World Trade: From Mao to Trump

We cannot afford to ignore the menace to the world economy posed by the threats of a trade war which President Trump seems intent on declaring to the rest of the world.

By any standard Mauritius is an extremely open economy. Starting from the days when King Sugar dominated the economy (95% of our revenue used to come from sugar exports at the time of independence) right to the present day when international trade – exports and imports of goods and services – remains a dominant characteristic of the economy of the country. We cannot afford to ignore the menace to the world economy posed by the threats of a trade war which President Trump seems intent on declaring to the rest of the world. While admitting that this is a hugely complex issue in which factors such as nationalism and xenophobia have a part to play, one must not forget that there often is “reason in apparent madness”.

So now Mao’s People’s Republic of China, under President Xi Jinping, is the greatest champion of the post-globalization new world order and the President of the United States Donald Trump its worst enemy. Mr Trump is all out for the destruction of the global trade regime which so many of his predecessors so painstakingly took years to put in place. Indeed, several rounds of trade talks over decades had witnessed the post-World War II Uruguay Round of trade negotiations substituted by the World Trade Organization’s new and more radically liberal dispositions. Those protracted negotiations over time had finally opened world trade to levels which had never been achieved in the past.

On the back of these multilateral talks, many Regional Free Trade Agreements (RFTAs) were also put in place concurrently, within the general framework of free trade principles dictated by the WTO. The regional agreements also contributed to further stimulate exchange of goods and services among nations. The Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC) of which Mauritius is an active member were part of this new global trend. Now the African Union is driving the setting up of an all African Continental Free Trade Area.

The most significant RFTAs at the global level were probably the North American Free Trade Agreement (NAFTA) which brought together the United States, Canada and Mexico and was concluded under the Clinton Administration, and the Association of Southeast Asian Nations (ASEAN). Perhaps one should also mention the European Union’s single market although arguably the dynamics were somewhat self-propelled. When India and more significantly China in the wake of their domestic transformations towards more liberal and market friendly policies decided to take a more positive and serious part in these global trade talks, the rules of engagement were bound to change.

This was indeed a transformative moment in the global trade negotiations and with hindsight its consequences were grossly underestimated at the time. Only about one decade after the People’s Republic of China joined the WTO did the world start to wake up to what is usually referred to as the shift of global economic gravity towards the East. The rise of China and India as major economic actors on the global landscape, with their billions of citizens, was a factor that could no longer be ignored.

The WTO-led global trade liberalization “dogma” has been the subject of huge criticisms from many quarters, and its meetings were often the subject of popular anti-WTO demonstrations mostly from progressive and leftist forces. The fact of the matter is that these developments which were part of the global economic transformations – albeit a determining part – did contribute to move millions of people above the poverty line in many countries which managed to access hitherto inaccessible markets for their products and services. To cut a long story short, the most damaging part of the whole process was due to what some authors have described as “hyper-globalization.” This may be described as that part of the procedures which shifted the whole negotiations from its purported objective of a “development round” to that of an “ideological round” where the interests of the developing and developed world diverged radically.

For all its faults the WTO world trade regime has contributed positively to the economic growth of many nations as well as the improvement of the lives of large swathes of populations around the globe. The extraordinary feat achieved by China which managed to keep its “communist” regime as the dominant form of political organization in the country while simultaneously extracting the maximum benefits from the new liberal global trade regime is what lies at the heart of the present confrontation and potentially hugely damaging trade war which Trump is threatening to unleash. The nationalistic and xenophobic underlays of the Trump administration is largely a reaction to the “supposed threat” which China and presumably all other nations challenging the “Pax Americana” which emerged from the collapse of the Soviet Union and the end of the Cold War era pose to the interests of the US.

Even the traditional and most staunch allies of the United States have not been spared by the “America First” syndrome for among the first “victims” of Donald Trump’s latest sabre-rattling are the European steel manufacturers and exporters to the US followed by a threat on European car exporters. He has no qualms in finding that his closest military allies, members of the North Atlantic Treaty Organization, pose security risks to the United States through exports of their products.

The latest development in this whole saga is the “directive” by the American administration that all countries should henceforth cease to purchase Iranian oil thus creating even more turmoil in an already extremely volatile market. Where all this will end is anybody’s guess, the only certainty is that it will cause enormous harm to millions of people…

* Published in print edition on 29 June 2018