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The World Trade Order in Crisis

Robert Koopman was working in the United States International Trade Commission before his switch to the World Trade Organization. The difference between the two organizations is obvious: the former is focused on domestic issues inside the United States of America whereas the WTO has a broader scope on an international scale involving member 164 countries, including China and the USA. Mr. Koopman stated in his interview that he is happy with his current occupation in the light of the situation the USA and China are in.

Theory of Trade: Is Ricardo’s comparative advantage still relevant?

There are many theories, Ricardo’s comparative advantage was one of the first and it’s a very powerful and relevant insight but it is not the only one. It explains 20% – 25% of total trade but we should also not forget about the countries’ endowments, economies of scale and scope and maybe the most important, the consumer preferences and their love to variety.

The Doha Round of the WTO Negotiation

“The goals set during the Doha round were not achieved…the world has changed” Mr. Koopman The WTO is not a free trade organization, never meant to be. Its main purpose is to strive for freer trade in the world by organizing the rounds of negotiations. The Uruguay and perhaps the Doha rounds were centered around 20th-century trade issues but as we are rapidly moving into the 21st century the new issues arise. Significant 21st events like the rise of Japan and other Asian Tigers; the opening up of China which has grown at a great speed from a poor to rich and from a centrally planned to more market focus economy; the establishment of the new separate markets for the former Soviet nations; the opening up of India to the trade. The Doha round was not prepared for those.

Conflict Over Protectionist Measures: Developed vs Developing

Developed countries are trying to prevent developing countries from using protectionist policies like, for example, the agriculture subsidies. The developed counties through their own experience found out that such measures have big negative spillover effects on the world and actually do more harm to the agriculture industry than help it. The lesson learned from this is that developed countries are not preventing developing countries from using protectionist policies like agriculture subsidies but rather they are trying to prevent them from using techniques that cause big negative spillovers to the rest of the world. “Do as we said not as we did” the developed countries recommend to developing. 

The Largest Trade War in Modern Day History

Trade is not decreasing, it’s hard to imagine that it can even stop, even though there is a heated debate around it. It’s not world trade in crisis but rather “the world trade order in crisis”. The tariffs implemented by the USA cannot be purely seen as the activist trade policy, it is rather the geopolitical politics for the power and world dominance. This trade war is a sort of political negotiation strategy by the USA and the USA is known for having good experience in such delicate political manipulations.

Is There a Way to Prevent the Trade War?

I like to think counterfactually….In a world where China did not rise, the USA would be importing more from east Asian countries and Mexico” was Mr. Koopman’s answer. Going back to the reality, we saw that Mexico had a plan to actually move into producing electronics. China, however, implemented policies to enable values chains to flow into China. This policy affected not just the USA but other countries as well.

天高皇帝远 The Sky Is High and the Emperor Is Far Away

China invested a lot of money into sectors like, for example, cement and steel that enables them to build infrastructures. There is a surplus of materials in those industries as China went too quick and too big, consequently, it overbuild. This resulted in the high complexity of the Chinese system and it seems that Beijing is not able to control everything that is happening in China. There is a Chinese saying “天高皇帝远” (Tiān gāo, huángdì yuǎn) which translates as “the sky is high and the emperor is far away”. Dumping of steel into markets overseas by China actually resulted in global steel prices plunging due to supply exceeding demand. Now, China’s plan is to move from investment-led to a consumer-led growth.

Questions by Rostra

What are your thoughts on the instability of the Chinese economy? – Nastasiia Sokil

It is early to say that the Chinese economy is suffering from instability…news reporters are taking it too far. WTO IMF, WB, and OECD decreased the projections of trade down in the light of the trade tariff posted by the USA but the change is relatively little. The main concern lies in the investors and consumers declining confidence. The concern around financial markets (Turkey, Argentina) could become problematic when ECB and FED increase interest. The market fears another 2007 crisis. The WTO is closely watching the data to predict and take preventing measures.

What are your thoughts on the USA’s strategy in Indo-Pacific? – Nastasiia Sokil

The USA approach is about building alliances with various countries whereas China is about going at it alone. There is an issue now with the approach of China as countries in the Indo-Pacific are concern about preserving their severity from Chinese influence. Moreover, although China has some influence in that region, it should win the market there from the USA which requires more than just politics or power and is primarily about winning the hearts and minds of the people.

Is the trade war about what will be made in China 2025, China intending to improve themselves, China moving up the value chain? – JianRong Ng

China might not succeed in achieving this as it is a very complicated process. But if China does move up the value chain, this does not mean that the USA or other countries will experience decline and be poorer. A good example would be what happened to the United Kingdom after the rise of the USA, they remain relatively prosperous.

The main thing we got away from the interview was that the world is dynamic and unpredictable in nature: you are not able to predict what happens in the 21st  century when you are in the 20th century. Trade is still growing and it is very difficult to stop it. It is not the world trade in crisis but more of the world trade order in the crisis. The trade war can be seen as the USA’s paranoia attack about Chinese intentions to move up the value chain that would threaten the USA’s industries and economy. But the thing is the USA might not decline or get poorer as China rises. Look at what has happened to the United Kingdom after the rise of the United States.

To see the full interview check the Room for Discussion Facebook page.


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