How France Lost its Mustard: A Story of War, Famine, and Western Negligence

 An unusual phenomenon has struck France in the last six months; where once sat jars of mustard lining the condiment aisle at grocery stores now sits empty. Upon first glance this may seem as just another random food shortage, likely spurred by the seemingly never-ending production and shipping issues resulting from the ongoing COVID-19 pandemic. But for the average French citizen who consumes one kilogram of mustard a year, and for a country that describes mustard as its favorite condiment, this is no small issue. Thus, outrage ensued. The national mustard shortage has made the product impossible to find, leaving individuals to turn to social media to beg fellow users for donations or to show off their sacred spread. French shoppers were forced to deal with a grim reality: mustard was nowhere to be found. 

At the root of this shortage lies a much larger international crisis: the war in Ukraine. Indeed, mustard production is a large part of both Russia and Ukraine’s agricultural yield. Ukraine is the fourth largest producer of mustard seed, and the second largest exporter. However, they produce a different mustard then the French, Dijon variant. The Ukrainian mustard seed is typically a milder one, and hugely popular within Eastern European countries. However, due to the ongoing conflict in Ukraine, production and export of the mustard seed has stopped, forcing Eastern European buyers to turn to French mustard instead, which has upped demand for French mustard, thus causing the shortage.

Mustard seed production is not the only export that has halted ever since Putin ordered the Russian army to invade earlier this year, other valuable exports such as wheat, barley, and corn have faced similar deficits due to the conflict. The widespread fighting has significantly decreased the areas available for harvest, particularly in the territories of Kherson, Donetsk, Luhansk, Zaporizhzhia, Mykolaiv, Kharkiv, Sumy, Chernihiv and Kyiv. 

International Food Shortages

         Ukraine’s countryside is home to some of the most fertile land on the planet. The US International Trade Administration (ITA) estimates that Ukraine possesses close to a third of the world’s black soil reserves, (a fertile and moist soil that produces the highest agricultural yields). It is thanks to this fertile land that Ukraine is commonly labeled “the breadbasket of the world.” The country produces large amounts of grain, wheat, and barley, and exports around 90% of its total production. Alongside grain production, Ukraine also exports large amounts of corn and sunflower oil. Ukraine exports its goods to all four corners of the globe, but its primary areas of export are to Eastern Europe, Africa, and Asia. Ukraine sends its food to the places that need it most: developing countries that are heavily reliant on wheat and corn and are sensitive to price increases and shortages. These countries include Somalia, Libya, Lebanon, Egypt and Sudan. During times of peace, Ukraine was easily able to export its wheat and other grain products, but current Russian blockades along the Black Sea coast are preventing the trade of necessary food supplies.

         According to Ukrainian crisis management scholar, Anna Nagurney, over 400 million people across the world rely on food from Ukraine. Additionally, the UN Food and Agriculture Organization, estimates that around 181 million people could face a food crisis or famine this year, caused by shortages and increased prices. [*3] At the root of this issue lies the millions of tons of Ukrainian agricultural production that has halted ever since the war began. Now, millions of vulnerable people across the world face the threat of a deadly famine.

         For many across the Western world, this minor mustard shortage in France marked the first realization of the ongoing war’s broader implication. Since the start of the War in early 2022 the West has been largely concerned with Europe’s reliance on energy from Russia. The threat of a gas shortage in Europe has dominated Western media headlines, leaving little room for concern or interest in the ways Ukraine has supported other corners of the world. Although it is an inherent truth that a country’s media primarily focus on issues that affect its own people (European and American news sources and media cannot be blamed entirely), the neglect of this crisis reflects a deep failure within Western media to document crises unrelated to us.

