The War on Trade and its Theoretical Implications

Please cite the paper as:
Oscar Ugarteche, (2020), The War on Trade and its Theoretical Implications, World Economics Association (WEA) Conferences, No. 1 2020, Trade Wars after Coronavirus, Economic, political and theoretical implications

Abstract

China in 1980 had an income per head of about 300 dollars, the US had 29,863.02 dollars. Forty years later, China is a world leader on par with the US, has a dynamic high tech industry, and the largest middle class market in the world. The US Government’s reaction is to blame China for currency manipulation and intellectual property theft. It is argued that she is a vital threat to the United States both economically and strategically, that U.S. policy toward China has failed, and that Washington needs a much tougher strategy to contain it. China however has developed its own agenda in direct proportion to its new economic power and its own principle of exceptionalism. An economic war has begun. It is, first of all, a war, and the ballistics metaphorically speaking, are economic. The object of war is to defeat the enemy. The object of economic war is to bankrupt the enterprises that are gaining the markets, metaphor for territory. After two years of skirmishes, the US is losing the Chinese market while China remains as the number two trading partner for the US.

Beijing has launched a “go out” strategy designed to remake global norms and institutions. China is transforming the world as it transforms itself. This meant entering the WTO and using it for its benefit, becoming a voice for free trade at the Davos Conference, pressing the IMF to include the Yuan in the SDR basket and pressing to have the proper votes at the IMF board, amongst the most visible changes. The United States shut the WTO arbitration court and is losing the technological lead in at least five branches of production. The end result is that the trade war finally has shaken up the theoretical frameworks established after WWII and consolidated more modern views while indicating US weakness in the face of another more dynamic economy. Tariffs do not resolve these issues. New international institutions appear to be required to solve the problems posed and the ensuing crises. Theoretically it means the end of WWII institutions and the surge of new ones. These will, more likely, not be US-led in a slow and conflict-filled process.

2 comment

  • Juan Vázquez Rojo says:

    Hi Oscar,

    It is a pleasure to share this space with you. I believe that your work promotes a key point discussion for future international affairs: The old and the new international institutions.

    In general, I think it is a very important issue that the multilateral rules created after World War II were broken. The change in the international correlation of power and, more specifically, the rise of China implies that these rules do not represent this current relationship of forces.

    In my view, the most important point is that the multilateral rule building erected after World War II no longer represents the current distribution of power and, for this reason, the current structure cannot stand for long. Precisely because of this, I believe that what you point out in the text is fundamental: we are necessarily walking towards a new building that will be constructed in the next few years.

    One question that arises from this is What capacity does China have to reform or rebuild the building of international rules? In my view, China has great limitations because of its weak international and regional alliances (even taking into account the new strategy you point out in the text). Can this change in the short/medium term? How can this be related to the decoupling that we are beginning to see and the interdependencies that still exist?

    Thank you very much.

    Juan Vázquez Rojo
    Universidad Camilo José Cela and Corporación Universitaria de Asturias

    • oscarugarteche says:

      Thank you very much to all for your papers. Yes, I think we are in a complicated crossroads with a weak hegemon and a trade and innovation competitor. I saw Jeffrey Sachs argue in favour of multilateralism recently, with the poin that it is not the institution per see but the US that is misbehaving. Yet, over the past forty years we have seen the US attack the institutions it created. It reminds me of the US attack against the League of Nations after Woodrow Wilson invented it and her withdrawal in 1921. The issue is if existing multilateralism serves the US or not. It serves the world but that does not imply it serves the weakened hegemon that has lost leadership, cannot lead by reason and tries to do it by force. Bullying in international institutions has gotten worse but is not new. The impression I have with intellectual monopolies and other new subjects is that maybe a new set of rules of the game must be placed or are in process of development. The shift in the energy matrix towards cleaner energy is led by China and seconded by Europe. This places economic leadership in trouble spot that is not solved through protectionism. In that sense, kicking the old liberal rules with protectionism would be the beginning of something else and will not go away with any political party in Government in that country.

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