Wanted: new hegemon for the global trading system. Must have: serious economic heft, a reasonably united and far-sighted domestic constituency and strong commitment to multilateral rules. The next round of interviews will be held at this weekend’s G7 summit in Canada. (Incidentally, entre nous, whatever you may have heard, the last occupant of the post wasn’t entirely a model employee: see further down for details.)
The HR director for globalisation is destined for disappointment: this position will remain unfilled for the foreseeable future. Donald Trump has turned the US from the anchor of the world economy to its wrecking ball in record time. But the only two possible contenders big enough to take over are China and the EU, and each fails one of the job specifications. The former, whatever speeches President Xi Jinping gives at Davos, is bent on establishing its dominance in a range of low- and high-tech fields by almost any means necessary, breaking rules it deems inconvenient and, more importantly, preventing new international regulations emerging to stop it.
That leaves the EU, whose problems lie with the second criterion, its domestic constituency. As it happens, the extraordinarily clodhopping nature of Mr Trump’s policies accidentally helped to maintain internal unity between EU member states. Germany was keen to dangle various incentives in front of the US, including a possible trade deal covering only industrial goods, to forestall the threatened steel and aluminium tariffs. This would render unnecessary the retaliation the EU had already threatened and prevent the trade war spreading to Germany’s precious car industry.
That goods-only deal was always implausible. Not only does agriculture form an indispensable part of the US’s offensive export interests, but there would almost certainly be widespread public revulsion in Europe to a deal with Mr Trump, particularly given the EU’s commitment to making adherence to the Paris climate accord an indispensable part of any new trade agreement. The US rejected that offer: the EU looks weak for having made it.
On this occasion, Mr Trump threatening steel and cars at the same time made the calculation about escalation and trade-offs moot. But the conversations within the EU over the past few weeks, with Germany keen to placate rather than take a stand on principle, do not show a global leader in the making.
Particularly disturbing was a sense expressed by many EU officials that a relatively benign outcome would be for the US to impose quotas rather than tariffs, on the model of the deal it forced on Seoul to limit Korean steel exports to 70 per cent of their three-year average. If the quota were sufficiently high, perhaps 100 per cent of recent exports, retaliation could be minimised, the EU could file a token case at the World Trade Organization which would crawl slowly through the clogged-up plumbing of the dispute settlements system, and life would carry on much as before.
The idea is seductive but dangerous. The whole idea of normalising trade managed by pure quantitative measures such as quotas is a deeply retrograde one. It was explicitly constrained by WTO law adopted in 1994, partly as a reaction to the managed trade of the 1980s between, for example, the US and Japan on cars, in which Tokyo accepted “voluntary export restraints”. The quotas currently proposed by the US are on imports, not exports, and not quite as egregious. But the idea that the EU would be negotiating with quotas in mind as a positive outcome does not say much for its alleged role as a guardian of world trade law. It would be trading a short-term quiet life for a long-term weakening of the multilateral system. This kind of defeatism is not how global anchors are made.
Germany has a habit of undermining EU unity for its particular export interests. Angela Merkel, for example, badly undercut the European Commission in 2013 by withdrawing her support for antidumping tariffs on solar cells against China, one of the big trade disputes of the day, fearing retaliation against German companies selling into China.
As an aside, over-optimistic Brexiters of the “they want to sell us cars” stripe were actually somewhat accurate when they said that EU interests were disproportionately influenced by German auto manufacturers. They were merely wrong in judging that a tariff on a finished car sold into the UK outweighed the wider threat to the EU single market. German manufacturers feared that giving the UK a sweetheart deal would encourage other member states to break away, damaging the supply chains they have painstakingly constructed across eastern Europe.
Having said all of this, the state of multilateral governance was not in tremendous shape even before Mr Trump turned up. For decades the US has proved something of an unreliable hegemon. As with the EU, it is too often dominated by small, well-organised lobbies. In the 1990s it gave the WTO a bad name by using it as a vehicle to advance restrictive intellectual property rights; in the 2000s it helped to kill an entire multilateral trade deal, the Doha round, by declining to stand up to its own heavily subsidised farmers. Mr Trump’s attacks on the WTO’s dispute settlement mechanism did not come out of a blue sky. Barack Obama’s administration was also sharply critical of the general slant of its rulings, and blocked the appointment of judges whose views it did not like.
Still, as the world trading system is in the process of discovering, it was a whole lot better than nothing. No plausible candidate presents itself for the post of benign hegemon, and the position is likely to remain open for a very long time.
From the FT
- G7 finance ministers took the highly unusual step of explicitly criticising the US tariffs.
- Rana Foroohar argues Trump should be focusing his trade wrath on tech, not steel.
- A Eurosceptic think-tank says Brexit Britain should be a rule-taker on goods but not services.
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