The Failure of the West

Since the start of the war in Ukraine, European and American war and conflict experts have neglected to draw attention to the wider implications of the war. There has been little to no analysis or discourse on Russia’s role in Africa’s food crisis and Russian hunger politics. Instead, much of the discourse around the war in primary news outlets has analyzed the psychology behind Putin’s decision to invade, or how the West should have seen the war coming. Other popular opinions tend to focus on the war’s implications for shifting the balance of power, the return of NATO, and the impact sanctions will have on the energy crisis. What is missing from this conversation is a thorough understanding of Putin’s ambition in other parts of the world, and how war routinely affects vulnerable and dependent populations first.

By choosing to focus on the ways that the West will be affected, politicians, scholars, and other experts have fundamentally failed to understand the global stake of this war and the true global reach of Russia’s intentions. Russia is starving the Global South as a political tactic to help them win the war. Putin is employing Stalin’s tactic in the 1930’s of political famine once again to help end sanctions against Russia, and create a narrative for African and Asian countries in which Ukraine is seen as the witholder of food and fuel. Yale historian and author, Timothy Snyder, believes that Russia’s tactic of global starvation is a modern attempt at Russian colonialism. In June this year Snyder reflected on the increasing signs of starvation and tweeted that “a world famine is a necessary backdrop for a Russian propaganda campaign against Ukraine. Actual mass death is needed as the backdrop for a propaganda contest.”

The Politics of Starvation

2022 was already expected to be a year of famine and starvation, thanks to ongoing droughts and inflation, but Putin’s role has only magnified the famine’s effects. Countries have already started to prepare for increased food prices and lack of goods: “Some countries are reacting by trying to protect domestic supplies. India has restricted sugar and wheat exports, while Malaysia halted exports of live chickens, alarming Singapore, which gets a third of its poultry from its neighbor.” Snyder believes that Russia’s international famine campaign has three components, each designed to weaken a different part of the world. Firstly, Russian blockages of Ukrainian goods hope to end the narrative of Ukraine as the “breadbasket of the world” for the vast majority of countries that receive its wheat and grain, such as Somalia, Libya, and Lebanon. Putin hopes this will decrease support for Ukrainian freedom and destroy the concept of Ukrainian statehood. Secondly, Putin hopes that this famine will increase the rates of refugee migration into an already politically unstable Europe, as people from Sub-saharan Africa flee into Europe in hopes of finding food and a better quality of life. Putin’s final goal within his mass-starvation tactic is one of political propaganda. Putin plans to blame Western sanctions for food supply issues, thus creating a narrative in which the West is to blame for global starvation. A successful change in narrative for Putin will thus ensure that Russian citizens (many of which are already angry at the war and the effects of sanctions) remain ignorant and naive of the true nature of Putin’s strategic thinking. 

Russia’s need for strong and powerful propaganda is only growing, thanks to Russia’s first military mobilization since World War II, which was announced in late September. The latest increase in military efforts has led to more protests by Russian citizens angry at the Kremlin. Over a thousand citizens were arrested in cities across the country as they protested the need for the 300,000 new troops that Russian officials are demanding.

Frustration and resentment across Russia will only grow as the war continues, therefore Putin’s need to create global implications and shift Russian anger outward will only become more pressing as time goes on. By framing the issues and effects of the war as part of a larger Western-led campaign to starve the world, Putin can prevent his citizens from rising up against him. Russians are already subjected to misinformation and propaganda about the war. The Kremlin has successfully convinced millions of Russian citizens that the war is Ukraine’s fault, spreading stories that “Ukrainians had fired on Russian forces during the cease-fire, and neo-Nazis were “hiding behind civilians as a human shield.” This disinformation tactic makes Russians particularly susceptible to Putin’s lies and less likely to understand his starvation politics. 

Putin has also applied the same tactics of disinformation to African nations, in an attempt to spread anti-West and anti-UN sentiment, while gaining political influence. Putin’s expansion of propaganda to Africa reveals the true diabolical nature of his intentions. Already aware of the need to provide an explanation for the lack of resources exported from Ukraine, Russia has established at least sixteen known operations of disinformation across the continent, otherwise known as dezinformatsyia. The goal of these campaigns is to shift anger onto the West, deny Russia’s role in withholding exports, and prop up political regimes that support Russia’s political ambitions. Through the use of sites such as Twitter, Facebook, and Tiktok, Russia has actively succeeded in creating often untraceable campaigns of lies. The extent to which Russia has spread falsehoods through the continent should both alarm and frighten the West. 

