach—when you try to see the problems, you try to overcome them.

 

So when you say, well, the market is disappointed. That’s probably true, but either because the expectation was just overly too high or No. 2, I think the reason why investors are not very upbeat at the moment is because the macroeconomy is not doing particularly well.

Huang Yiping is aware, however, of the consumption problem:

Weak consumption causes two problems. No. 1 is you obviously would easily end up with a domestic overcapacity problem, right? You produce a lot, you invest a lot, and then the final consumption demand is very weak. That means there will be a certain portion of the capacity you cannot find domestic buyers for, and you call it overcapacity. That’s why during the last 45, 46 years of Chinese reform, we almost always had the overcapacity problem.

I think the macroeconomic problem is there is a macro imbalance. Consumption and demand and supply are not very balanced. So that’s one big issue.

So where does that leave us? I anticipate there will be continuing if not growing trade tensions with the US and with Europe as well as China continues its ferocious pace of manufacturing exports and fails to encourage greater domestic consumption. At least to constrain these tensions and protective trade actions in the absence of the WTO, it might be useful to try and negotiate VERs – ‘voluntary export restraints’ with China. It is not optimal – far from it – but it could avoid a trade ‘bloodbath’.

An important opportunity has been missed for the moment and may in fact be even more dramatically lost if Donald Trump wins the next election in  November. Let’s hope the US electorate is smarter than that.

Image Credit: CNN

Challenging Leadership and Stability in the Global Order

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There are some recent insights worth examining. These insights underscore the current difficulties of US leadership in the global order. There are at least three critical issues that challenge US foreign policy leadership today. These include: the ‘shadow of Trump’; the continuing primacy demand of US leadership; and the harm inflicted by current US economic policy making. All three and more undermine continuing US foreign policy leadership in a changing global order.

First there is the ‘shadow of a Trump return’ to the US presidency. As quixotic as the first Trump term was, it appears that this prior Trump term likely will be a pale shadow of how a second Trump presidency will conduct itself. There are strong indications that Trump will direct retribution on those such as the Justice Department that he believes undermined his first term as President. And there will be others. And his inconsistent nationalist-isolationist impulses will likely once again be on full display in his relations with NATO, Ukraine, Russia and China. Buckle up!  It could be very ugly. But meanwhile the shadow of his return has caused friend and foe alike to hedge their relations with the US allies, Global South and Middle Power players, and, of course, presumed foes.

So, that is one source of current harm to US leadership. Then there is the continuing determination by the Biden Administration to maintain the US sole superpower leadership role. This can also be read as the US hegemonic position in the global order. The dilemma of US leadership in a changing power order is all too evident. And it is likely to carry forward into the next administration whatever the political stripe it is.

We were alerted to this dilemma really some time ago and by none other than former National Security Advisor, H.R.McMaster. McMaster was appointed in 2017 by President Trump and after leaving office he wrote about his career in: “Battlegrounds: The Fight to Defend the Free World”. There he raised the notion of ‘strategic narcissism”. While there is some contention over whether this concept was first voiced by the great international relations theorist, Hans Morgenthau, and McMaster raises that possibility, the point is the concept itself. Morgenthau did write an essay in 1978 called, “The Roots of Narcissism,” but McMaster in his book carried the concept forward in his description of ‘strategic narcissism’. For McMaster, ‘strategic narcissism’ was:

the tendency to view the world only in relation to the United States and to assume that the future course of events depends primarily on U.S. decisions or plans.

I believe this concept and its elaboration helps us with a central concept in US foreign policy making. This framing aids us in understanding US approaches to leadership in international relations. That view was underlined in the recent piece by Ben Rhodes. It is well worth reviewing the insights provided by Rhodes in this very recent Foreign Affairs (FA) article. Rhodes has been directly involved in US foreign policy where from 2009 to 2017, he served as U.S. Deputy National Security Adviser for Strategic Communications and Speechwriting in the Obama administration. He has been close to Democratic policymaking for a long time including being close with many in the current Biden Administration. As he wrote recently in the FA piece outlining what he sees as a needed reassessment of Democratic foreign policy making:

An updated conception of U.S. leadership—one tailored to a world that has moved on from American primacy and the eccentricities of American politics—is necessary to minimize enormous risks and pursue new opportunities. … Meeting the moment requires abandoning a mindset of American primacy and recognizing that the world will be a turbulent place for years to come. Above all, it requires building a bridge to the future—not the past.

