Many economists and commentators argue that global trade is at a tipping point given the various headwinds it has faced in recent years. President Trump’s shrill rhetoric on free trade and globalisation, the trade and tech war between the US and China that shows no signs of dissipating, trends towards greater self-sufficiency in large economies such as India have been shaping the globalisation narrative. COVID-19 provided naysayers with a shot in the arm, as it resulted in government after government imposing protectionist measures to secure supplies of essential goods for their citizens.
We spoke with Michael Plummer, who is director of the Paul H Nitze School of Advanced International Studies Europe and the Eni Professor of International Economics at Johns Hopkins University and former editor-in-chief of the Journal of Asian Economics, about the future of global trade, the role of the World Trade Organization (WTO), how the tech war could impact other economies, Europe’s role in the centrality of the rules-based trading system, and Asia’s role in the future.
Unravel: There are increasingly questions raised about the relevance of the WTO? Do you think the global trading system needs a rethink?
Michael Plummer: I don’t believe it needs a “rethink”, but I do believe it requires an update. Let’s face it: The last major single undertaking accomplished by the multilateral system was the Uruguay Round, which was signed in 1994 and, in fact, created the WTO. The global economy was very different in 1994 compared to today; for example, it has become far more integrated, major “new” global powers like China and India have emerged as essential players, and the digital economy virtually didn’t exist back then. The Doha Development Agenda was on its way to making progress, but it collapsed earlier this century. WTO members need to recommit to the global trading system, stop focusing only on problematic issues, which are often relatively insignificant, and instead devote themselves to the vision of an integrated, inclusive global trading system for the 21st century.
Unravel: In your view, is the US-China trade and tech conflict pulling the global trading system apart, or do you see this as a passing phase? Why?
Mr Plummer: I don’t believe it is pulling the global trading system apart but it is creating strong headwinds to progress. First, it isn’t just about US-China but rather—for want of a better term—OECD-China, since many of the sources of conflict with China present in US-China disputes are shared with developed-country partners of the US. Second, the world isn’t just about the US and China, though they are major players: it is a big world out there.
Together with co-authors Cyn-Young Park of the Asian Development Bank and Peter Petri of Brandeis University, we have recently estimated the costs of the US-China trade war to be $514 billion annually in income lost beginning in 2030 and a decrease in total trade of $1 trillion. Virtually all the costs are borne by China and the US. On the positive side, we estimate that economic cooperation via the CPTPP and the recently-signed RCEP agreement almost compensate entirely for the costs to the global economy of the US-China trade war, though of course the US and China continue to be worse off. Conclusion: conflict is costly and should be avoided, but cooperation can overcome conflict. Now, if only India would return to RCEP and the US to CPTPP!
Unravel: In your view, what role does Europe have in maintaining the centrality of the rules-based trading order that we’ve had since WWII?
Mr Plummer: I believe it has a major role. If taken together, the EU is the second largest economy in the world and, when it acts together as a region, can be very impactful. It also has far more experience in bringing countries together and knocking down barriers to regional trade and factor flows. Let’s face it: the world can no longer count on forceful US leadership in the global system, and China arguably has a different set of priorities as an economy that is still developing. Moreover, when global progress relies on the relations between two major powers like the US and China, domestic politics can easily highjack progress. The potential for EU leadership in this context is clear but, unfortunately, has not always been forthcoming. Hopefully things will change as we emerge from the COVID-19 pandemic.
Unravel: Do you see this as a moment for Chinese global leadership on issues relating to trade and the economy?
Mr Plummer: Yes, I do. President Xi has come forth as an ardent economic internationalist; he has voiced his support for the global trading system, has led China to invest heavily in integration via the Belt and Road Initiative, and played an essential role in concluding the ASEAN-centric RCEP. He also stressed that he is studying joining the CPTPP—which, if China did join, would address many of the critical issues that the US and other developed countries have with China (pundits suggest, however, that there is a very low probability of it doing so). Hence, he is talking the talk but I am not sure he is walking the work: yes, he has taken some impressive steps, but there are also critical signals in the opposite direction – for example, the rising role of the state in the Chinese economy and a number of other initiatives, particularly in the high-tech area, that would suggest that, perhaps, the Chinese direction may not be so clear.
With faster growth rates of trade and income than the global average, Asia will become an increasingly important player in international trade. Increasingly, where Asia goes, there goes also the global economy.
Unravel: According to you, what are the biggest trade-related challenges faced by Asian economies at this point?
Mr Plummer: This is a very complicated question, of course, and would be better addressed in a book than an interview! However, to name just four: improvement in global governance, reversing the inward-looking trend in the global economy, and helping construct an open vision for the future; reducing tensions in the tech sector, as having to choose between a US-based system and a China-based system is lose-lose for the region; plugging in low-income economies into the international trading system; and better integration of South Asia with East Asia.
Unravel: That’s a great summary. For a long time now, we’ve heard of the economic centre of gravity moving to Asia. Do you think that moment has arrived?
Mr Plummer: Yes, I do, and in fact it has been happening for some time, arguably since the late 1980s. All the data point in that direction. However, it would be wrong for the region to believe that it only needs to focus on itself; rather, it should continue to integrate with the world, not just the region. Happily, this seems to be a priority: for example, in the original ASEAN Economic Community Blueprint, which has a goal of creating a region in which there would be free flow of goods, services, investment, and skilled labour, one of its four major pillars is “integrating with the global economy”. This only makes sense—particularly since ASEAN does three quarter of its trade with non-members. Many parts of the RCEP agreement also seem to point in the direction of “open regionalism”. Indeed, this is what differentiates Asian integration from that of other regions, such as the EU or North America, which do not include it as a priority.
Asia will need to work in these four areas: improvement in global governance, reversing the inward-looking trend in the global economy, and helping construct an open vision for the future; reducing tensions in the tech sector, as having to choose between a US-based system and a China-based system is lose-lose for the region; plugging in low-income economies into the international trading system; and better integration of South Asia with East Asia.
Unravel: And lastly, in your view, has COVID-19 changed the global trading system, not just now but permanently? And what is Asia’s role in the future of global trade?
Mr Plummer: Many would seem to believe that this is the case, underscoring, for example, concerns about “reshoring” and the need to manage risk better via local production. I believe that the economics point exactly in the opposite direction: it is critical to manage risks along the supply chain, but reshoring would likely increase risks, rather than reduce them. At certain times during the pandemic, there were some ugly responses in terms of inward-looking protectionism, even within an economic union like the EU. But we have learned that such responses are counterproductive and even dangerous. In my view, as we emerge from the pandemic, it will be far more important to put in place better response protocols at the regional and global levels, so that next time—hopefully there won’t be a next time—we will be better prepared.
With faster growth rates of trade and income than the global average, Asia will become an increasingly important player in international trade. Increasingly, where Asia goes, there goes also the global economy. Arguably the region is not yet ready to play a strong leadership role, but it is changing.