         It is time for Western leaders to acknowledge the global implications of the war in Ukraine, and their correlation to famine and food shortages.  In an attempt to spread concern and awareness, U.N. Secretary-General António Guterres stated “Global hunger levels are at a new high. In just two years, the number of severely food insecure people has doubled, from 135 million pre-pandemic to 276 million today … More than half a million people are living in famine conditions — an increase of more than 500 percent since 2016.” These numbers are already alarming without the added implications of war. Given these circumstances, it is vital that Western leaders work directly with countries already affected by these devastating food shortages. Similarly, Western media must turn its gaze to the international crisis of halted Ukrainian exports. Western negligence has not only led to widespread famine, but it has also allowed Putin to create a devastating narrative of political propaganda in which millions will starve as unknown casualties of a senseless war. 

Does Mexico really win from USMCA?: An Analysis of Mexico’s Political Economy in NAFTA and USMCA

Introduction 

The North American Free Trade Agreement (NAFTA) stands as the textbook example for an ideal regional trade agreement. Fundamentally, regional trade agreements like NAFTA benefit all participating countries by increasing the inflow of foreign investment and the significance of global value chains of participating countries. Additionally, regional integration, like the case of NAFTA, softens physical borders between countries. NAFTA is recognized by many as the most significant regional trade agreement for inspiring other regions to create preferential trade agreements in the 21st century. For Mexico individually, the ratification of NAFTA in 1994 was its breakthrough into the international trading system. Additionally, NAFTA integrated Mexico's developing economy with the two developed economies of the United States and Canada. While on the one hand, NAFTA signaled Mexico's breakthrough into the international trading system, on the other, it placed pressure on Mexico to implement liberal trade policies to maintain the efficiency of the trade agreement.

For Mexico, after 25 years, NAFTA does not yield the same impacts it did when first ratified.  

The changing effects of NAFTA on the Mexican economy stem from a combination of factors Mexico can and cannot influence. For example, the emerging significance of new global powers in the international trading system impacted the amount of trade entering Mexico. Take the example of China emerging as a dominant trading partner. What made China an attractive trading partner to multiple countries was its low cost of production and labor. Since these characteristics of low production are the same characteristics that made Mexico an attractive trading partner to countries, trade ultimately was diverted away from Mexico to China. Although Mexico cannot influence or determine an event like China rising in the international system, they can, however, control national economic policies that can mitigate the impact of unexpected events. 

To determine whether NAFTA is a useful trade agreement, it is significant to observe Mexico's economy before ratification, the early years after ratification, and, in recent years, considering the ramifications for the new United States-Mexico-Canada trade agreement (USMCA). Analyzing the economic impact of high trade barriers will be one deciding factor as to whether Mexico benefits from free trade or not. This analysis, including the differences between NAFTA and USMCA, will indicate reforms Mexico will need to implement to yield higher benefits from the nearly ratified USMCA.

Origins and Justification of NAFTA

NAFTA operates similarly to other preferential trade agreements with special exceptions. Firstly, NAFTA eliminated all tariffs on imported goods that were not in the agriculture, textile, or automobile industry. For all countries, these three industries are volatile to international trade, so maintaining some form of barrier will attempt to ensure minimal externalities on these three industries arising from international trade. Another significant operation of the NAFTA agreement is the treatment of most-favored-nation status to all members. The definition and practice stemming from the World Trade Organization (WTO), the most-favored-nation status, means that no country in this agreement could treat another member-state any differently.

