OPINION:
Multinational business leaders, international civil servants, journalists and mainstream economists are bewailing deglobalization and the erosion of the trading system enabled by the World Trade Organization.
They are hosting conferences, sponsoring studies and blaming populism and the geopolitical tensions between the West and Russia, China and other authoritarian regimes.
One important reaction to these tensions is the further rise of regional blocs.
China and Russia are becoming more mutually dependent. The Trans-Pacific Partnership (TPP) was originally envisioned by President Obama as an American counterweight to the growing influence of China on the norms of international commerce. And the EU, Saudi Arabia and India are seeking tighter relations with a system of rail and port links through the Middle East—their own vision of the China’s Belt and Road initiative.
WTO economists estimate the fragmentation of the WTO system could shave 5% off global GDP. Unfortunately, blackboard theories of comparative advantage that underlie economists’ seemingly sophisticated simulation models compute the static gains from international specialization through trade but ignore the good and bad dynamic effects.
The further integration of post-colonial Sub Saharan Africa into the global economy impelled much greater dependence on commodity exports such as oil, copper and cocoa and reliance on imported agricultural commodities and technology products.
When commodity prices dropped and then ran flat during the 1980s and 1990s, real per-capita incomes stagnated as China, Korea and much of Southeast Asia soared. The same cycle has repeated since 2014 when prices dropped and in no small measure, is contributing to the political instability and coups ripping the region.
NAFTA eliminated tariffs and enabled a rush of American corn into Mexico, where farmers then turned to marijuana and opium poppy to shore-up incomes. And the cross-border illegal drug trade expanded.
Simply put, free trade forced down the opportunity cost of criminal employment that drug trafficking criminal organizations now fight to control. Drones, missiles and sending in the U.S. army, as suggested by Republican presidential hopefuls, would hardly overcome those market dynamics. Unless we intend to turn northern Mexico into an American colonial appendage.
About half of Americans support military intervention and that should give Republicans some pause about the consequences of inflaming populist frustrations for electoral advantage.
One-million U.S. manufacturing jobs were lost to China, and some estimates put that figure much higher. The knock-on effects in Mexico’s industrial sector were significant, and in neither country was all the new competition attributable to China’s less expensive labor.
Subsidies and forced labor in places like Xinjiang province have contributed mightily to the populist opposition to free trade that fueled President Donald Trump’s tariff, the buy-American provisions of President Biden’s industrial policies and the president’s aversion to any more traditional free trade agreements.
An important premise behind the United States agreeing to the accession of China to the WTO in 2001 was that engaging China through trade would encourage democratic reform. And as the creation of the European Economic Community fostered a peaceful cooperative relationship between Germany and France and the idea of a politically united Europe, a relaxation ideological conflict could be accomplished in the Pacific.
Instead, China has used much of the money it has earned through burgeoning trade with the United States to build the largest navy in the world, militarize the South China Sea and threaten to invade Taiwan.
Similarly, China has employed massive subsidies and forced labor to boost production of solar panels, batteries and electric vehicles.
The cost advantage China enjoys making EVs—along with the fact that EVs will take fewer workers to manufacture—are underlying factors in the drama between the United Autoworkers and Detroit Three.
Cheaper coffee tables, computers and cell phones are hardly worth all this. At least these problems should be weighed when the WTO cranks models showing displacing its system of rules with regional deals will make us all worse off.
The real threat to the WTO is that its expansive system of rules don’t deal well with mal-adjustments in domestic economies or cheating on the system.
In this context, regional agreements that could have more targeted provisions make sense. For example, instead of sending the army to Mexico, we should engage and assist our southern neighbor in creating pro-manufacturing infrastructure improvements and industrial policies that complement our Chips and Science Act and Inflation Reduction Act.
In Africa, the EU and United States could find ways to enable the development of processing for manganese, cobalt and other materials that supply the EV industry to better spread benefits throughout national economies. And enable regional universities to train engineers and reduce African reliance on western expertise.
In Asia, President Barack Obama had the right idea. The TPP with American participation would do more to accelerate a shift of U.S. sourcing from China to friendlier environs and limit the Middle Kingdom’s influence and resources to build weapons.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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