In particular Rhodes points to the Trump ability in current presidential competition to build on the negative reaction to Democratic policy making in the period after the end of Cold War and the ‘triumph’ of US leadership:

Trump has also harnessed a populist backlash to globalization from both the right and the left. Particularly since the 2008 financial crisis,

large swaths of the public in democracies have simmered with discontent over widening inequality, deindustrialization, and a perceived loss of control and lack of meaning. It is no wonder that the exemplars of post–Cold War globalization—free trade agreements, the U.S.-Chinese relationship, and the instruments of international economic cooperation itself—have become ripe targets for Trump.

And these insights also alert us to yet another weakness in the international system – the fading of multilateralism, at least formal institutions. As Rhodes points out:

Second, the old rules-based international order doesn’t really exist anymore. Sure, the laws, structures, and summits remain in place.

But core institutions such as the UN Security Council and the World Trade Organization are tied in knots by disagreements among their members. Russia is committed to disrupting U.S.-fortified norms. China is committed to building its own alternative order. On trade and industrial policy, even Washington is moving away from core tenets of post–Cold War globalization.

Even the high-water mark for multilateral action in the Biden years—support for Ukraine in its fight against Russia—remains a largely Western initiative. As the old order unravels, these overlapping blocs are competing over what will replace it.

Finally, and raised by Rhodes in his article is the Biden Administration’s turn away from free trade and access to the US market as others lower their barriers to freer trade. Protectionism has become rife under the Biden Administration guise of ‘industrial policy’ and such protectionism has been defended, I’d say promoted by Biden folks such as Jake Sullivan. As Sullivan argued early in the Administration, in fact before that in fact, he promoted quite loudly a policy for the middle class. As reported by Michigan State Representative Mari Manoogian, Sullivan urged:

In February 2021, national security advisor Jake Sullivan clearly defined the overarching theme of President Joe Biden’s foreign policy strategy as “foreign policy for the middle class.” The Chicago Council for Global Affairs contends that this Biden doctrine “recogniz[es] the linkages between American domestic strength and U.S. ability to maintain international competitiveness.” Under this new framework, foreign policy decisions, Sullivan indicated, would use the following simple rhetorical question as a basic metric for success: “Is it going to make life better, safer, and easier for working families?

But as FTs Martin Wolf has been loudly pointing out for some time in fact this is a strategy of trade protectionism cloaked within the frame of industrial policy all too frequently.  As Wolf recently wrote at his FT column:

Industrial policy works if it changes the structure of the economy in a beneficial direction. Unfortunately, there are well-known reasons why the attempt could fail. Lack of information is one. Capture by a range of special interests is another. Thus, governments may fail to pick winners, while losers may succeed in picking governments. The more money is on the table, the more the latter is likely to be true. … So, how should we assess this shift in US policy towards industrial policies, matched, on the Trumpian right, by a desire to return to the high tariffs of the late 19th and early 20th centuries?… The answer is that there are now at least three bipartisan positions: nostalgia for manufacturing; hostility to China; and indifference to the international rules that the US itself created. This, then, is a new world, one in which the international trading order could reach a breaking point quite quickly.

All of this is a dramatic threat to the stability and prosperity of the current global order.

Image Credit: E-International Relations

 

 

 

Biden Trade Protectionism

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There is a continuing interest in capturing the state of the current global political economy and the global economic policymaking of the major states – the US, China, India, Brazil, Europe, Japan, Korea, and others. Not surprisingly the debate is most active in the US. Experts and officials alike are intent in describing current Biden Administration policy. Most recently some experts have been labeling the global economic framework as ‘post- neoliberalism’, defining it, apparently, in contradistinction to the previous dominant policy framework – ‘neoliberalism’.  The dilemma of course is a definitional one as much as anything else  – the terms are well known, their meaning not so much. 