The operations mentioned are some of the critical elements to the NAFTA agreement, while other mechanisms not mentioned ensure these regulations are met. By having these guidelines in place for bordering countries, movement of factories and goods between each country is made smoother. The special treatment established in this agreement also encourages more trade to be done between the agreed countries. Overall, NAFTA integrates the three countries that would stand against more significant integrated regions such as the European Union (EU) while still maintaining the sovereignty to implement different economic policies. 

The United States and Canada created NAFTA with the hopes of mitigating large flows of migration into the United States and Canada. An objective of NAFTA for these two countries was that the inflow of foreign investments into Mexico would increase the number of economic opportunities in the country, which would ultimately decrease the flow of migration. We later see that while NAFTA did bring forth more economic opportunities and developments into Mexico, it did not evenly distribute benefits throughout the country due to select industries benefiting more than others.

A Pre-NAFTA Mexican Economy

Before ratifying NAFTA in 1994, Mexico engaged in minimal trade. The little trade Mexico did engage in consisted of a high tariff and other forms of non-trade barriers such as import licenses. Import licenses are licenses administered by the national government that permit the importation of certain goods. This practice decreases the average rate of imports, and the revenue generated from these licenses is used to invest in different industries. For an extended period, the high level of investments contributed to the development of capital-based industries.  The development of these industries increased their significance in the Mexican government that ultimately influenced economic policies during times of economic shocks. Between 1970-1981, Mexico suffered an extreme debt crisis that required the government to implement liberal trade policies to gain an alternative form of revenue. These policies were short-lived, however, once individual industries noticed harmful effects such as increased imports and high consumer prices. Industries' influence caused these liberal trade policies to be repealed. Industries also influenced economic policy  in 1982 when Mexico transitioned into a business-orientated government, which began a four-step approach to transition Mexico into an open economy. Parallel to this four-step approach, discussions for a bilateral trade agreement between the United States and Mexico were underway.

Due to the discussion of a possible trade agreement with the United States coinciding with Mexico's massive wave of liberal trade policies, many trade policies implemented at this time appeased the interest of the United States. More specifically, policies that incentivized foreign investments are among some of the policies which appeased the United States to further negotiate the possibilities of a trade agreement. 

Before NAFTA, economic shocks were driving factors for Mexico to become more open to international trade. The influence of specific industries, however, prevented at times the government from  implementing specific economic policies. When the discussions for a bilateral trade agreement between the United States and China were underway, Mexico's agenda shifted to implementing strings of liberal trade policies to appease the United States. By crafting trade policies that molded the interest of the United States, it ultimately influenced Mexico's economic relationship with the United States. We see these policies play a significant role later as it ultimately influences how Mexico conducts future trade agreements with other countries. 

The Early Impacts of NAFTA

Research shows that  the net effects of NAFTA on the Mexican economy were generally positive. Although economic shocks could skew any economic fluctuation at this time, even with these events considered, the total net effects of NAFTA are still positive. First and arguably most significant is Mexico's convergence to the development of Canada and the United States. The net inflow of foreign investments to Mexico introduced new technological innovations in the country. New technological innovations caused Mexican national firms to reform their structure to match the rigid standards of the United States and Canada. Reforms made many national Mexican firms increase the quality of jobs in Mexico and contributed to an increase in the national average wage. These structural reforms led to economic and policy reforms that made Mexico better equipped for surprise economic events. 

Although NAFTA is credited for the overall development of Mexico, the effects, however, did create different inequalities. For example, the technological innovations that were introduced in select industries, which ultimately branched out to the overall development of individual states. The concentration of innovative development in only select industries meant that wage increases were only distributed to a specific group of individuals. On the same note, since the creation of jobs was concentrated in select industries, there is no substantial change in the unemployment and poverty rate made by NAFTA.

While NAFTA did increase the overall development of Mexico, the concentrated development of different states caused little societal improvement. Because of this little improvement, issues such as poverty and migration remained prevalent throughout all years NAFTA has been implemented. 

