Sunday, March 12, 2017

Interview With Mehr News (Iran): "China Will Replace the U.S. in Global Trade"


I was recently interviewed by Payman Yazdani for Mehr News Agency (Iran).  We discussed the changes in global trade in the wake of the 2016 U.S: elections.  The ext of the interview, China Will Replace the U.S. in Global Trade, as published by Mehr News 5 March 2017, follows below.



China would replace US in global trade

News ID: 3924252 -

TEHRAN, Mar. 05 (MNA) – An international relations professor has said Trump’s administration has not roundly rejected multilateralism; however, it preferred American-style of bilateralism which would serve national interests.
 
Payman Yazdani of Mehr News International Service asked Larry Backer of Penn [State] University Law School about the possible implications of the US withdrawal of multilateral international organizations and whether the US would still hold the leadership of the international community while Trump administration clearly signaled withdrawal from almost all international trade regime organizations:

President Trump pulled out of TPP; how would you see the future of trade order in Asia?
The trade order in Asia will become more rather than less complicated.  One of the promises of TPP was its offer of a harmonized superstructure within which regional and bilateral trade deals might be coordinated. In its absence, any number of different scenarios may occur. Let me suggest only some of the possibilities; (1) the TPP states continue with the project without the US; (2) TPP is enhanced by substituting China for the US as the TPP anchor (with some changes for state support and SOEs); (3) the trading partner fractures already in place will continue as before producing efforts, through the management of global production chains to take strategic advantage to play systems  (and states) off against each other; (4) trade and development policies may become more closely aligned as Chinese dominance grows, producing coordinated partnering of development (infrastructure banks, for example) and sovereign wealth fund investing (including project deals) and public (through SOE) and private deals; (5) the US coordinates its new bilateral approach to re-create the effects of TPP; or (6) TPP’s framework is bolstered by the entry of a newly freed UK or an interested India. Most of these alternatives are unlikely to have much of a chance of success. States that tend to be in the middle or lower ends of global production chains have much less leverage to order trade than do states which house apex enterprises (whether SOEs or private companies). In any case, whatever the result, there will be greater fluidity and fracturing in trade regimes―which provide some opportunity as well as heightened risk for global trade (that tends to abhor the uncertainty inherent in this state of affairs).

When President Obama signed TPP, he said he wouldn't let the US rivals such as China determine the 21st century trade rules for Asia. At the same time, China announced it was going to lead the trade order for 21st century. How would you see the future of international trade order?
The US (after January 2017) and China (since 2013) present two quite different and interesting approaches to nationalism within globalization. For the Chinese nationalism requires global engagement through the construction of an integrated set of multilateral arrangements the ultimate object of which must be to further national policy (in the case of China that means aiding in national socialist modernization under the leadership of the Communist Party working towards the establishment of a Communist society).
To the extent that China’s partners can find something advantageous to them in the process all the better, and even better if there can be coordination among objectives of national policy. For the Americans nationalism requires a rejection of multilateralism and broad structural stability in trade regimes.  It is inward looking, seeking, like 1960s old style, Third World states or 1970s Latin American states, to foster an import substitution regime the goal of which is to create a perfectly detachable state economic apparatus that is entirely self-sufficient within its own borders. Only to that end is bilateralism interesting to the regime, and it is the lack of focus on this objective that tends to produce the ambiguous charge of the current administration that multilateral deals do not serve the American national interest.
Given these quite distinct views of the inter-connection between nationalism and globalization, it stands to reason that the Chinese will likely take the lead in proposing and instituting multilateral trade orders.  Ironically, should the Chinese acquire such influence, it will necessarily force American multinational enterprises operating abroad to adhere to Chinese rather than American-inspired trade principles. Yet, that would not register as a negative within the ideological structures of the present administration; instead, it would likely be viewed as a welcome incentive to bring industry “back home.”

Would President Trump's measures adversely affect the US leadership in world trade order?
If the leaders of the United States reject the legitimacy of the world trade order, then it must follow that the United States will abdicate any pretense of leadership over what is now viewed as illegal and un-American effort.  Let me emphasize the illegality part of the last sentence.  In a widely circulated draft Executive Order, the current administration sought to make clear that multilateral treaties are currently negotiated to cover a host of issues that are beyond the power of the United States to concede to regulation beyond its own borders. That is, multilateral treaties that touch on matters deemed domestic in nature exceed the power of the US President to concede and that only treaties implicating national security, extradition, and international trade (narrowly understood) might be considered legitimate assertions of treaty making. In that sense, then, it is not merely a matter about whether President Trump’s measures harm US leadership in a world trade order, but rather whether it is new US policy to ensure either the dismantling any such world trade order or alternatively to wall the United States off from such ordering.