Recently, colleagues of mine have kicked off a discussion. One, Dan Drezner, from the Fletcher School and the Substack ‘Drezner’s World’ has waded into the policy mix, actually in an article from Reason titled, “The Post-Neoliberalism Moment”. As Dan early in the piece thought to frame first neoliberalism he suggested the following: 

The term neoliberal has been stigmatized far more successfully than it has been defined. For our purposes, it refers to a set of policy ideas that became strongly associated with the so-called Washington Consensus: a mix of deregulation, trade liberalization, and macroeconomic prudence that the United States encouraged countries across the globe to embrace. These policies contributed to the hyperglobalization that defined the post–Cold War era from the fall of the Berlin Wall to Brexit.

Dan made it clear, however, that this economic model no longer dominates: 

In the 16 years since the 2008 financial crisis, neoliberalism has taken a rhetorical beating; New Yorker essayist Louis Menand characterized it as “a political swear word.” Until recently, no coherent alternative set of ideas had been put forward in mainstream circles—but that has been changing. 

And what has been the replacement, well Dan suggests that its the politicians and officials that have been most active in leaving neoliberalism behind:

These ideas are being shaped by powerful officials. The primary difference between Biden and Trump in this area is that Trump’s opposition to globalization was based on gut instincts and implemented as such. The Biden administration has been more sophisticated. Policy principals ranging from U.S. Trade Representative Katherine Tai to National Security Adviser Jake Sullivan have been explicit in criticizing “oversimplified market efficiency” and proposing an alternative centered far more on resilience.

For elements of this policy transformation one need only look to recent Biden Administration policies including the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act. As Dan concludes, the totality of these policy initiatives is: “all represent a pivot to industrial policy—a focus on domestic production.” 

In constructing this post-neoliberalism model, folks argue that there is a necessary trade-off between resilience and efficiency. As Dan suggests: “A key assumption behind post-neoliberalism is that policy makers can implement the right policies in the right way to nudge markets in the right direction.” 

Now another colleague of mine, Henry Farrell from Johns Hopkins, tries his hand at a definition in a recent Substack Post at his ‘Programmable Mutter’, titled, “If Post-Neoliberalism is in Trouble, We’re all in Trouble”. The Post partly responds to Dan, and further articulates Henry’s view of post-neoliberalism. As he describes it: 

A key assumption behind post-neoliberalism is that policy makers can implement the right policies in the right way to nudge markets in the right direction. … I see post-neoliberalism less as a coherent alternative body of thought, than as the claim, variously articulated by a very loosely associated cluster of intellectuals and policy makers, that markets should not be the default solution. … More generally, post-neoliberalism isn’t and shouldn’t be a simple reverse image of the system that it has to remake. It can’t be, not least because it has to build in part on what is already there.

The dilemma, as I see it, for understanding any of these  post-neoliberalism models, and also, though less intensely – neoliberalism, is pretty much all definitional. The base of the problem is not really understanding what ‘resilience’ and ‘efficiency’ really mean. And that in turn causes confusion over trying to then understand ‘globalization’.  And that unfortunately builds vagueness into our understanding of these economic models especially over what we are to understand to be – post-neoliberalism. 

But what isn’t so difficult to understand is the problem that has been created in this post-neoliberal period by current trade policy especially as seen in the United States. Layer it as much as you can but the Biden Administration policy is ‘protectionist’ and the Trump Administration, was, and will in all likelihood be, even more protectionist if Trump is returned to office in late 2024. As Inu Manak has written in a recent piece for the Hinrich Foundation in Australia – a foundation focused on global trade: 

Trade has become toxic, not just on the campaign trail, but in the way that it is discussed by both Democrats and Republicans. “Traditional” US trade policy, which began to form its nearly century-old roots under the leadership of President Franklin Roosevelt and his Secretary of State, Cordell Hull, has been described by US Trade Representative Katherine Tai as “trickle-down economics,” where “maximum tariff liberalization…contributed to the hollowing out of our industrial heartland. … The current US approach to trade, if it can be called an approach at all, risks weakening US influence abroad and economically disadvantaging Americans at home. It rests on the false belief that retrenchment of “traditional” US trade policy—by putting America First or catering to a select group of US workers and branding such efforts as “worker-centric trade policy”—will somehow restore the United States to a position of hegemonic dominance with no peer competitor. 

