Rosalea Hamilton | China free-trade champion
"From this day forward, it's going to be only America first, America first. ... Protection will lead to great prosperity and strength."
With these words at his inauguration as the 45th president of the United States, President Trump has officially abdicated the role of the world's free-trade champion. By advocating protectionism, the leader of the free world is creating uncertainty in a global world economy anchored on institutions, primarily the World Trade Organization (WTO), that rely on free-trade principles.
Central to the free-trade idea is that it is a win-win strategy for countries that do not restrict imports or exports. The mutual benefits of free trade were founded on David Ricardo's theory of comparative advantage, generally accepted by economists as fundamental to trade policies across the free world.
The WTO has built the global trade architecture on two core free trade principles: (1) non-discrimination between trading partners (the Most Favoured Nation (MFN) principle); and (2) treating foreigners and locals equally (national treatment principle). One hundred and sixty-four countries are members of the WTO and have all accepted to engage global trade following these core free trade principles.
By advocating protectionism, President Trump is not only rejecting globalisation anchored on free trade, in favour of Americanisation, but is also advocating trade discrimination, violating the core WTO principles, thereby undermining the existing global trade architecture.
It begs these questions: With Trump's attack on free trade, is the WTO still relevant? Does free trade still have a future without a global champion?
The recent statements of China's President Xi Jinping at the World Economic Forum at Davos on January 17, 2017, suggest that China may be positioning itself as the new global champion of free trade.
'No to protectionism'
In striking contrast to President Trump's inaugural address, President Xi stated:
"We must remain committed to developing global free trade and investment, promote trade and investment liberalisation and facilitation through opening-up and say no to protectionism. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air. No one will emerge as a winner in a trade war."
Why is China, and not the US, championing free trade?
Today, China's trade surplus is among the largest in the world, while the US has the world's largest trade deficit. Winners, with the capacity to compete and penetrate global markets, are typically the main champions of free trade.
What is needed is a dynamic view of free trade where new comparative advantages are continuously being created. In this context, short-term protectionism is valid and allowable under the WTO to facilitate the growth of new industries and to enable people to reskill and adjust to new industries and new technologies. Protectionism for old dying industries is not the answer.
What is needed is a global consciousness that recognises our shared humanity and the mutual benefits derived from reinvesting and redistributing the winner's advantages to losers, especially the most vulnerable.