Whither the Multilateral Trading System?

Dec 6, 2017 Daniel Gros

The global economy today is dominated by three major players – China, the EU, and the US – with roughly equal trading volumes and limited incentive to fight for the rules-based global trading system. With cooperation unlikely, the world should prepare itself for the erosion of the World Trade Organization.

BRUSSELS – Free trade seems to have few supporters these days. Though actual trade volumes are recovering from the post-crisis recession and drop in commodity prices, “globalization” has become increasingly contentious, as exemplified by the election of US President Donald Trump on the back of a promise to rip up international agreements and get tough on trade partners. What does this mean for the future of the rules-based trading system?

Some 60 years ago, when the current rules-based global trading system was conceived, the United States was the world’s sole economic “hyperpower,” possessing unquestioned dominance in the day’s most advanced manufacturing industries. With enough power to impose rules, and enough dominance to be able to count on accruing the largest share of the benefits, it could – and did – perform the role of “benevolent hegemon.”

As Japan and Europe recovered from World War II – with the latter getting an added boost from economic integration – America’s lead began to dwindle, and by the 1970s and 1980s, the US was sharing power over the world’s trade agenda with Europe. Nonetheless, because the US and Europe share so many common interests, they generally adhered to a cooperative approach.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Already have an account? Log in

Support High-Quality Commentary

US President-elect Joe Biden may have promised a “return to normalcy,” but the truth is that there is no going back. The world is changing in fundamental ways, and the actions the world takes in the next few years will be critical to lay the groundwork for a sustainable, secure, and prosperous future.

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world’s foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads and book reviews, Say More contributor interviews, The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

Subscribe Now

new comment has been posted. new comments have been posted.

0 Comments on this paragraph, 7 in all 7 Comments on this article

Charlie Hardy Dec 11, 2017

Maybe even a catatonic border
A new reply to this comment has been posted.
Charlie Hardy Dec 11, 2017

So where does that leave U.K.? If as is likely UK can't or rather ( given the state of complete confusion and cognitive dissonance in the UK ruling 'class' ) is unable to define or reach a 'deal' with EU on Brexit Won't even have WTO rules to guide the relationship. So a cantonic border with mayhem the ying and yang of it!
A new reply to this comment has been posted.
B Wilds Dec 10, 2017

People are naive if they do not recognize the distinct advantage a state-driven economy has over free enterprise, at least initially. A bit predatory in nature, such a system can quickly exploit the weaknesses of its competitors. It is important we recognize China is a state-run economy based on a business model that is geared to expand by crushing the competition. Subsidizing those companies working within its system in a multitude of ways helps it achieve this goal. The article below explores the ramifications of this.

http://brucewilds.blogspot.com/2017/12/china-state-driven-business-model.html
A new reply to this comment has been posted.
Matt Stillerman Dec 10, 2017

Mr. Gros did not mention that China is a world economic power that is operating within the WTO under rules meant for developing nations. He also does not mention that China has historically ignored the rules of the WTO when they are inconvenient. And, that the cravenness of the other major countries has permitted this to happen. And finally, that the middle and lower classes of those countries have borne the brunt of the impact of Chinese violations. It is no wonder that they are angry.
A new reply to this comment has been posted.
B Wilds Dec 9, 2017

Follow the money and the United States huge trade deficit with Mexico becomes even more disturbing as you begin to understand where the money eventually ends up. When you start thinking about all the money and jobs we shift into Mexico each year you would think by now Mexico would be rolling in cash.

A bit of research quickly confirms that the money Mexico receives by way of trading with America quickly passes through its lands and flows to Asia. It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route. More on the problem with this in the article below.

http://brucewilds.blogspot.com/2017/11/follow-money-trade-deficit-with-mexico_21.html
A new reply to this comment has been posted.
Ariel Tejera Dec 8, 2017

Great article from Mr Gros. I have one question. Everybody discusses about the future of Global Trade treaties. It also seems that Chinese practices have made them irrelevant. The question is if this implies that international trade flows will be reduced, as a consequence. My perception is that they won't. Maybe we are just discarding obsolescent laws ?
A new reply to this comment has been posted.
Anselm Dohle-Beltinger Dec 7, 2017

There is a little error in timing: the US wasn't able to export manufactured goods in sufficient amounts to offset their imports long before fracking became an access road to energy autonomy and this autonomy still rests to be seen in the future as the last years' fall of energy prices halted development of this kind of sourcing.
A new reply to this comment has been posted.