A liberal world trading system: Who says no?
By Scott Sumner
NBA fans occasionally come up with fanciful trade proposals—say Trae Young for Zion Williamson—and then ask, “Who says no?” The basic idea is that if your trade proposal is clever enough then neither side will say no.
Commenters occasionally tell me that the US must get tough with China, because that country is trying to make the world a more illiberal place. I actually don’t think China cares very much how liberal other places are, but I do agree that the Chinese government is increasingly nationalistic and bullying. I’m much less confident that the proper response is a trade war with China.
Today, there are only two countries in the world that have very much ability to bully other countries, the US and China. So I developed a proposal to make world trade more liberal, with much less bullying. After reading my proposal I’d like you to consider who says no.
Provision A: No trade policies of WTO members can interfere with the free expression of speech in other countries, either by private citizens or public officials. Thus China cannot retaliate against Australia for calling for an investigation into the origin of Covid-19. If you want to have trade sanctions in response to speech that you object to, then you must leave the WTO and give up most favored nation status.
Provision B: No third party sanctions. WTO members are free to restrict their own imports and exports if there is a plausible national security rationale. But country A cannot punish country B for trading with country C. Thus the US cannot punish foreign countries trading with Iran, or foreign companies supplying components to Huawei.
And that’s it. Two very simple proposals to make trade more liberal. Both aimed at stopping big countries from bullying small countries, by which I mean the 99% of the world’s 200 nations not called China or the US. The vast majority of those smaller nations would support my proposal.
The proposal is written in a way where both the US and China would be giving something up. And yet while I cannot be sure, I suspect that it would be the US that says no. That’s because while both countries are bullies, the US is the bigger bully.
China has the larger GDP in PPP terms, but the US has more power because our GDP is concentrated in areas that other countries cannot do without, such as our control of the dollar-dominated global banking system as well as dominance in high tech, while China mass produces many ordinary products than can just as well be produced in other countries.
In recent years, the US president has increasingly become a sort of dictator of the world. The president can go a long way toward destroying a foreign company by denying it access to the international banking system. Entire countries can be badly damaged by sanctions programs that don’t just punish US firms that trade with our adversary, but even firms located in friendly countries that don’t happen to share our foreign policy obsessions. China also has a lot of power due to its vast market, but not that much power.
Both countries might have signed onto the deal back in the 1990s, but not today. At that time, neither were doing much of the bullying that I describe above. Because the US is the biggest bully of all, and because it is rapidly increasing the extent to which it bullies other countries all over the world, I suspect that it is the US government that would turn down my proposal.
I’m generally not in favor of fighting trade wars, but I’d have some sympathy for a war fought to advance my proposal, a trade war fought to make the world a more liberal place. But while hardline American intellectuals often complain about Chinese illiberalism, actual US policymakers spend their time trying to extract billions more from Chinese consumers in order to further enrich people like Bill Gates and Marc Zuckerberg. That’s not a trade war that I’d choose to fight. The US, with 4% of the world’s population and roughly 20% of its GDP, has 54.5% of global stock market capitalization, partly because our overly generous international property rights regime extracts wealth from all over the world. How much more do we want? So no, IP theft is not my number one concern right now.
PS. Both Atlanta and New Orleans say no to my NBA trade. New Orleans because Williamson is viewed as the bigger talent. Atlanta because the NBA is increasingly a three point shooting league and because there are doubts as to whether the human body is designed to absorb the punishment that Williamson will put on his knees and feet. And both GMs because you get blamed more for making bad trades than refusing to make good ones.