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.

6 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.

  • Oscar Ugarteche says:

    Juan,
    From what we observe in the analysis by Ripak and Slipak the China competition is extremely serious, but more so the Oriental competition to the West. It is a high tech competition, a financial competition, and a productive one. What changes is the East-West divide, following Martinez Avila’s thinking. The global leadership shift from West to East does not necessarily mean new rules for the world but a change in who organises the East and who the West. Multilateralism will probably change shape. Clearly, after WWII the US had the hegemony in the West and the Soviet Union in part of the East. The US designed the UN system and the Bretton Woods accord but they seem not to be very useful anymore. They were the extended arm of US foreign policy until the US decided to ignore the multilateral system resolutions if they went against their wishes. The world was split into a bipolar world before 1990. The situation now appears multipolar with each major country leading inside their area of influence. The US abandoned the concept of the West, synthesized in NATO and the Atlantic, over the past four years but will return maybe with a TTIP agreement. China in its way created RCEP in 2020 after a decade of negotiations. A new multilateralism is emerging.

  • Dave Taylor says:

    This paper fails to address the more fundamental questions of whether (contra Thatcher) there is an alternative to trade wars and (contra Machiavelli) to governments getting their way by deceit. These were the topic of the Judaic-Christian Bible, in which the paradise created for Adam by a loving Father is lost as a consequence of his disobedience, with subsequent generations interpreting this as a Creator’s vengeance, so trying to hide their guilt by killing the Father’s messengers. What Moses interpreted as God laying down the Law in terms of Commandments, Christ’s prayer,the “Our Father”, reasserted as Commendments: advice which is hardly necessary if like the Father we love all His children and what’s left of the paradise he gave us: i.e belatedly understand why the Father preferred Abel’s agriculture to Cain’s killing. Behind the questions are the axioms of choice: whether to deny this story as merely poetry, or to accept it as history and testimony conveyed with poetic licence. What is historically significant is Luther starting the Christian “reformation” (provoked no doubt by a Borgia becoming Pope) within four years of Machiavelli publishing “The Prince”. Where the story had been told of Christ the King washing the feet of his disciples, the reformers reverted to would-be Princes governing by laying down Laws and lines of succession: castes led by brahmins, manderins, administrators, economists and clergy so incestuously raised and trained as to have become (as has just famously been said in Britain) “like donkeys leading lions”. The early Christian way of governing was “bottom up”: sharing everything, and teaching all children how co-operation involves forgiving the mistakes of others and learning to control themselves.

  • Oscar Ugarteche says:

    What are you meaning to say?

  • Dave Taylor says:

    I meant what I said, but apologies if my language needs translating! Put another way, my criticism is that looking at the problem doesn’t solve it, so I’ve drawn on my 84 years experience of Christian family life to suggest looking at its co-operative “bottom-up” solution to the warring of self-serving “top-down” governments and firms.

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