Leibowitz: The Changing Face of Trade in a Time of Struggle

With the seemingly endless wars in the Middle East and now the conflict in Ukraine, we see that interdependence is not a panacea. But looking at the history of the world since 1945, it is hard to claim that expanding global trade has not been a benefit to peace. Certainly, the lives of billions of people throughout the world have improved through trade.

Wars (and revolutions) are generally caused by long-standing grievances. In the aftermath of the last big war, the world’s victorious nations sought to remake the global geopolitical system and economy to bring people up in economic terms and to oppose totalitarian regimes. That record was successful for a long time, leading to the collapse of the Soviet Union in 1991 (not to mention apartheid in South Africa and the defeat of Saddam Hussein’s takeover of Kuwait in 1990). 

But there were failures too. With the passage of time, festering grievances (not the least of which was the desire for reversing the disintegration of the Soviet Union (the natural successor of the czarist Russian Empire), triggered violence. The Russian war on Ukraine is the latest and perhaps most dangerous of these violent outbreaks.

The Biden administration has noticed the collapse of consensus on the benefits of global trade. While trade liberalization did not turn China into a democratic country or lead it to respect its commitments when it joined the WTO in 2001, the undeniable successes of expanding global trade need not and should not be thrown away in the belief that the expansion of trade “didn’t work.” It worked—and it still works, but it does not solve every problem.

In an effort to develop a new global economic system, the Biden administration has proposed a new “Indo-Pacific Economic Framework” (or IPEF).  It has an ambitious agenda, but so far specifics are lacking. Among the stated issues is climate change, improving supply chains, decarbonization, and reducing corruption. All laudable goals; achieving them is a challenge.

Katherine Tai, the US Trade Representative, has given some recent speeches decrying the historic tendency toward “free trade agreements.” She asserts that workers and the middle class do not enjoy the full benefits of the old system and that workers in the United States suffered from them because barriers were lowered in the United States causing the loss of manufacturing jobs. That is a debatable point, but what is not debatable is that the governing class in both parties believes it. And, they further believe that only government action against the concentration of wealth and corporate “greed” can change the situation. That point is also debatable.

Ambassador Tai acknowledges in her recent speeches that international trade is still an important feature of the world economy. In urban slang, expanding trade is “a feature, not a bug.” 

Recent government action to restrict access to the US and other Western markets to exported technology has “weaponized” trade policy. The hostility to increased imports from organized labor and politicians of both parties have made it easier to use trade as a weapon in international relations. The United States and other countries have long used economic sanctions on other countries as a foreign policy tool. Russia, China, Iran, South Africa, Sudan, and many other countries have been the targets of these actions. 

Recent actions to limit the export of advanced semiconductors to China is a feature that goes beyond access to the US market. And this is fine, as long as the bad behavior of adversaries justifies the sanctions. There are recent examples that go too far, such as the imposition of steel and aluminum tariffs on friends and adversaries alike. And, with tariffs, quotas, and embargoes most often used, more Americans are hurt by the sanctions than are helped. This suggests that economic penalties should be reserved only for the most serious strategic situations. 

Few would argue that the Russian invasion of Ukraine isn’t serious. The bellicosity of China in threatening Taiwan with invasion is also serious. 

The IPEF seeks to reconstruct an international economic order without focusing on the reduction of import barriers because a reduction of import barriers is unpopular in the United States. Most of the world’s leading economies suffer from supply chain disruptions that interdependence brings. But many other countries have no choice other than interdependence.

The IPEF only deals with the Asia-Pacific situation. Other initiatives will no doubt be proposed.  A few general principles should guide the process: (1) we should treat our friends and allies better than our adversaries; (2) we should recognize that government action is likely not going to be sufficient to remake the global economy, at least not any time soon; and (3) economic action alone will not compel our adversaries to give up their ambitions to be more powerful. 

The world has changed its view of international trade to guarantee to world peace. We now see that the world must act through collective security, diplomacy, and force when absolutely necessary.

Expanding trade will not cause authoritarian governments to become democracies.  Nor will economic self-sufficiency be able to deter an aggressor. In rebuilding a seriously damaged international order, all countries must be given a chance to live in peace without being threatened with destruction or conquest.  That is the only way peace will last.

Lewis Leibowitz

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