Yes, I have had extensive experience with both. GATT was essentially about tariffs. For geo-political reasons the U.S. tended to reduce faster and more than others. So, even today, if you look at auto tariffs
you will find them at 2 percent in the U.S. and 10 percent in the EU.
GATT had no concept of how to deal with the subsidies, informally closed domestic markets and supply chains of the “catch-up” industrial policy strategies of countries like Japan, South Korea, and Germany.
Exchange rates set in 1948 still prevailed in 1971. Even in the 1980s the dollar was overvalued and many countries intervened in the currency markets. The currency policies made the tariff policies a silliness. The dispute settlement system was slow and cumbersome
and had no meaningful effect on halting illegal subsidies and other interventions. Effectively, there were no rules. Guidelines maybe, but few effective rules.
The WTO , in a way, has been worse. It tried to deal with the weaknesses of the GATT, but, of course, had no jurisdiction over exchange rate manipulation which has continued to be a huge problem. Making some
codes voluntary simply stimulated piracy. But most difficult of all was the entry of China. The idea was admirable. In the words of Bob Zoellick, “we wanted China to become a responsible stakeholder in the liberal, rules based global order.” But China itself
is not rules based and by its own declaration does not believe in rules based organization and politics. Informal coercion in China has made the WTO ineffective. And, of course, the WTO also does not control exchange rates.
No one at Bretton Woods imagined that chronic trade surpluses or deficits would be possible under a truly free trade system. Yet this year will mark about the 50th of constant U.S. trade deficits.
And not just deficits, but huge ones. This year;’s might top $1 trillion. By the same token, Japan, Germany, South Korea, and others generate constant and large trade surpluses. A system that remains chronically unbalanced for its entire lifetime is simply
not a free trade or rules based system. Something has been and remains badly out of alignment.
It is anything but rules based.
From: Walter Nicklin <walter@rappnews.com>
Sent: Wednesday, January 25, 2023 4:44 PM
To: Clyde Prestowitz <presto@econstrat.org>
Cc: Mayraj Fahim <fmayraj@yahoo.com>; Chas Freeman <cwfresidence@gmail.com>; Helena Cobban <hcobban@gmail.com>; salon@listserve.com
Subject: Re: [Salon] Asia’s response to US trashing of the rules-based international trading system
GATT and the WTO?
On Wed, Jan 25, 2023, 7:17 PM Clyde Prestowitz via Salon <salon@listserve.com> wrote:
I’d like to pose the question of when there really was a rules based trading system. it is often referred to in writings and discussions as a kind of nirvana of the past. But as one who has been involved in international trade both as a trader and as a government official for the past sixty years, I just do not recall any time at which I thought there was a true, and meaningful rules based system.
Of course, there were always some rules, but often they were made by officials with no experience of trading and were, in operation, irrelevant. Often, the rules were not all inclusive. There were always many exceptions. They were not adjudicated in a way that had the intended impact. The rules were not enforced in ways that made them effective. Countries that ignored the rules were usually not disciplined for geo-political reasons. After the floating of the dollar, the rules never included anything to do with currency values and operations. I could go on. It just seems to me that talk of the rules based system was always fatuous Clyde
From: Salon <salon-bounces@listserve.com> On Behalf Of Mayraj Fahim via Salon
Sent: Wednesday, January 25, 2023 8:00 AM
To: Chas Freeman <cwfresidence@gmail.com>; Helena Cobban <hcobban@gmail.com>
Cc: salon@listserve.com
Subject: Re: [Salon] Asia’s response to US trashing of the rules-based international trading system
This will also make adjusting to demographic transition even harder for US. Both Trump and Biden are out of touch. Obviously neither of them and their advisers have bothered to see what the Census has been revealing.
On Wednesday, January 25, 2023 at 08:15:03 PM GMT+5, Helena Cobban via Salon <salon@listserve.com> wrote:
This is a powerfully argued piece that, among other things, perceptively locates the junction between dysfunctional domestic policies here in the U.S. and the pursuit (by both Trump and Biden) of free-trade-trashing policies in the international trade sector:
Absent a national contract that valued social protection or policy strategies and institutional arrangements that cushioned and compensated for the impact of economic and social change on those at the frontline or caught in the backwash of it, Trump captured a polity that was fecund with discontent.
The Biden administration has tapped into that political payload too, and its philosophy of policy that embeds the same elementary policy mistakes, assigning the wrong policy instruments to the wrong policy targets...
I'm particularly impressed that this came out of an ANU-located body since I'd kind opf (no doubt lazily) thought that most Australians had been captured into AUKUS-driven polarization...
Thanks for sharing this, Chas.
----------
Helena Cobban
She/her/they | Honoring the lives & legacies of the Piscataways in whose lands I live
CEO, Just World Books | President and CEO, Just World Educational
On Mon, Jan 23, 2023 at 11:14 AM Chas Freeman via Salon <salon@listserve.com> wrote:
Asia’s response to US trashing of the rules-based international trading system
EAF editors23 January 2023
Author: Editorial Board, ANU
The end of 2022 left no doubt that the Biden administration in Washington had joined its predecessor on the mission to trash the rules-based international trading system, of which the United States had been the architect-in-chief in the aftermath of the Second World War. In December, US Trade Representative Katherine Tai thumbed her nose at the WTO rulings against the Trump administration’s steel and aluminium tariffs, which she too had gone into bat for.
