[SCMP Column] Hypocrisy of Fair Trade

April 08, 2017

This week was important not just for the Mar-a-Lago arm-wrestling between deal-maker Trump and his adversary-in-chief Xi Jinping, but for the belated emergence of the lead Rottweiler from Trump’s trade team, Wilbur Ross. He brought good news and bad.

First the good news: he has been tasked to report back to Trump within 90 days – let’s say the end of June – with “a comprehensive analysis of the economic realities and the fine details of America’s trade patterns”.  This presumably means that we may be spared too much shoot-from-the-hip twittering for the time being, however robust the behind-closed-doors  discussion may be between Trump and the many trade adversaries like China who have so taken advantage of US generosity in recent decades.

The 90-day delay gives Trump chance to win confirmation for his intended US Trade Representative, Robert Lighthizer, and provides face-saving space within which to frame his trade offensive, which in due course will target not just China, but Japan, Germany, Mexico and any other economies with the temerity to run regular trade surpluses with the US. It eliminates pressure for headline-grabbing “big wins” with Xi, and may even give the Chinese leader an opportunity to dampen Trump’s protectionist zeal.

Then the bad news: Mr Ross has warned us, in an article penned for the Financial Times, that Trump’s intention is to “make trade fair again” – to “staunchly defend the US against unfair trade practices.” Ross quoted directly Trump’s “recent summary to me of his trade policy”: “Any new Nafta will be spelt N-A-F-F-T-A – North American Free and Fair Trade Agreement.”

And what will the 90-day study focus on? Ross ranges broadly: What is the role of “artificial non-tariff trade barriers” in creating US trade deficits – like “dumping or other cheating”? How serious are the problems of intellectual property theft? What deficits are “structural rather than mercantilist”? What role do non-market economies operating within a market-based system play in creating trade imbalances? Do state subsidies create chronic overcapacity and cause dumping? What is the role of “currency misalignment”? What about “asymmetrical WTO rules and interpretations”?

And finally: “Is there any merit to claims that trade deficits are not meaningful, even though trade surpluses clearly helped propel  the economies of many of our trading partners?”

All of these are good and reasonable questions, and hopefully Xi has left Mar-a-Lago challenged to answer them. But I find myself bristling over the careful and repeated use by Ross of the protectionists’ favourite weasel word – fair. Over three decades of intensive work spectating and writing on international trade there is no four letter word more mischievously misused.

Talking over the years with trade officials and negotiators, and business executives from dozens of economies, the word is always used to address a single troublesome problem: that our good, honest, law-abiding manufacturers and exporters have so many difficulties coping with the unfair practices of unscrupulous, corrupt, conniving foreign businesses.

I have never once seen an exception: our local companies are always and unflinchingly law-abiding. Foreign companies are always deviously conniving to weasel their inferior products into our open market – or using a wide variety of unscrupulous practices to keep our superior products out of their market – of course using unjustified regulations, quirky and parochial standards, and other legal tripwires.

Of course, these complaints are half right. All too often local companies – and industry associations funded to lobby on their behalves – do use such regulations, standards and a myriad arcane tripwires to keep pesky foreign products out of their home market. The hypocracy of “fair trade” is its failure to recognize that our upright local companies are in truth identical to their perfidious foreign counterparts. Wilbur Ross will without question discover numerous examples of unfair practice by foreign companies. What he will discretely fail to notice or acknowledge is those same unfair practices thriving around him in the US, nourished by powerful local manufacturing lobbies, and equally effective in keeping pesky non-American companies at bay in their efforts to sell goods and services to US consumers.

Ahead of Thursday’s meeting with Xi Jinping, Trump tweeted that the discussions with the Chinese leader would be “very difficult” because of job losses in America that he claims are due to manufacturers moving operations to China, and because of a massive and persistent trade deficit between the US and China. For sure the discussions were difficult – but surely the “difficulties” ranged much more widely than contestable claims on trade, and were inevitable given the critical importance of how the world’s two most powerful nations engage with one another.

Perhaps it was a blessing that the meeting came so early in Trump’s presidency, at a point when his trade team is not fully formed, and his policies not fully articulated. So it was two weeks ago with Trump’s frosty meeting with Germany’s Angela Merkel.

First, it gave Xi chance to distribute the conversation over a wide range of shared concerns, of which trade is just a small part – like managing the dangerously eccentric North Korean government, managing dangerous tensions in the East and South China seas, and finding some common ground on managing global warming.

Not only did Xi have a chance to whet Trump’s appetite with expressions of willingness to help raise the US$1 trillion needed to rebuild America’s potholed infrastructure (note the deal last week for the Chinese railway company CRRC to invest US$650m to build railway carriages in the US for the Los Angeles underground network), but maybe he had chance to express eagerness to work on other areas of shared interest – like justified US and EU complaints about discrimination against foreign companies operating in China, like the long-stalled bilateral investment treaty between the US and China, like an agreement on flows of global data, like a global agreement on trade in services.

Absent Mr Ross’s working draft on (fair?) trade policy priorities, Thursday’s meeting might just possibly have provided a rare and valuable opportunity to indulge in two things in chronic short supply: to pause for thought, and to listen. For that, the world is probably a safer place. Let’s hope it is not simply a calm before a malevolent storm.
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