June 22, 2021
Free trade is getting a bad name. It used to be that economists and experts almost universally approved of unfettered international trade, free of distortion from subsidies and tariffs. Now, that gospel is questioned because of the Chinese regime’s unethical trade practices, including dumping products at below market prices and widespread technology theft, along with territorial aggression against neighbors, and genocide against the Uyghurs. President Biden’s maintenance of Trump tariffs against China blew the free trade consensus wide open.
Counter-subsidies and tariffs to protect and incentivize U.S. and allied strategic industries and national champions are on the rise globally. Export controls on sensitive technologies are being imposed with more severity. One way to fix the problem for all countries other than China, would, ironically, be through a more targeted and fuller economic decoupling from the Middle Kingdom, including by excluding it from the World Trade Organization (WTO).
Exclusion of China from the WTO would provide relief to the rest of the world and allow them to return to free trade. Sure prices of toasters will rise without China’s massive supply, but paying an extra buck or two for a toaster is sometimes the cost of doing the right thing, and protecting our freedoms and democracies into the future.
People are beginning to realize that China can and has been using our free trade ideals against us, to purposely destroy U.S., European, Japanese, and allied industries in a massive end-run on allied economic power, and therefore on the source of democratic military power and its post-1945 stabilization of the international system. International free trade with China is a game of drunken Russian roulette. Great times, until China is powerful enough and the bullet goes off, killing democracy.
China is using the global economy to build a world-class military that could soon defeat the United States, putting the independence of countries around the world at risk. Sometime in the next 100 years, democracy could be relegated to the dustbin of history, a failed experiment in political participation that is written out of the history books by the Chinese Communist Party (CCP) and its more “efficient and fair” form of authoritarian meritocratic governance that just happens to include horrific human rights abuse. If China rules the world, for example by wielding its growing influence at the United Nations more effectively, any dissident, ethnic, or religious group could be next.
“China has used the WTO the same way it has used other international organizations and the international rules of the road, more broadly: it has subverted the stated purpose of these organizations from within,” wrote Alex Gray, a Senior Fellow at the American Foreign Policy Council and former Chief of Staff of the National Security Council (2019-21).
“While a member in good standing of the WTO, China was simultaneously perpetrating trillions of dollars in intellectual property theft, flouting global trade rules, and hollowing out the industrial bases of other WTO members, including the United States,” wrote Gray in an email. “A bipartisan consensus has formed in the U.S. that allowing China into the WTO was one of the greatest foreign policy failures of recent decades, and countering China’s persistent economic aggression is an economic and national security imperative.”
Now that all of this is finally dawning on western and allied elites, China is pushing back against rising trade restrictions caused by its own overly aggressive trade policy. This includes holier-than-thou speeches about global free trade from Xi Jinping, and Chinese claims of trade discrimination that Kaush Arha, a senior fellow at the Atlantic Council, said represent “a true to form diversionary tactic to shift the blame from its own action.”
Mr. Arha wrote by email, “U.S. actions are not blanket country of origin actions against China but rather tailored actions based on U.S. national security consideration as allowed by global trading systems.”
He made clear that China’s unethical trade practices were creating global dissatisfaction with the international trading system, and thus putting that broader system and ideology of free trade at risk. “China has long hidden behind WTO rules to undermine the fundamental tenets of the global trading system,” Mr. Arha wrote. “A nation’s stated goal to increase its global economic leverage for political gains [as China has done] is inherently incompatible with the goals and vision for [the] WTO.”
The only way to save the WTO and thus the principles of global free trade, are to more aggressively challenge the CCP’s abuse of the system, including at the WTO itself. “I will expect more nations challenging China in [the] WTO and asking for institutional reform of the institution to ensure its survival,” he wrote.
Global free trade can be formalized as a prisoners’ dilemma game in which all players must cooperate with each other to improve the outcome for all, but just one player can ruin the long-term outcome for all by short-term finking. China has been that one country to cheat the system by burrowing into its foundations, and thereby risking it all crashing down.
The spreading rot within the WTO is evident from the proliferation of bilateral and regional free trade agreements such as the Trans-Pacific Partnership (TTP) and its successors in the Asia-Pacific, as well as industrial policy like subsidies and tariffs across the leading economies. The Trump administration rejected the TTP to fulfill a campaign pledge, and broke the economic mold by imposing much-needed economic tariffs on China. Biden kept them.
Americans are increasingly wary of trade agreements, negotiated behind closed doors and subject to influence by the largest corporations, that risk the few strategic industries remaining in the United States. American lack of PPE manufacturing during the pandemic brought home the need for an independent and flexible industrial base in the United States.
The danger of unfettered free trade agreements is that politically-influential corporations influence the deals during the negotiation phase, to better their access to foreign markets, while allowing the killing off of small businesses in exchange. The biggest and most influential corporations in each country win, while small businesses globally suffer. It’s win-win for those in the room. Not so much for those left out in the cold.
Regional free trade agreements are symptoms of free trade failure, not the cause, according to Mr. Arha. “It is of critical urgency that WTO and world trading architecture holds China accountable for its inherent market distorting activities,” he wrote. “Our ability to fix this will determine the future of free trade across the globe or lack thereof.”
Following Mr. Arha’s logic, free trade is not the problem per se. It is only a problem when one participant in the international trading system abuses that system by cheating in the form of first use of subsidies, tariffs, export controls, or worse as in the case of China, technology theft and the building of a military designed for aggression and territorial expansion.
Counter-subsidies, tariffs, and export controls in other countries are motivated by fear of China, and are the crumbling of the free trade system caused by China.
International free trade was built on a broad civic trust that has now been entirely ruptured by the CCP. Our big business is still making money in China, so wants to keep the gravy train on track. But without broader public trust, and some consideration for small business, voters will shut free trade down through nationalist protectionism. They may be using a sledge hammer where a scalpel is needed.
Remove China from the free trade equation, for example through economic decoupling and a ban of the country from the WTO, and the main problem is solved without widespread industrial policy. With China out of the WTO, and its economy and therefore military strength in decline, friendly and fair democratic countries, and their allies, would then feel safe enough to again open their economies to international competition, and the long-term economic benefits from global free trade with each other. At least some small businesses would benefit, yielding more decent-paying manufacturing jobs in allied countries, and a flexible industrial base available for the next emergency.
Anders Corr has a bachelor’s/master’s in political science from Yale University (2001) and a doctorate in government from Harvard University (2008). He is a principal at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe, and Asia. He authored “The Concentration of Power” (forthcoming in 2021) and “No Trespassing,” and edited “Great Powers, Grand Strategies.”