By Paolo von Schirach –
WASHINGTON – The globalization we know has been driven primarily by the explosion of new cross border business opportunities created by truly disruptive technological innovation. Almost overnight, broadband internet (enabled by a robust global network of fiber optic cables) created a new, zero-cost modality to communicate and share enormous amount of data across the globe.
Moving goods became easy
When it came to transporting physical goods, the standardization of shipping technologies –same containers, same container ships, same container handling facilities used by all trading nations– accompanied by super efficient IT systems for managing and tracking millions of items in real time, made all this possible. Add to the mix huge infrastructure modernization (new rail freight lines, new highways, new airports, new ports) in major new industrial countries like China and we see the contours of the enabling environment for globalization.
Complex international supply chains that in most cases optimized results while reducing costs came to life. Combined with the outsourcing of labor intensive production from the US, Europe and Japan to low labor cost countries, they further contributed to the optimization of production, higher profits for many corporations, and lower prices for millions of Western consumers.
Not just about technology
We know all that. But here is the problem. Globalization should not be only about the successful adoption of new technologies that greatly facilitate cross border economic activities. Globalized business activities should take place within a global environment in which all the players sincerely adhere to the same rules, inspired by the same shared values.
And here is the problem. We do not have a robust rules based global environment in which norms are clearly and genuinely embraced by all participants, and serious penalties are imposed on rules-breakers by an impartial authority.
The World Trade Organization, WTO, may constitute an embryo of such an authority; but it is not the real thing. The WTO does not even come near to having anything close to the investigative and enforcement powers of a national government overseeing domestic commerce norms.
China not playing by the rules
There is no point here in repeating the long litany of complaints against Chinese behavior when it comes to international trade and investments. But it is worth noting that, for whatever reasons, the Western Nations that created the basic architecture of a rules based free trade system, while fully aware of Chinese non-compliance, for decades gave China a pass.
May be it was just wishful-thinking. However, for some reasons, after China entered the WTO, (December 11, 2001), most Western leaders concluded that China had turned a page. The leaders in Beijing were essentially done with the old command economy. They were eager to shed its legacy, while embracing Western style free trade, with all its rules. While China might take its time to fully become “one of us”, many observers had concluded that it was just a matter of time.
It did not happen
Well, now there is a growing consensus that that benign assessment had been not just premature, but flat wrong. Yes, there might have been a time, especially during the 1990s, in which genuine reformists within China had tried to articulate a new agenda aimed at turning the country into something close to a free market economy.
However, the elevation to supreme and now absolute power of President Xi Jingpin in 2012 finally convinced even the most optimistic analysts that this benign transformation within China, which would include its genuine acceptance of the Western rules based system it entered in 2001, is simply not going to happen. On the contrary, the signals from Beijing are that China has the ambition to create a new China-centric world order in which regional powers and others would follow a Chinese inspired and led international trade system. If we take these plans seriously, then we realize that the problem is not that China wants to be a stronger competitor within the existing system. China wants to create a new and improved system fashioned according to Chinese principles and “sell” it to the world as a better alternative to what the West created over time, after the end of WWII.
Be that as it may, and whatever your take on grandiose Chinese mega-projects like Belt and Road, it is clear that most of our benign assumptions regarding a Chinese progressive and indeed, inevitable, “conversion” to free market capitalism were out of place.
This being the case, what’s next? What should come next in the West is a genuine effort, hopefully led by an enlightened American Government, aimed at strengthening ties, at all levels, among all the capitalistic democracies, (The EU, Canada, Japan Australia, New Zealand and South Korea should be on top of this list), and other countries clearly willing to work within a rules based, free market international order.
This should not be about some kind of “Cold War 2.0” with China. But it should be about being inspired by the principle that, at least in general, it is better to do business with countries that share your values.