Differences between USMCA and NAFTA

Newly devised provisions in USMCA mostly surround the automobile and agriculture industry. Seeing that the automobile industry is one of the largest integrated industries within the agreement, new regulations and standards in the automobile industry are proposed in USMCA to better concentrate car manufacturing in North America. Additionally, for automobiles to receive no tariff a minimum of 75% of the car must be produced either in the United States, Mexico or Canada. USMCA provisions regarding the automobile industry help ensure that the automobile industry remains as a unified industry in North America and prevents large portions of manufacturing from being outsourced. Agriculture based provisions mostly pertain to the market access between the United States and Canada. Besides granting the United States more access to Canada’s agriculture sector, other agriculture provisions include increasing transparency in sanitary and biotechnology changes. 

    The Mexican agriculture industry has experienced both the positive and negative effects of NAFTA. While NAFTA increased Mexican exports to both the United States and Mexico, there were still some level of trade barriers which lessened Mexico’s benefit in exporting agriculture products. 

Policy Recommendation: Export Diversification and The Pacific Alliance 

Considering the economic integration between Mexico and the United States, diversifying exports will make Mexico’s economy less dependent and reactionary to the United States. Diversifying Mexico’s exports will also allow the country to branch out and strengthen established economic partnerships already in place. Efforts recommended in an attempt to close the gap between what NAFTA was supposed to achieve and what it achieved.

There are current efforts made by the Ministry of Economy to diversify Mexico’s export portfolio. Current efforts prioritize the development of small and medium-sized enterprises (SMEs) as well as increase their financial confidence. Through specific initiatives and forms of investments, the Ministry hopes for an increase in bank investments in SMEs to increase productivity and competition. Due to the uneven development of sectors and states in Mexico, current efforts will ideally close the unemployment rate across sectors and states. By developing under-developed sectors, it will increase productivity in the market, which in turn will increase the total amount of exports. Collaborating with banks, offering forms of financial assistance and consultancy to small businesses will ideally increase economic opportunities for states that did not feel all the benefits from NAFTA.

    An economic partnership that can strengthen Mexico’s export diversification is the Pacific Alliance. An economic partnership between Mexico, Colombia, Chile, and Peru, these four countries comprise half the exports that leave Latin America. This partnership originated as a free trade agreement, which has now branched into integrating more aspects of each country’s economy, such as a unified stock market and single passport usage, to name a few. The overarching goal of this partnership is for it to expand to more Latin American countries to strengthen intra-regional trade. Although there is an already established Free Trade Area of the Americas, a trade agreement with the Pacific Alliance and more Latin American countries would be one of the few Pan-American trading agreements that do not include the United States. Despite the challenges which lie ahead for the Pacific Alliance becoming a stronger partnership, Mexico can take initiatives that will allow it to emerge as the leader of the Alliance. Seeing that implementation is the main challenge to further strengthening the Alliance, by implementing policies or standards that are in alignment with the Alliance’s agenda, it will set the model for other countries to follow. 

Rise of the "Global South": Potential of Mercosur and Regional Organizations

Our world remains on the path of globalization in spite of the challenges posed by nationalism, extremism, xenophobia, coronavirus etc. Even in the particularly challenging times of a global pandemic, countries are persistent in maintaining their global connections and, in particular, economic ties, in order to continue benefiting from world trade and business opportunities.

Of course, it is undeniable that globalization, here defined as increased interconnectedness of the world politically, economically, and socially, can also lead to tension, marginalization, and increased levels of inequality in spite of greater economic profits. What bears witness to this is the fact that, although world poverty has decreased in the last decades, global levels of inequality kept on rising. 

Therefore, it is apparent that though there is potential within the current system, there is a need for a rearrangement, or better yet, a fresh perspective and an alternative to current operational mechanisms in order to address the downsides of the current track of globalization and allocate its benefits proportionately throughout humanity. 

