Opinion – Martin Wolf: In an age of disorder, open trade is at risk

We have now entered a third epoch in the history of the post-war global economic order. The first was from the late 1940s to the 1970s and was characterized by liberalization, especially among high-income countries closely linked to the United States in the context of the Cold War. Starting in the 1980s and especially after the fall of the Soviet Union, more radical forms of economic liberalism, known as “neoliberalism”, spread across the world. The creation of the World Trade Organization in 1995 and the accession of China in 2001 were the milestones of this second era.

We are now entering a new era of world disorder, marked by domestic mistakes and global friction. Domestically, there has been a failure, particularly in the US, to adopt policies to cushion adjustments to economic changes and provide security and opportunity for those adversely affected. The rhetorical maneuvers of nationalism and xenophobia, however, focused their anger on “unfair” competitors, especially China.

In the United States, the idea of ​​strategic competition with China also became increasingly bipartisan, while China itself became more repressive and introspective. With the Ukraine war, these divisions deepened.

How can a liberal commercial order sustain itself in this world? “With great difficulty” is the answer. But there is so much at stake for so many that all who have influence should try.

Fortunately, a large number of less powerful countries understand what is at stake. They should be willing to take the initiative, as far as possible, regardless of what the belligerent superpowers decide to do. In this context, even the limited successes of the WTO ministerial meeting in Geneva are significant. They at least kept the machine running.

It is more important, however, to clarify and then address the most fundamental challenges to the liberal trading system. Here are five of them.

First, sustainability. Managing the global commons has become humanity’s most important collective challenge. Business rules must be fully compatible with this objective. The WTO is an obvious forum for combating destructive subsidies, particularly in fisheries. More broadly, it should be compatible with informed policies such as carbon pricing. The price adjustments at the borders, necessary to avoid the displacement of production to places without adequate prices, are both an incentive and a penalty. These must be combined with large-scale assistance to developing countries with the climate transition.

Second, security. Here it is necessary to distinguish the economic from the more strategic and the issues that companies can address from those that must involve governments. Supply chains, for example, have shown a lack of robustness and resilience. Companies need to achieve greater diversification. But this is also expensive. Governments can help by monitoring supply chains at the industry level. But they can’t do the work of managing such complex systems.

Governments have a legitimate interest in whether their economies are overly dependent on imports from potential enemies, as Europe is dependent on gas from Russia. Likewise, they should be concerned about technological development, especially in areas relevant to national security. One way to do this is to build a negative list of products and activities deemed to be of security interest, exempting them from standard trading or investing rules, but keeping them for the rest.

Third, the blocks. Janet Yellen, US Treasury Secretary, recommended “friendshoring” [apoiar os amigos] as a partial response to security concerns. Others recommend regional blocks. None of these make sense. The first assumes that “friends” are forever and would exclude most developing countries, including strategically vital ones: is Vietnam friend, enemy, or neither? It would also create uncertainty and impose heavy costs. Likewise, the regionalization of world trade would be expensive. Above all, it would block North America and Europe from Asia, the most populous and most economically dynamic region in the world, effectively leaving it to China. This idea is an economic and strategic absurdity.

Fourth, patterns. Standards debates have become a central element in trade negotiations, often imposing the interests of high-income countries on others. A controversial example is intellectual property, where the interests of a limited number of Western companies are decisive.

Another is labor standards. However, there are also areas where standards are essential. In particular, as the digital economy develops, shared data standards will be needed. In their absence, global trade will be substantially hampered by incompatible requirements. In fact, that’s why the EU’s single market required the substantial regulatory harmonization that Brexit advocates loathed.

Finally, domestic politics. Sustaining an open trading system will be impossible without better institutions and domestic policies aimed at educating the public about the costs of protection and helping all those adversely affected by major economic changes. In the absence of these, an ill-informed nationalism is bound to sever the ties of commerce that have brought so many benefits to the world.

This new world epoch is creating enormous challenges. It is possible –perhaps even probable– that the world system will unravel. In such a world, billions of people will lose hope for a better future and shared global challenges will remain unfulfilled. World trade is just one element of this picture. But it’s an important one. The idea of ​​liberal trade subject to multilateral rules was noble. It must not be allowed to perish. If the United States cannot help, others should.

Translated by Luiz Roberto M. Gonçalves