The evolving geo-economics of world trade

Abstract

As economic powers from the developing world, particularly China, have emerged in the past few decades, their weight has altered the balance in the global trading system. This has presented challenges in the World Trade Organisation (WTO), where the Doha Round of multilateral negotiations has dragged on for more than a dozen years. Frustrated by this stalemate, many countries have sought alternatives. Among these are ‘mega-regional’ trade agreements such as the proposed Transatlantic Trade and Investment Partnership (TTIP) between the US and EU, and a 16-member Trans-Pacific Partnership (TPP).

In this volume, leading commentators – including two former heads of the WTO – examine the possible consequences of this shifting trade landscape. Is globalisation in reverse, and have countries been retreating from liberalisation since the world financial crisis of 2008– 09? Are the ‘mega-regional’ deals an existential threat to the WTO regime, or can they be used as building blocks towards wider multilateral agreement on a broad range of issues, from industrial standards to intellectual property rights. And what does it all mean for the balance of geopolitical power between the developed and developing world?

Notes

1 Jeffrey Sachs, ‘International Economics: Unlocking the Mysteries of Globalisation’, Foreign Policy, no. 110, Spring 1998.

2 Kevin H. O'Rourke, ‘Politics and Trade: Lessons from Past Globalisations’, Bruegel Essay and Lecture Series, 2009, p. 8; and Ronald Findlay and Kevin H. O'Rourke, Power and Plenty: Trade, War, and the World Economy in the Second Millennium (Princeton, NJ: Princeton University Press, 2007).

3 Kenneth Waltz, ‘Globalisation and American Power’, National Interest, no. 59, Spring 2000, p. 53.

4 World Trade Report 2013 – Factors Shaping the Future of World Trade (Geneva: World Trade Organisation, 2013).

5 Ibid.

6 Richard Baldwin, ‘Global supply chains: why they emerged, why they matter, and where they are going’, in Deborah K. Elms and Patrick Low (eds), Global Value Chains in a Changing World (Geneva: World Trade Organisation, 2013).

7 Richard Baldwin, ‘WTO 2.0: Global Governance of Supply-Chain Trade’, CEPR Policy Insight, no. 64, December 2012, p. 5.

8 Barry R. Posen, ‘Command of the Commons: The Military Foundation of US Hegemony’, International Security, vol. 28, no. 1 (Summer 2003), pp. 5–46.

9 Richard Baldwin, ‘Globalisation: the great unbundling(s)’, Paper forming part of the Globalisation Challenges for Europe and Finland project, Economic Council of Finland, 2006.

10 Transnational corporations’ global production networks are mainly formed in specific manufacturing industries, e.g., electronics, automotive, machinery, textiles, chemicals and plastics. Extractive and service industries tag on GVCs providing inputs for many other industries’ exports. It is important to observe that, as transnational corporations have shaped GVCs, their strategies can also restructure them. New technologies may impact GVCs (e.g., 3D printing and computer-integrated manufacturing) and create the conditions for ‘reshoring’ tasks and functions performed abroad. Labour and energy costs may also affect GVCs’ competitiveness (e.g., rising manufacturing costs in ‘Factory Asia’ and the shale-gas revolution in the US). Those changes would certainly affect current geoeconomic interdependences among countries involved in GVCs and generate new geo-economic risks.

11 Thomas L. Friedman, The Lexus and the Olive Tree (New York: Farrar, Straus & Giroux, 1999); and The World Is Flat (New York: Farrar, Straus & Giroux, 2005).

12 Fareed Zakaria, ‘The World is Flat: The Wealth of Yet More Nations’, New York Times, 1 May 2005.

13 The IISS 2014 Military Balance, for instance, estimates that the US 2013 defence budget of US$600bn is only slightly smaller than the other top 15 countries´ defence budgets combined. China has the second-highest defence budget (US$112bn), followed by Russia (US$68bn); see The Military Balance 2014 (Abingdon: Routledge for the IISS, 2014), p. 23.

14 With the Plaza Agreement signed by ‘G5’ nations (the US, Japan, West Germany, Britain and France) at the Plaza Hotel in New York City in 1985, the US dollar was depreciated relative to the German Deutschmark and the Japanese Yen. The agreement effectively acted as a boost to US exports.

15 Michael Mastanduno, ‘System Maker and Privilege Taker: US Power and the International Political Economy’, World Politics, vol. 61, no. 1, January 2009, p. 123.

16 See Ian Bremmer, ‘The Return of State Capitalism’, Survival: Global Politics and Strategy, vol. 50, no. 3, June–July 2008, pp. 55–64; and Aldo Musacchio and Sergio Lazzarini, ‘Leviathan in Business: Varieties of State Capitalism and their Implications for Economic Performance’, Harvard Business School, Working Paper 12–108 (June 2012).

17 Charles Kupchan, for instance, sees the TTIP as an opportunity to revitalise the West´s position as the anchor of a liberal order amid changes in world power; see Charles A. Kupchan, ‘Parsing TTIP´s Geopolitical Implications’, Transatlantic Partnership Forum Working Paper Series (June 2014).

18 The argument that the Doha Round deadlock is predominantly a function of the structural changes in the global balance of power is put forward by Braz Baracuhy, ‘Rising Powers, Reforming Challenges’, Centre for Rising Powers, Cambridge University, Working Paper No. 1, May 2011; Guy de Jonquières, ‘The Multilateralism Conundrum: International Economic Relations in the Posthegemonic Era’, European Centre for International Political Economy (ECIPE), Transatlantic Task Force on Trade Working Paper No. 1 (2011); and Pascal Lamy, ‘Putting Geopolitics Back at the Trade Table’, Speech at the IISS–Oberoi Discussion Forum, New Delhi, India, 29 January 2013.

19 The 1992 Blair House Accord was an agreement between the US and EU to reduce agricultural subsidies to exporters and domestic producers.

20 WTR 2013, p. 286.

21 See Glossary.

22 GVCs and selective liberalism are discussed in George de Oliveira Marques, ‘Global Value Chains: International Trade's “New Narrative” and its Implications for Brazil’ (Mimeo, 2014).

23 Ashley J. Tellis, ‘Balancing without Containment: A US Strategy for Confronting China's Rise’, Washington Quarterly, Fall 2013, pp. 114–15.

24 Zhang Maorong, ‘China could have key role to play in TPP’, Global Times, 20 November 2013.

25 Bob Davis, ‘China Pushes its New Pacific Free-Trade Zone at APEC Meet ing’, Wall Street Journal, 18 May 2014.

26 Samuel P. Huntington, ‘Why International Primacy Matters’, International Security, vol. 17, no. 4, Spring 1993, p. 72.

27 Richard Baldwin, ‘Globalisation, global supply chains and the implications of megaregionalism’, Paper presented at the IISS Geo-economics and Strategy Programme's conference ‘Trade and Flag: The Changing Balance of Power in the Multilateral Trading System’ (Mimeo), IISS–Middle East, Bahrain, 6–8 April 2014.