The Biden Administration’s allergy to new trade policy initiatives can be seen in its Indo-Pacific economic strategy – the IPEF – the Indo-Pacific Economic Framework for Prosperity. This framework is intended to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for the fourteen countries negotiating the IPEF. The countries included are: Australia, Brunei Darussalam, Fiji India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam with the United States. The IPEF partners represent 40 percent of global GDP and 28 percent of global goods and services trade. Negotiations have proceeded well for three of the four pillars including supply chains, clean economy, and fair economy pillars but the Biden Administration has decided not to proceed in negotiating for fair and resilient trade. As William Reinsch at CSIS described the situation: 

The commentariat is busy these days debating the future of the Biden administration’s trade policy in the wake of its effective abandonment of the trade pillar in the Indo-Pacific Economic Framework (IPEF) negotiations. (The administration says the talks will continue, and I imagine they will, but I don’t see a conclusion, at least before the election.) The policy is clearly a failure at this point, …

As colleague Ryan Haas of the Brookings Institution, and a former US official – from 2013 to 2017, Hass served as the director for China, Taiwan and Mongolia at the National Security Council (NSC) staff – underscored in his examination of trade policy in the Indo-Pacific: 

These constraints will be most visible on trade. The absence of a credible trade and economic agenda for Asia has been the Biden administration’s greatest weakness. Political and national security imperatives will continue to drive the United States’ approach to trade. Do not expect any outbreak of creativity or boldness on trade by the Biden administration in 2024.

The Biden Administration failed to roll back the tariffs imposed by the Trump trade folk. It is a major failure of US trade policy and an expression of the Biden SAdministration’s trade protectionism. It bodes ill for growing the global economy and achieving productivity gains for the United States and others.

Image Credit: E-International Relations

This Post originally appeared at my Substack Post Alan’s Newsletter – https://open.substack.com/pub/globalsummitryproject/p/biden-trade-protectionism?r=bj&utm_campaign=post&utm_medium=web&showWelcome=true

 

The Strategic Aspects of Biden Trade Engagement in the Asia Pacific

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The US foreign policy lexicon has changed. It used to be Asia-Pacific. Now for the Biden Administration it is all about Indo-Pacific. Initially I started this post in the following way: “Please, enough of the Indo-Pacific. Listen to the Biden Administration and it seems that that is all there seems to be in Asia.” Well, that is where the Biden Administration seems to be. Do I think US strategic actions really ‘sucks in India’, one of the world’s most elusive allies, probably not. But I’ll leave the Biden officials to figure that out. So, they will continue to trumpet, ‘Indo-Pacific’. Many of us will continue to use, ‘Asia-Pacific’.

More importantly, however, let’s turn our attention to the substance of Biden strategic policy in this key, if not the key, region in the international system. Our Brookings colleague, Ryan Hass at EAF briefly described Biden foreign policy efforts in the region over the last year – hard to believe that it is only a year and a bit:

America is back’, Joe Biden proclaimed in his first address as president to a global audience. Over the year that followed, the Biden administration delivered a mixed bag in its approach to the Indo-Pacific — several bold strategic strokes, greater than expected continuity with the Trump administration on China policy and timidity on trade policy.

 

A larger challenge for the Biden administration will be its absence of an economic agenda. They have announced plans to release an Indo-Pacific economic framework in 2022. Given that the framework reportedly will be non-binding and will not include trade or investment liberalisation, it may not get a lot of uptake, particularly when the region’s focus is on realising benefits from the Regional Comprehensive Economic Partnership and expanding the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

This is the heart of the dilemma in the Biden approach to the Indo-Pacific. Given the growing influence of China, does the Biden policy focus on the geostrategic, or on the regional and global economic. Opinion is clearly divided. Maybe the most surprising is Alan Beattie, the Financial Times trade specialist and opinion columnist. I would have believed, especially given some of his recent trade reviews that he would have strongly urged a focus on the economic but I was wrong. Here he is on February 2nd in an  FT article, titled: “The US doesn’t need CPTPP to assert itself in the Asia-Pacific”:

As for geopolitical clout, recent experience suggests actual firepower is more important than the economic kind.

Trade deals don’t automatically mean political alignment or influence. …

 

None of the US’s strategic capabilities — military might, security deals like the Australia-UK-US agreement, cyber security expertise, intelligence-sharing, imposing harsh financial sanctions via the dollar payments system— require CPTPP membership. And all are surely more important in projecting American influence.

