Postwar international economic order revealed problems
Since World War II, the international economic order has been developed based on Liberalization, Non-discrimination and Multilateralism. This is the so-called free-trade system centering on GATT and WTO.
In particular, since the 1990s, after the end of the Cold War, neo-liberalism, based on the three pillars of liberalization, deregulation, and privatization, has spread worldwide, becoming a global standard.
If you ask whether the world has really been in favor of and in agreement with neo-liberalism, the answer is “No.”
Of course, it is true that trade protectionism was one of the causes of World War II, the GATT was born out of remorse and regret, and the free-trade system has been the basis of the international order.
However, even if you are in favor of free trade in principle, there are many problems with uniform liberalization. In fact, it was after the 1980s when the free-trade system made major progress, in the 1990s in particular.
The WTO, which was established in 1995, nowadays has difficulty in deciding anything new. How come? Because the WTO has more than 160 members who have their own specific circumstances and need appropriate policies to address them.
Of course, in the context of globalization, it is important to harmonize the basic rules worldwide. However, applying them uniformly to each country could limit their “Freedom of choice”.
That is a major problem, especially for developing countries. This is because uniform liberalization could damage each country’s unique economic and social foundations or hinder their growth.
For example, during Japan’s high growth period, the government intervened in the market as an industrial policy, protecting and nurturing domestic industries. There were also restrictions on trade and direct investments. Similar policies were also implemented in the Republic of Korea and Taiwan, leading to the “East Asian miracle”.
At that time, if Japan and the other East Asian economies had been left with no choice but to adopt a completely free-trade system, the economic development of today would not have been possible.
In that sense, the U.S.-China trade war, to which the world is paying attention now, may have highlighted the problems inherent in neo-liberalism, which has spread since the 1990s.
If so, it seems to me that the conflict between the two economic powers today will be a good opportunity to build a new international economic order.
“America First” endangers Non-discrimination and Multilateralism
The U.S. used to identify itself as the guardian of free trade. In addition, the U.S. had recommended and demanded that developing countries adopt a policy package based on the three pillars of liberalization, deregulation, and privatization.
However, when Mr. Trump, who advocates “America First” became president, he declared “We will follow two simple rules: Buy American and Hire American,” and steered the country toward protectionism.
I do not think that protectionism and intervention policies are necessarily bad. As I mentioned earlier, these are sometimes necessary, especially in developing countries. The emerging of protectionism in the U.S. indicates the limits of neo-liberalism and the need for a shift from it.
However, the problem in the U.S. now is a way of disrespecting the international rules.
For example, the Trump administration announced tariff increases to protect U.S. steel and other industries. On top of that, his administration actively pursued bilateral trade negotiations with countries that asked for tariff exemptions.
It would have been better if all other countries had come together to make multilateral negotiations with the U.S. However, trying to have their own countries exempt from customs duties, they agreed to have bilateral negotiations with the U.S. under “My Country First.”
For fear of the U.S. threat to raise automobile tariffs, following the increased tariffs on steel products and others, Japan agreed to enter bilateral negotiations, and the Japan-U.S. Trade Agreement took effect in January 2020.
Originally, the United States promised to eliminate tariffs on automobiles in the TPP. President Trump broke it by withdrawing the U.S. from the TPP, and he made no reference to it in the new Japan-U.S. Trade Agreement. On the other hand, Japan allowed the U.S. to open its agricultural, forestry and fishery markets, which Japan had made concessions in the TPP.
As you can see, in bilateral negotiations with the economic power of the U.S., each country is forced into disadvantageous negotiations, resulting in “America First.”
In other words, the spread of bilateral negotiations like this will threaten the fundamental principles of the free-trade system: Non-discrimination and Multilateralism.
The U.S.-China trade war is also characterized by the U.S. discriminatory attitude toward Chinese products and companies.
The Trump administration has issued a series of sanctions against China, criticizing China’s unfair trade practices, national security issues and human rights issues. In fact, many other countries share concerns about China’s behavior.
However, the U.S. has imposed sanctions on China by applying its domestic laws externally, disregarding international rules such as the WTO. It seems very one-sided and self-righteous.
China has a sort of authoritarian market-economy in which the government intervenes in the market and state-owned enterprises account for a large part of the economy.
Chinese government is often distrusted by foreign countries because of its undemocratic nature. However, it is not necessarily wrong for the government to intervene and manage the economy to some extent, rather than leaving everything to the market.
The symbol of China’s foreign policy is the Belt and Road Initiative. As it is also called the “Silk Road of the 21 century”, many countries on the Eurasian Continent are located along the Belt and Road, where China is increasing its influence by supporting the development of their logistics networks and other infrastructure.
Unlike Western countries, China will not require democratization and liberalization as a condition for economic assistance. This indicates that China is a new inconvenient rival for Western countries, which have demanded democratization and liberalization as a condition of support in the past.
On the other hand, for developing countries, this means one more option for a donor country. They are no longer forced to follow a single set of values in order to receive support.
However, the Belt and the Road Initiative also has its problems.
For example, it is often pointed out that some countries are heavily indebted to receive assistance, a so-called “Debt Trap.” This is also a growing concern due to the lack of transparency as it is done bilaterally.
After all, the two largest economies of the U.S. and China are both similar in some aspects in terms of implementing bilateral deals. What we need to build a new international order is perhaps Non-discrimination and Multilateralism.
New global standards will be developed in Asia
Normally, a new international order should be established in a global arena such as the WTO, but the current situation makes it difficult.
Under these circumstances, I am focusing on East Asian regional cooperation.
East Asia has been the world’s growth center for half a century, despite several crises. A wide variety of economies in East Asia have built close production and distribution networks through open regionalism.
In addition, they have provided a number of opportunities and places for conference diplomacy and regional cooperation, aiming to create rules that can be reached through consultations based on their own circumstances and requests. East Asia is a region where Non-discrimination and Multilateralism have been practiced.
For the East Asian economies, both the U.S. and China are indispensable and important partners. It is necessary to maintain good relations with the U.S. and China for the future growth of East Asia and the growth of the entire world.
To achieve this, it is necessary to establish a framework in which any country can discuss and cooperate with the U.S. and China on an equal footing, avoiding the unilateralism of the U.S. and making China’s Belt and Road Initiative a beneficial public goods for the entire region.
For example, the RCEP (Regional Comprehensive Economic Partnership), a Free Trade Area initiative comprising 16 countries—Japan, China, the Republic of Korea, India, Australia, New Zealand, and the ASEAN 10 countries—is an inherently powerful framework, although India has withdrawn from it.
If regional cooperation in the RCEP progresses, member countries will be able to negotiate on equal terms with the U.S. and to incorporate China into the multilateral order of East Asia. This could be one of the foundations of a new international order for the entire world.
In this context, Japan will be required to play an important role. It is necessary for Japan to take the initiative in proposing concessions and compromises and leading regional cooperation, not to mention serving as a coordinator of each country’s national interests.
Japanese people have tended to look toward the West and have not been willing to learn from and cooperate with Asian and other developing economies.
For example, an increasing number of global companies and human resources have been emerging from Asia. How did they achieve their growth? The fact is they made it not necessarily by following the Western way to success. They have ways that are unique to Asia, including ways they learned from Japan.
At this time, when the conventional international order is at a standstill and a new order is being sought out, we needs to respect and learn from Asia.
I think a new answer is very likely to come from East Asian regional cooperation, which is neither the American way nor the Chinese way. We are now in the transition period.
* The information contained herein is current as of November 2020.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.
Information noted in the articles and videos, such as positions and affiliations, are current at the time of production.