Global trade is in peril like never before. Over the past weeks, the world has entered a full-fledged trade war involving the largest economies (the US, China and the EU) on more than one front.
Regional disputes are not uncommon (there is an ongoing blockade against Qatar imposed by UAE and other Arab countries) and this generation witnessed how Japan and the US bitterly fought to become the ‘tech’ power in the 90s.
Global trade is often praised as a force of good that spreads wealth across the planet and wipes out poverty for hundreds of millions of people. So why is it under attack now?
The reason is precisely to do with this unbalanced outcome. China has become the main beneficiary of globalisation, as almost 800 million of its citizens have come out of poverty over the last three decades.
But the country succeeded in doing that not only by reforming its economy and opening its markets. Chinese authorities heavily supported their companies with subsidies and favoured unbalanced ties with their Western partners.
Beijing’s public support for steel factories was unproductive – as it sustained ‘zombie’ plants – and it also dumped global prices due to overproduction.
And while Chinese firms could freely buy European know-how and advance their development, European investors faced numerous restrictions to operate in the attractive market of the Middle Kingdom.
Partly due to these ‘unfair’ practices, pundits warned, globalisation has failed to deliver on its original promise of increasing the wealth of citizens not only in developing but also in developed nations.
Protests against free trade agreements in Europe were a warning signal for EU leaders to amend the course. They promised that trade deals would be fairer and more transparent, and actions would be taken to improve market access to China, to protect Europe’s strategic sectors and to tackle steel overcapacity.
Europe and the US agreed on the diagnosis, but they disagreed about the solution.
Across the Atlantic, Donald Trump arrived in the White House promising to strong-arm China.
The US president announced tariffs on US imports of steel and aluminium, even though only a small percentage comes from China. This week, he announced 25% tariffs on a list of 1,300 products worth $50 billion to retaliate against China’s intellectual property practices.
China responded with its own countermeasures aiming to cause a similar economic damage.
As the situation escalates between the two largest economies, Europe is struggling to remain the guarantor of the multilateral framework, namely the World Trade Organisation. The bloc still believes that dialogue with China could bear fruit, either on the steel overcapacity or the dispute over technology and innovation practices.
But the European Commission is prepared to step up its response by limiting Chinese firms’ access to Europe and taking the country to the WTO.
At stake is not only today’s promise of a fairer globalisation, but a digital future dominated by fewer nations.
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