 

It’s true that US economic diplomacy over the past decade has been comically weak and inconsistent. It has been undermined by the excessive fear of trade deals among the American public, encouraged by lobbies like organised labour and the steel industry. But its ineptitude over the CPTPP should not lead to a counsel of despair. Trade deals are important, but they are neither necessary nor sufficient for American foreign policy to assert itself in the Asia-Pacific.

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The March of Global Order

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This Post is a collaboration with Yves Tiberghien Professor of Political Science at UBC and RisingBRICSAM blogger Alan Alexandroff.both Principals at the Vision20. It underscores that key actors in Asia, Europe and elsewhere are not waiting on the United States to return to global collaboration and multilateral action.

Out of Asia there is a major push on various global governance fronts. The world is not waiting for the United States. And in fact Joe Biden, the President Elect and his people are going to have to think ‘hard’ about whether they are prepared to be ‘left behind’ in the march forward of various multilateral gatherings. Are the demands of domestic politics and the Democratic Party’s distaste for ‘free trade arrangements’ going to leave the Biden Administration lukewarm to rejoining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP? Lukewarm leaves the United States on the outside of efforts to integrate trade and investment in Asia and beyond.

While the Regional Comprehensive Economic Partnership (RCEP) is a limited integration of trade and investment, nevertheless the RCEP is the largest regional agreement concluded in Asia. The Pact covers 2.2 billion people and 15 countries . It includes China and other major economic actors including Japan and South Korea. As the NYTimes (2020) points out:

The pact will most likely formalize, rather than remake, business among the signatory countries. Its so-called rules of origin will set common standards to determine whether a final product qualifies for duty-free treatment, potentially making it simpler for companies to set up supply chains in several different countries.

While the RCEP lacks significant and needed steps to further liberalization and common regulation in key areas such as services trade, e-commerce, intellectual property protection and the elimination of manufacturing subsidies it is a key advance for the Asian region. As pointed out by Yves Tiberghien (2020) in a just published EastAsiaForum post:

RCEP will advance the acceleration of regional economic integration in Asia, and pushes back on Trump’s strategy of decoupling of US allies from China. While Southeast Asian countries, Japan, South Korea, and Australia may all be wary of China at the moment and seek diversity in their trade relations, they simply cannot sustain their prosperity without stabilisation of trade relations with China. Asia is criss-crossed by ever intensifying value chains, and China’s still an integral part of that. Vietnam and other ASEAN countries are rising as manufacturing hubs, but that’s a process accompanied by increased imports of intermediary goods from China.

But RCEP is also of global significance. The agreement, signed off in the middle of a pandemic and US–China trade war, reminds the world, first, that East Asia countries, unlike the Americas and Europe, have broadly succeeded in controlling COVID-19. That success, across different types of political regime, with a similar respect for science, expertise, and trust in government, was accompanied by general acceptance of mask-wearing and community rules.

Second, it also reminds the world that the biggest trading group in the world economy is doubling down on the rules-based multilateral system. Research by Homi Kharas shows that most of the increase in the global middle class until 2030 will take place in China and Asia.

 

RCEP also embeds the first trilateral agreement between China, South Korea and Japan, itself a huge deal. The common interests of these three countries have over-ridden tense geopolitical relations across the Asia Pacific. RCEP underscores the pragmatic efforts of Japan to balance its strong security stance on the South China Sea and in the East China Sea with stability in the bilateral relationship with China. After the completion of the CPTPP, the EU–Japan partnership, and the US–Japan agreement, this marks the completion of the Abe trade agenda (even though Japan would have preferred India to join RCEP). …

As well, RCEP brings significant institutionalization to Japan’s economic relations with China, including a new chapter on e-commerce (with a ban on data localisation requirements), rules on government procurement, and rules on intellectual property rights that go beyond WTO rules. The same calculations drive Australia’s readiness to sign RCEP in the midst of a bitter, but hopefully short-lived, trade fight with China.

The coming Biden Administration needs to rethink its reluctance to rejoin the CPTPP. If it fails to do this it could be on the outside of growing multilateral economic integration and possibly more.

Image Credit: Vietnam News Agency, via Associated Press.