Trade coercion presents a growing threat to the global economy
Nations need to go beyond expressions of solidarity
Wendy Cutler is vice president at the Asia Society Policy Institute and a former acting deputy U.S. Trade Representative. Jeffrey Wilson is research director at the Perth USAsia Center.
The integrity of the global trading system is under assault.
Rising protectionism, nonmarket economic practices and the abuse of the national security exceptions mean the trade rules that facilitated dramatic increases in global growth for over seventy years can no longer be taken for granted.
And now, there is a new threat to add to the list: trade coercion. It involves governments using trade measures as a political weapon to impose economic costs on a partner during a diplomatic dispute. Common coercive trade practices include imposing arbitrary anti-dumping duties, delaying customs processing and government-organized boycotts.
Trade coercion is a serious threat to the global trading system. It breaches core World Trade Organization principles of nondiscrimination and transparency. It asymmetrically affects small and medium countries, which lack the size to respond effectively to larger players. It also undermines confidence in rules-based approaches to trade.
The grey-zone nature of trade coercion makes it difficult to identify, let alone quantify, the practice. Few governments admit to breaching trade rules to politically pressure others, and coercion often goes unreported. But experts agree the practice has become much more common in recent years, and if left unchecked, could further damage the fragile trading system.
Governments subject to trade coercion find themselves in a bind. If they retaliate in-kind, they risk escalation typically from a larger power that can inflict greater pain. If they capitulate, they risk sacrificing their foreign policy autonomy and facing public backlash at home. Moreover, when they look to global institutions, they are left short-handed. The WTO dispute settlement system is in disarray, and is not fit-for-purpose to deliver remedies for victims of trade coercion.
Recognizing these problems, governments around the world are exploring what can be done to address this pernicious practice. To contribute to this discussion, an international group of twelve trade policy thought leaders, convened by the Asia Society Policy Institute and the Perth USAsia Center, have released a paper offering 10 concrete policy options for governments to deploy in responding to trade coercion.
While victims of trade coercion often feel powerless, there are many steps they can take. These include policies to protect their own economy against coercive threats, advocacy undertaken in concert with like-minded partners and ways for the WTO to play a larger role.
Getting one's own house in order comes first. Governments need to prepare themselves better for coercion by understanding their vulnerabilities, particularly their trade dependencies on both the import and export side. They can reduce risk by diversifying their markets and sourcing, and offset harms when coercion occurs through financial assistance to affected industries and their workers.
Countries targeted by coercion find value in working with other like-minded partners to bring collective weight to bear. This can take many forms, including information sharing to help identify and mitigate coercion, and coordinated diplomatic responses in solidarity with the victim. International organizations like APEC, the OECD, the Group of Seven and the Group of 20 should also put trade coercion on the global agenda to bring attention to and build norms against this harmful practice.
The WTO has a special role to play. It is unrealistic to expect Geneva to solve the problem on its own. But it can apply peer pressure to those who engage in trade coercion by calling out these breaches of WTO rules in council sessions, trade policy reviews and committee meetings. While the WTO dispute settlement mechanism faces its own challenges, it remains an important tool for smaller countries to challenge coercive practices. Members should join as third parties to disputes over coercion to offer support and help build the legal merits of the case.
Some have argued for bolder measures, such as the creation of a NATO for trade defensive bloc and lifting tariffs for affected products. While the aim of these ideas is laudable, given the politics of trade, they are neither realistic nor practical. They might also harm the integrity of the global trade system itself, akin to throwing the rules-based trade baby out with the coercion bathwater.
The 10 options outlined in our paper offer the art of the possible. Taken in isolation, none will solve the trade coercion problem. Rather, the options are complementary and offer a menu for how governments can work individually and together to address this growing trade policy challenge.
Most importantly, the suggested policy options can go a long way toward supporting the integrity of the global trading system, which enables all countries to enjoy the economic benefits of transparent, nondiscriminatory and rules-based trade. During an era of economic uncertainty, now is the time to ensure trade coercion does not further weaken the rules-based system.