By refocusing its efforts, at the same time the West would send a powerful yet very simple message to China. The world operates according to principles of fairness, compliance, reciprocity and transparency. If China were genuinely willing to play by these rules, then they are welcome. There would be no issues. But the burden is on Beijing to show, through actual performance over time, its genuine commitment to the rules based system it seemed to have embraced about 20 years ago when it joined the WTO. Until then, the Western approach to trade and investments with China should be inspired by utmost caution and prudence. Assuming that “they are just like us” is a bad starting point. They are not like us.
In the Western world the assumption used to be that more widespread prosperity is the outcome of innovation and increased levels of economic activity. In turn, innovation, enterprise and trade are made possible by the existence of political and economic freedoms protected and upheld by freely elected governments via the enforcement of sensible rules aimed at protecting the integrity, fairness and transparency of all economic activities.
I strongly believe that it is about time to forcefully reaffirm these principles, both domestically and in all matters related to international trade and investments. And there is no better way to do so than by establishing win-win international trade agreements with like minded partners, based on fairness, true reciprocity and therefore mutual advantages.
Do business with like minded people
A few years ago (beginning in 2013), there was a great deal of talk of a major US-European Union Free Trade Agreement, known as The Transatlantic Trade and Investment Partnership (T-TIP) that would greatly incentivize economic, trade and investment relations between the two sides of the Atlantic. Here is how the website of USTR (United States Trade Representative) described it:
“The Transatlantic Trade and Investment Partnership (T-TIP) is an ambitious, comprehensive, and high-standard trade and investment agreement being negotiated between the United States and the European Union (EU). T-TIP will help unlock opportunity for American families, workers, businesses, farmers and ranchers through increased access to European markets for Made-in-America goods and services. This will help to promote U.S. international competitiveness, jobs and growth.“
“The U.S. and EU economies are two of the most modern, most developed, and most committed to high standards of consumer protection in the world. T-TIP aims to bolster that already strong relationship in a way that will help boost economic growth and add to the more than 13 million American and EU jobs already supported by transatlantic trade and investment. T-TIP will be a cutting edge agreement aimed at providing greater compatibility and transparency in trade and investment regulation, while maintaining high levels of health, safety, and environmental protection. T-TIP presents an extraordinary opportunity to strengthen the bond between vital strategic and economic partners.“ [Bold added]
As you can see, the US Government at the time believed that this agreement would be extremely beneficial for both the US and the European Union. It also affirmed that enhanced economic ties would “strengthen the bond between vital strategic and economic partners.” Negotiations began during the Obama administration, but then it all fizzled after the elections of 2016, because of President Trump’s lack of interest in any new international trade agreements.
It is still possible to negotiate free trade with Europe
Well, assuming a relatively quick end to the current coronavirus global emergency, and a new US administration sincerely interested in both affirming and strengthening a rules based global commerce regime, a good place to start would be an ambitious plan to harmonize the myriad of rules that create de facto impediments to the free flow of goods –and especially services– between the US and the EU. If you consider that the US and the EU together represent the majority of world trade, the impact of a truly liberalized regime for trade and investments between these two giants would be revolutionary, with significant, world wide benefits.
Show the vitality of the Western world and its values
Western Europe and the United States are the two historic pillars of Western Civilization. While some believe that the West is well on its way to inevitable decline, there is no law of physics that establishes this.
An invigorated transatlantic trade and investment regime would act as a powerful tonic. It would open up new opportunities in the US and in Europe. It would strengthen ties among like minded societies. It would spur new joint ventures and mutually advantageous cross pollinations, while opening new avenues for cooperation at multiple levels.
But, more than anything else, a successful agreement that creates real value for all the stakeholders would show that like minded governments, inspired by the same or at least very similar values, can and will cooperate for the benefit of their societies.
Given the enormous amount of technical issues involved, this goal of a Transatlantic Free Trade Area may be very difficult to reach. But it is doable. The benefits, on both sides of the Atlantic, will be immense. And this agreement would be a powerful example of values-driven globalization.
Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.