And Biden’s team introduced the CHIPS and Science Act that sought to limit Chinese participation in the complex international semiconductor chip trade and production networks. Gone is any pretence of not forcing countries to choose — if US allies remain in the semiconductor business with China, they’ll be hit by sanctions. This is sold as security policy, but with some US companies given a temporary licence to continue to do business in China it looks very much like crude protectionist industrial policy.
In case there was any doubt, the Biden administration then introduced the misnamed Inflation Reduction Act which gave a massive boost to the subsidisation of electric vehicle manufacturing in the United States with large scale buy-in to industrial policy — exactly the issue it has been accusing the Chinese of — and retreat from open trade.
This is a significant U-turn in US economic policy and a major blow to the rules based economic order, of which the United States had historically been the primary defender. It’s a development of systemic importance because, however challenged its economic and social infrastructure, the United States is still the largest economy in the world and the world’s second largest trader. It’s much less important than it used to be in the world economy and global trade, but it’s still the world’s superpower and its innovation and moral authority mean that countries still look to Washington to lead.
From architect-in-chief to enforcer-in-chief, the United States has become spoiler-in-chief of the international trade regime.
How did this come about? And what should the rest of the world do, especially the heavily trade dependent economies in Asia whose economic and political security are so deeply tied to the effectiveness of a rules-based multilateral trading system?
It did not come about quickly, although Mr Trump undoubtedly accelerated the policy shift decisively by his embrace of populist protection against foreigners and foreign goods as a winning political gambit. Absent a national contract that valued social protection or policy strategies and institutional arrangements that cushioned and compensated for the impact of economic and social change on those at the frontline or caught in the backwash of it, Trump captured a polity that was fecund with discontent.
The Biden administration has tapped into that political payload too, and its philosophy of policy that embeds the same elementary policy mistakes, assigning the wrong policy instruments to the wrong policy targets.
As William Reinsch argues in this week’s lead article, the change in US trade policy is due in part to ‘the belief of many in the Biden administration that traditional free trade agreements have benefitted large corporations and their executives at the expense of workers’. If that’s true, there are more efficient ways of rectifying the inequity than by cutting off the benefits from trade. The Biden administration’s trade policy for the middle class is focused on distributing the gains from trade but without a trade policy that creates them.
Open trade has made America measurably richer; America First policies and decoupling make America poorer. Worker-centred trade policy that undermines international specialisation and competitiveness reduces the national wealth from which worker incomes and welfare can be guaranteed.
In forcing countries into a choice between the United States and China, Reinsch argues that ‘the changes in other countries’ policies that the United States is seeking are by no means economically or politically cost-free, but so far the United States does not seem prepared to pay for them’.
What is principally a problem of domestic policy mismanagement nonetheless has high stakes geopolitical dimensions. China is now cast as America’s — and by extension its allies’ — dominant economic and security threat. Economic decoupling from China is justified in terms of national security strategy. The COVID pandemic has fed irrational fear of vulnerabilities through exposure to international trade. And Russia’s invasion of Ukraine has deepened anxieties about the security implications of trade dependence.
Nationally, Mr Biden aims at a number of disparate targets at once: ring-fencing production that is seen as important in national security terms (such as high-quality semi-conductors); boosting national production of leading high value goods like electric vehicles; protecting jobs in industries that have political power like steel; and lowering income inequality.
Internationally he wants to make the United States more self-sufficient with more secure international supply chains in critical areas; create regional and global alliances to achieve that; and at the same time, deal with the climate change issue. But his administration appears to have only a muddled idea of the implications of the interventions in one area of this policy mix for the ability to achieve the desired outcome in others.
There is one thing about which the rest of the world can be absolutely sure. There is no quick fix to sorting out the dysfunction in US national policies now infecting the good conduct of national economic policy. The previously unthinkable reality is that the United States has given itself a red card in the conduct of sound international economic diplomacy and will likely be out of the game for some years to come. It will take a political generation or two to resolve the pickle that America has got itself into.
That is now the starting point for the conduct of international economic policy in Asia.
Asian countries and others in Europe and elsewhere (including US allies) — most of the rest of the world — with a deep strategic interest in an open, rules-based multilateral trading system must defend that system from the United States while working to upgrade the rules, step by step in regional and plurilateral agreements. That’s no easy task and will require political courage as well as deft diplomacy, particularly in dealings with the United States itself.
Beijing’s actions will need to change to match its rhetoric, but it’s clear that China, the world’s largest trader, has a stake in the existing rules-based system. The United States needs to be engaged in the effort in a way that avoids the American inclination to isolate China and break the world up into blocs.
The hope, to paraphrase Winston Churchill, is that the United States, as is its wont, will make the right call after trying everything else.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.
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