Can a country like China take the leadership of trade order in the world in absence of the US?
It is harder to say what China can or cannot do. On the one hand, the Chinese are new to the arenas of global trade regimes and it is not clear that they will be able to step into the shoes of their global leader predecessors without some missteps. Those missteps were quite in evidence in Chinese earlier efforts to organize its pipeline from African states that provided raw materials and served as a receptacle for Chinese overproduction in return for infrastructure development, money and some positive local labor effects.
On the other hand, the Chinese have approached the issue of fashioning the new world trade order they might prefer in a very different way from that of the Americans over the past 70 years. First, the Chinese emphasize principles and ideology far less; they tend to implement their trade policy through concrete investment―whether through their investments furthering the One Belt One Road project, or in their bilateral or multilateral efforts. Thus, I might expect to see the Chinese build principles from the facts they construct on the ground. Second, the Chinese are not as constrained by the current dominant ideology on trade. That has a significant consequence:  the Chinese are not afraid to experiment by merging previously separate economic regimes (sovereign investing with conventional commercial activities), by experimenting with the organization and financing of its SOEs through state and private market financing depending on where portions of the enterprise may be projected abroad, or by coordinating private and public investing. They are far more willing to tolerate state aids to economic enterprises than is possible in the United States or the European Union (the latter of which continues to be guided by a jurisprudence that seeks formal and functional equality between state and private enterprises in terms of state aids). One needs only see the way in which the One Belt One Road project has been implemented and the increasing sophistication of Chinese oversight of its African interests to see the emerging face of a new global structure―nationalist and global in nature.

What are Trump's possible alternatives for trade regimes such as TPP and NAFTA? Would he essentially believe in international trade regimes that help US keep its hegemony? 
Mr. Trump has not rejected multilateralism in its entirety but he has narrowed the way Americans might conceive of the limits of its legitimate (that is, legally supportable) scope. On the other hand, beyond the ostentatiously public rejection of TPP, Mr. Trump has done little to overturn the current structures of American multilateralism. The course of future American policy remains ambiguous. That, of course, is in keeping perhaps with the negotiating style of the current administration. Indeed, as late as February 23, 2017, the representative of German Industry and Trade, Daniel Andrich, was quoted in Deutsche Welle as saying that “It's not sure whether TTIP is dead - the EU Trade Commissioner said the negotiations would be in the freezer for a while. The US administration hasn't made any statement on TTIP, but stated that it would pursue bilateral negotiations rather than plurilateral ones like the TPP.”
Indeed, one can mimic the effects of multilateralism through a sustained and coordinated effort to forge bilateral relations among a targeted group of states. The one group that has yet to speak publicly (though no doubt they have made themselves heard outside the hearing of the American public) are the leaders of American apex multinational companies and the financial community, whose income is nicely augmented through its extensive exploitation of global markets made possible through bilateral and multilateral arrangements. Still, this administration has indirectly indicated a willingness to walk away from WTO and other foundational trade regime organizations unless it gets what the administration describes as better trade deals.  And that, perhaps is the ultimate insight toward any prediction of alternatives―the current administration does deals, it does not create (and appears to be suspicious of) systems (something I discuss here). All states work to further their own interest; that is a given in international relations. But states understand that national interest differently. Between 1945 and 2017 the US embraced a view that multilateral structures for trade in which borders provided little protection against bad acts, and that bad acts would be defined under the leadership of the US, best served American interests. And perhaps it did. That approach-- which shaped modern global trade regimes, and like the generation of intellectuals, economics and politicians that championed it-- appears to be receding into history as a new generation, one that views the rationale for the current system only as an irrelevant historical artifact, now seeks to recast American power in its own image.

Professor Larry Catá Backer teaches classes in constitutional, corporate, and transnational law and policy. He is also a member of the American Law Institute, the European China Law Studies Association and the European Corporate Governance Institute. He served as chair of the Penn State University Faculty Senate for 2012-2013 and as Chair of the University’s Joint Diversity Awareness Task Force for 2015-2016.
Interview by: Payman Yazdani

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