One way in which the present state of inequality is manifested is through the very division of the world into the “global north” and the “global south” (terms which will remain under quotation marks due to their relativity and many connotations to be briefly elaborated on below). Whereas some countries have seen proliferation in democracy, human rights, a rise in GDP and standard of living, and deserved thus to be placed in the “developed nations” of the “global north,” others have suffered from political instability and economic uncertainty, which have landed them into the “global south.” 

The terms themselves point to the assumption that it is countries in the northern hemisphere, on the continents of North America and Eurasia that have prospered the most. Nevertheless, there are notable exceptions of Central America, North Africa and a good chunk of South Asia which are all considered to at least economically be south. Conversely, those states south of the equator, with the notable exception of Australia, are somehow condemned to particular challenges in further economic development under this “global south” definition. 

These terms may thus imply geographic significance, but the exceptions listed above point out to the fact that a country’s positioning from the equator cannot be quite directly linked to the country’s GDP. Instead, no one country or one particular group of people is doomed to failure as terms may imply. The matter is actually far more complex and it seems that the current system and institutional complexities of globalization are at play. Thus, the countries seen as most “developed” and suitable to compete in the current system are those that have well-established  markets and a well-arranged flow of goods. Those seen as best role models would be the US and the European Union which, not coincidentally, also happen to be major creators of the current global system. 

Countries of the South American continent, in particular, have not been given a significant role in the creation of the current globalized system, which is evident in the fact that none of the permanent UN Security Council seats belong to a South American state and that South American countries are certainly not in the top stakeholders in associations such as the World Bank. This means that trade and political systems dominating the current track of globalization are not based on these countries' values and interests, so political decisions and trade flows are likely not to be inclusive and reflective of the region's perspectives, instead disproportionately more benefitting what is seen as the “global north,” which in this way largely reinforces the status quo and maintains reliance and dependence of the south on the north. 

Regardless, there are still ways in which South American countries can advance their representation and role in the current system. One way that South American countries are increasing their competitiveness in the world market, which the current system necessitates, is by creating a strong regional body of their own, in likeness of that of the European Union, which was itself created in order to increase Europe’s competitiveness. 

This body is Mercosur, a South American regional organization formed in 1991 when Argentina, Brazil, Paraguay, and Uruguay signed the Treaty of Asuncion which established political and economic union, thus creating a South American trading bloc. The Treaty of Asuncion emphasized the “importance of securing their countries a proper place in the international economy” and the Treaty, they concluded, “must be viewed as a further step in efforts to gradually bring about Latin American regional integration.” 

This treaty gave birth to Mercosur as an embodiment of that commitment and, though its success is staunchly debated, it remains a strong base for moving the integration of the region of Latin America forward, as an economic model of the “global south”  heading into the mainstream flow of globalization. This article will outline the challenges to the growth of Mercosur, as well as the potential and necessity of this organization for the future of Latin America and the so-called “developing world.” 

Mercosur’s historical trajectory: Challenges and Successes

Since its conception in 1991, Mercosur remains with only four members, which are the original founding members. This is also reflected in its logo featuring the four stars of the southern sky’s famous Crux constellation, and the South American continent, but with special focus and light shone on the permanent and founding members, thus bringing special attention and significance to the founding members. 

Venezuela had a brief flirtation with the group when it joined in 2012, but was suspended in 2016 due to the Maduro regime’s high levels of corruption and failure to comply with the group’s commitment to democratic values coming from the 1998 Ushuaia protocol on Democratic Commitment. Paraguay, one of the four founding members, was also ironically suspended from 2012 to 2013 due to doubts regarding its democratic stability, though this was seen as a political affair meant to allow space for Venezuela to enter, given Paraguay was the only center right government at the time that did not agree to accept leftist Venezuela. 

These events shed some light on a widespread problem of political stability of the organization given that the last decade saw political play and tension that led to these fractures. There is also tension coming from economic pressure between Argentina and Brazil, the two largest economies of the bloc, which further complicates things and often blocks Mercosur countries from expanding trade outside of their bloc and Latin America. 

