WITA’s Friday Focus on Trade | January 20, 2023




Video: The Case for Trade, USTR Katherine Tai at the World Economic Forum

A cutback in trade and investment threatens economic, social and environmental costs and lowers consumer benefits. Yet states fear threats to security and values from global commerce.
What new narrative is needed to revitalize the global trading system?
This session is directly linked to the ongoing work of the Trade and Investment Platform of the World Economic Forum.
Martin Wolf, Associate Editor and Chief Economics Commentator, The Financial Times
Veronica Nilsson, Acting General Secretary, Trade Union Advisory Committee to the OECD
Ahn Duk-Geun, Minister for Trade, Ministry of Trade, Industry and Energy of the Republic of Korea
David Schwimmer, Chief Executive Officer, London Stock Exchange Group plc
Ambassador Katherine Tai, United States Trade Representative
Sean Doherty, Head, International Trade and Investment; Member of the Executive Committee, World Economic Forum Geneva
01/18/2023 | World Economic Forum


The WTO’s National Security ‘Thin Ice’ Moment Could Shatter Reform Talks

The already-beleaguered World Trade Organization dispute settlement system suffered new blows in December when multiple panels found that U.S. actions were not justified on national security grounds, including U.S. tariffs on steel. 
The United States wasted no time in rejecting the findings, with U.S. Trade Representative Katherine Tai commenting that the WTO was “on very, very thin ice,” prompting angry reactions in Europe. The cases have made the critical work of restoring a consensus on WTO reform considerably more difficult. 
While reactions to the panel decision and its aftermath have focused on the Biden administration’s rejection and what it portends for the WTO, that reaction would have been the same regardless of the product and circumstances, and every U.S. president since Truman would have done the same. Any effort to move beyond this new crisis needs to start with recognizing that fact and accepting that bringing such damaging and shortsighted cases should be avoided in the future.
From the outset of the WTO’s predecessor, the 1947 General Agreement on Tariffs and Trade (GATT), the United States has been clear in its position that a party to the GATT and WTO may judge for itself when its national security interests justify raising tariffs or otherwise disregarding multilateral trade rules. Trade experts should not be second-guessing such decisions. The United States was not alone in taking this position; at various times, many other members have agreed, including some who would later challenge the U.S. steel tariffs such as the European Union and Norway. 
This position was minimally disruptive to the trading system because of a strong norm that national security was to be invoked only rarely, and because creative trade diplomacy contained the fallout when it was. That norm was broken during the Trump years, not only when he initiated several national security investigations ranging from steel to autos, but when others, including China and Russia, increasingly restricted trade in the name of national security. 
01/07/2023 | Bruce Hirsh | The Hill



Fighting Global Protection: Why the Economist is Mistaken


Policies are not “protectionist” because they violate WTO trade rules. They are protectionist if they distort global trade by generating beggar-thy-neighbor trade surpluses. Because large, persistent trade imbalances would be all but impossible in a well-functioning global trading system, the irony is that U.S. policies to reduce its deficit actually enhance free trade.
Earlier this month, the Economist published a widely commented-upon article that warned about what it saw as a worrying change in American trade policy. For decades, according to the authors of the article, U.S. trade policy worked to “to tear down the subsidies hurting American exporters and gumming up global trade.” But now, “rather than trying to get other countries to cut subsidies, the Biden administration’s unabashed focus is on building a subsidy architecture of its own, complete with the kinds of local-content rules that American officials once railed against.”
“The economic thinking that underpins much of this logic is dubious,” the article goes on to claim, but the changing U.S. strategy is driven by a political momentum that makes even such dubious logic hard to reverse. What is worse, the article argues, it is shifting a global regime that once valued open trade and economic efficiency toward one that will be less efficient and more unfair.
For America’s allies, from Europe to Asia, it is a startling shift. A country that they had counted on as the stalwart of an open-trading world is instead taking a big step towards protectionism. They, in turn, must decide whether to fight money with money, boosting their subsidies to counter America’s. If the result is a global subsidy race, the downsides could include a fractured international trading system, higher costs for consumers, more hurdles to innovation and new threats to political co-operation.
While there is much in the article that is intelligent and useful, the Economist is wrong to imply that we once lived in a global regime that valued open trade and economic efficiency. What is more, its approach to trade-related policies—in the United States and elsewhere—seems to rest on a bureaucratic rather than a functional view of what constitutes a well-managed global trade regime.
This is the wrong approach. The global trade and capital system of the past four to five decades is among the most unbalanced, distorted, and protectionist in history. I say this not because of the number of deviations from WTO-proscribed behavior but simply because of global trade imbalances. Trade imbalances in the past fifty years have been among the largest ever recorded. This matters, because in an efficient, well-managed, and open trading system, large, persistent trade imbalances are rare and occur in only a very limited number of circumstances.
…In an article this week in the Financial Times, Martin Wolf argued that while capitalism may be becoming somewhat less global, “an internationally open capitalism remains the foundation of future prosperity. It needs to be reformed. It must not be abandoned.”
I agree and would add that the primary direction of reform should be to reduce the deep, persistent trade imbalances that undermine global trade. Among other things, this might involve reviving Keynes’s proposal at Bretton Woods to penalize economies that choose to run large, persistent trade surpluses. If U.S. policies force a reduction in global trade imbalances by reducing the U.S. deficit, even if they are deemed “protectionist” policies by trade bureaucrats, they are clearly not protectionist. In fact, by partially reversing distortions in the distribution of income in trade surplus countries, these policies will actually be trade-enhancing.
01/18/2023 | Michael Pettis | Carnegie Endowment for International Peace


The World Bank, the IMF, and the GATT/WTO: Which Institution Most Supported Trade Reform in Developing Economies?

The 1980s and 1990s saw a policy revolution in developing countries in which many highly protected (if not closed) economies were opened to world trade. These reforms were largely undertaken unilaterally, but international economic institutions such as the World Bank, the International Monetary Fund, and the General Agreement on Tariffs and Trade/World Trade Organization supported these efforts. This paper examines the ways in which these institutions promoted, or failed to promote, trade policy reform during this pivotal period.
The decade from 1985 to 1995 was a period of dramatic trade policy reform, particularly by developing countries. Many of them shed import substitution policies that had been in place since the 1950s and embraced exchange rate and trade reforms that opened their economies to the world. In doing so, previously closed economies such as China and India became open to world trade and investment, and other emerging markets in Latin America, Asia, and Africa reduced their trade barriers and increased their participation in global trade. These policy changes reshaped the world economy, enabled the emergence of global supply chains, and produced the high level of interdependence that we see today.
Most countries opened their economies by performing the trade policy threestep: (1) devaluing their currencies and establishing competitive exchange rates, (2) abolishing foreign exchange controls and converting quantitative import restrictions into tariffs, and (3) gradually reducing the dispersion and level of those tariffs. In most cases, these reforms were undertaken unilaterally, often in the midst of an economic crisis. The lessons of experience, such as the success that Taiwan and Korea enjoyed after opening their economies in the 1960s, along with changing ideas about economic policy, contributed to the decision to reform their trade policies.
12/31/2022 | Douglas A. Irwin | Peterson Institute for International Economics


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