Protectionism: back to the future?
With current and future trade agreements in question, what is the way forward for international trade? The FT's Gillian Tett chairs a panel at the World Economic Forum in Davos.
Produced by Daniel Garrahan and Tom Hannen
GILLIAN TETT: We're going to be talking about protectionism, Trump, Brexit, global trade flows, and, yes, the WTO as well.
Are you scared about protectionism?
DAVID COTE: Free trade has generally been a good thing overall, yet we have these arguments every decade, every century, just like we do about productivity. And it's like we just never really learn our lesson that this a good thing and we ought to find a way to make it work.
All that being said, do I really think we're going to go back to protectionism? I don't really know yet. And I could promise you that I'm paying a lot of attention to it because trade matters to us. To your point, half our sales are outside the US, so we pay a lot of attention to this.
But you'd have to say-- if you look at agreements within the US, like NAFTA, it does need to be upgraded.
DAVID ABNEY: When you talk about protectionism, I don't think now is the time to overreact. I mean, are things turning the way that we would like? The answer is no. Would we have liked TPP to have been approved, and would we like for the new administration to be supported the way that it was written? Of course we would.
I believe the power of globalisation-- and you just look at e-commerce. If there's nothing else that's going to drive globalisation, global e-commerce is going to.
GILLIAN TETT: Prime Minister May has talked about entering the WTO. Will it be seamless and easy?
ROBERTO AZEVEDO: The more they try to change what they do and do something different, of course the more difficult it is. They have to negotiate with 164 members.
GILLIAN TETT: If you talk to UK officials these days-- Theresa May herself mentioned this, this morning-- they all say things like, well, never mind, we'll go and negotiate trade deals with other EU countries quickly. We've already had Donald Trump appearing to indicate that he'd like to do a quick deal with the UK. The reality, though, is-- going around, talking to people in Davos-- is that the UK is going to be competing with the EU to strike trade deals, isn't it?
CECILIA MALMSTROM: We are negotiating around 16, 17 trade agreements right now, preparing for another five or six big ones. So we will be busy, and maybe the UK as well then. It is natural that the UK then-- once they have left the European Union-- that they also seek to negotiate.
GILLIAN TETT: You're negotiating 17 trade deals at the moment, then the UK will be the 18th in the queue. Is that right?
CECILIA MALMSTROM: Yes.
GILLIAN TETT: I mean, are you worried about a US-China trade war?
DAVID COTE: See, I'm reluctant to jump too quickly and talk about the disaster when we don't really know what it's going to be yet.
DAVID ABNEY: Well, and I'm an eternal optimist. And I don't believe there's going to be a trade war.
GILLIAN TETT: You have worked in Washington, and now in Beijing. Have you ever met Donald Trump?
MIN ZHU: Never. I hope I have a chance to meet him, and maybe can explain to him his situation. Yeah.
GILLIAN TETT: In what way? Tell us what his situation is.
MIN ZHU: I mean, there's a few things. I mean, I can tell you, for example, a few years ago, the US imposed 45% tariffs on Chinese tyre export to the US. So China's tyre export to the US dropped from 14 million one year to 5 million. It dropped almost 2/3, but price increased.
So they saved US jobs-- 1,200-- but US consumers paid $12 billion. So per job saved, the US consumer paid $1 million. Is this a good deal?
And China export lost. So there's no winner in a trade war. And so he would name China [INAUDIBLE] manipulators. Well, that's [INAUDIBLE] the WTO and also IMF.
You can impose 45% tariffs across all the Chinese exports to the United States. It would cut, basically, China's GDP growth by 1/3. It will cut US GDP growth in half.
GILLIAN TETT: It will cut-- sorry, say it again.
MIN ZHU: It will cut Chinese GDP growth in 1/3.
GILLIAN TETT: By 1/3?
MIN ZHU: It will cut US GDP growth by half. It will hurt both. It's serious. So I mean, this is not a trivial issue. It's a pretty serious issue, right?
ROBERTO AZEVEDO: I think we should try not to talk ourselves into a trade war. And I think we're seeing a lot of that. Trade wars should be taken seriously.
The major difference between what happened after 2008 and what happened in the '30s is that now we have multilateral rules. In the '30s, we didn't. So when unilateral action was taken, there was a domino effect. And that domino effect wiped out 2/3 of global trade in three years. You don't want to see that now. That will be a catastrophe of untold proportions.
So I think we should strengthen the multilateral system. There are tools to handle a lot of the complaints that we hear. There are tools in the WTO that you can use.
GILLIAN TETT: At the core of this issue is a deadly serious question, because in the next 48 hours, we're going to have a new leader of the Free World who has very different aspirations about how to set the global order.
You can argue that he's captured a sense of anger that is sweeping through the Western world-- anger at inequality, anger at the fact that many of the elites, including us here in the room, have been very slow to recognise the degree to which inequality has been rising and frustration has been rising amid this free trade boom. And yet if nothing else, what's going to happen in the next 48 hours should lay down a challenge to all of us who do believe in free trade to try and explain the principles better and the benefits, and also to try and make it work more effectively in the world.
So best of luck to all of you, and thank you for a great debate.