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Trade

A trade war is imminent, but not inevitable. Can mindsets change before it’s too late?

Jean-Pierre Lehmann says the gap between our changing markets and the unchanging ways of trade negotiations led to the collapse of WTO talks in 2003. Today, the problem persists amid a rising tide of populism and nationalism. Trade policy agendas must breach the reality gap

PUBLISHED : Friday, 08 September, 2017, 12:16pm
UPDATED : Friday, 08 September, 2017, 7:16pm

In the conclusion of her outstanding book on the first world war (The War That Ended Peace), historian Margaret MacMillan asks whether, as many have argued, war in 1914 was inevitable. She refutes this view; the final sentence of the book contains these four words: “There are always choices.”

As things currently stand in September 2017, the question would seem to be not whether there will be a trade war, but when. Geopolitical dialogue has broken down, the institutional fabric of the global trade regime (the World Trade Organisation) has collapsed, liberalism is in retreat, while populism, nationalism and, consequently, mercantilism and protectionism are on the rise.

And there is of course one Donald Trump. But, note should be taken, as Thierry Malleret has put it, that “President Trump is not an accident, but the symptom of a profound crisis”. In fact, the origins of the narrative of the 21st-century trade war lie with choices made in September 2003 on the occasion of the failed WTO ministerial talks in Cancún, exactly 14 years ago, by Trump’s predecessor’s predecessor: George W. Bush.

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A quick chronological revision.

In the wake of the second world war, as part of the institutional innovation and reform of global governance, the GATT (General Agreement on Tariffs and Trade) was launched on January 1, 1948. It was a tremendous initiative that played a crucial role in the peace and prosperity of the West. Between 1948 and 1994, there were eight so-called rounds of trade-liberalising negotiations between the participating countries; the last one being the Uruguay Round.

From September 1986 when the Uruguay Round was launched, to April 1994, when it was concluded, and January 1995, when the WTO was established, the world underwent the profoundest speediest transformations in human history. Between the time when China launched its amazing market reforms (“socialism with Chinese characteristics”) to the fall of the Berlin Wall, the planet experienced a series of revolutions that affected all aspects of the human condition: technologically, geopolitically, demographically, socially, ecologically and economically.

What happened in the global trade regime is an illustration of the “governance gap”, so eloquently described by Jean-François Richard in his 2002 publication, High Noon, that occurs between the exponential changes in technology, demography, markets and society, and the plodding linear pace of mentalities and institutions.

A quick chronological update.

As noted above, in the context of general global euphoria – what George H. W. Bush had termed the “new world order” – in January 1995, the WTO was established. In the 1999 WTO ministerial meeting in Seattle, there was an attempt to launch the “millennium round”. In fact, there occurred the first really massive anti-globalisation demonstrations by the “protest community”, with the result that talks had to be abandoned and delegates returned to Geneva with their tails between their legs. The WTO director general at the time said he hoped the WTO would not become the “League of Nations of the 21st century world economy” – that is, moribund, impotent and irrelevant. What amazingly prophetic words they turned out to be!

Qatar, then a recent member of the WTO, offered to hold the next ministerial meeting in its capital, Doha, much to everyone’s relief, in November 2001. The general expectation was that the talks would fail, as it became clear that the chasm between the established prima donnas of the world trade stage – notably what was known as the Quad, consisting of Canada, the EU, Japan and the US – and the new actors, the so-called “emerging nations”, was too wide and hence unbridgeable.

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Then in September of that year, a colossal black swan intervened, the al-Qaeda attack on the World Trade Centre in the United States. In a rare moment combining panic and global solidarity, it was strongly felt that the launch of a Doha Round had to succeed. And indeed, it was duly launched on November 13; to add a flourish to the occasion, it was decided it would be officially known as the “Doha Development Agenda”.

What an embarrassing farce it turned out to be.

The following rendezvous was in Cancún in 2003. I was there, convinced that this would be going absolutely nowhere. Indeed the Cancún talks collapsed and all subsequent attempts to revive the Doha agenda failed. Though dead, its death has not been declared. Thus, the corpse is rotting away and will be briefly exhumed at the next WTO ministerial meeting due in Buenos Aires in December this year.

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Why did it die?

The governance gap explains it. While the world had changed exponentially beyond recognition and the stage was populated by new actors and props, the world of trade negotiation did not change. Basically, Doha was seen as a continuation of Uruguay. There was a dramatic failure to adjust mindsets and behaviours to the new realities. What struck me at Cancún was that there was no dialogue, only multiple Tower of Babel-like monologues.

While the Doha round was supposed to herald a new liberal age, in fact the established players played mercantilist hardball

I compared the Cancún stage to the great 1921 play by the surrealist Italian playwright Luigi Pirandello, Six Characters in Search of an Author, whereby six actors know they are supposed to be on the stage, but have no idea what the script is, hence meet and exchange meaningless words, so the play ends as it begins. That was Cancún.

While the Doha round was supposed to herald a new global liberal age, in fact the established players – the Quad – played mercantilist hardball. This had been the name of the game in the GATT rounds. But GATT was a cosy club of basically the Western powers plus docile Japan. The WTO was a completely new ball game, but adjustments were not made. The mercantilist mood that came to pervade, in fact, poisoned the Doha round to death.

Inflexible dogma, however, continued to prevail. There were profound transformations, but no profound discussions. The idea that possibly major fundamental paradigms might have to change was rejected. There were a number of external proposals for transformation and adjustments to the new realities. Some of them were quite good. But there never was a plan B. They were submitted and then accumulated dust on shelves. Those who dared to say that the Doha agenda might be dying were excoriated.

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Part of the problem was that too much mould had accumulated on the walls of the WTO. This was further exacerbated by the incestuous bubble that Geneva can become.

Also, Geneva is too much in Europe, inevitably heavily influenced by European assumptions and policies. In the new global age, it could be appropriate to locate the WTO in a more globally dynamic setting than the sleepy banks of Lake Geneva. I wrote several articles arguing that the WTO should be moved to Hong Kong; near where the action is.

It is still the 11th hour. A trade war is imminent, but not inevitable. It will depend on choices made in the course of the next few weeks, months at most. That governance gap between the exponential changes in global markets and the linear mindsets of the trade policy agendas has to be bridged rapidly.

Jean-Pierre Lehmann is emeritus professor at IMD, founder of The Evian Group, and visiting professor at the University of Hong Kong