This political instability and economic tension sheds light on the reason Mercosur is taking longer than the EU to integrate more members and connect the continent. There were, for example, attempts to create common currency similar to European euro, which would combine the Brazilian “real” and the Argentine “peso” to make the “real peso” (which also reaffirms who the two major players of the bloc are), but this idea is still debated and the countries remain worried of the risk of inflation that the region has witnessed too many times. 

This is not to say that Mercosur does not remain in many ways a revolutionary body in nature. It is the largest trading bloc of the region, worth roughly $3.4 trillion, followed by the Pacific Alliance, which includes Chile, Colombia, Mexico, and Peru, at about $2 trillion. Mercosur has also succeeded in naming Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname associate members, which all have reduced tariffs in trade with the bloc, with Bolivia in the process of acquiring full membership. 

Furthermore, Mercosur’s decision-making body, called the Common Market Council, provides a high-level forum for coordinating political and economic policy, and its presidency rotates alphabetically to each full member every six months. While Brazil and Argentina remain in a competition for regional dominance, Mercosur manages to facilitate cooperation and balance, and has survived major stresses such as Brazil’s 1999 currency devaluation and Argentina’s 2001 financial crisis while remaining  the largest trading bloc of the region, which adds credibility to the organization. Aside from trade benefits, citizens of the four full member countries have the ability to travel, work, and live anywhere within the bloc without restrictions.  

Mercosur’s Present-Day Significance 

 Following the coronavirus outbreak, most Latin American countries instituted strict lockdowns and are still amongst the most affected countries of the world, with half of the top 10 countries with highest number of cases worldwide being in Latin America as of September 2020, even though Latin America comprises only less than 8.5% of the world population. 

The impact of these lockdowns on the regional economy is unprecedented, with massive spikes in regional unemployment rates. Brazi, in particular, is suffering a historic record with 50% of the population out of work, and projected reductions of 6% in GDP that could set the region’s growth back for a decade and exasperate the region’s structural challenges. 

While all of these economic challenges pose threats to promoting regional integration and creating a common currency,  regional integration may be a key factor in reviving South America’s broken economy. This type of integration will in fact be crucial in mitigating the challenges posed by the  pandemic, which call for a transparent, interconnected regional body where ideas, trade, investment, and innovation are well-facilitated, and where a high value is placed on political, social, and economic stability. 

These promoted values and mechanisms would directly confront the impacts of a pandemic that is drastically reducing investment and productivity rates, exasperating the usual regional challenges. Mercosur is currently positioned in a way that makes it very suitable for bringing as much of the Latin American region as possible to the negotiating table and facilitating greater cooperation, and this opportunity should not be missed in today’s critical period. 

Mercosur Going Forward

Another potential impact of Mercosur lies in its increased trade with countries outside of the bloc, with deals recently having been made with the  EU and Egypt. The deal with Egypt is into its fourth year and may encourage further trade opportunities between Mercosur and the Middle East. However, the deal with the EU, in spite of years of negotiation and drafting, is now being lagged due to Amazonian deforestation concerns brought about by France, which Brazil, on the other hand, sees as protectionist policies on behalf of France which often attempts to, through protectionist policies aimed at strengthening domestic production by avoiding competition and free trade, protect its own industries. 

Whether the protectionist allegations on behalf of France and the EU are true or not is less important than Mercosur’s position in this deal and the need of the “global south” to step away from dependence on the “global north.” It is important to note that, unlike the EU, Mercosur has begun its career not only as an economic treaty organization but has also included elements of political and social integration, as well as a clause relating to environmental protection. These policy elements add to the value and unique identity of Mercosur. 

In addition, in order to allow for the truly long-lasting, sustainable, and authentic development of Mercosur, the region, and the so-called “global south,” it is important that Mercosur remains aware and true to these foundational policies no matter the outside pressures. This is why deforestation of the Amazon is not justified and future deals should be focused on issues such as environmental safety as well as the rights of indigenous communities, which Mercosur should see itself as a key actor in protecting and putting forth.  In fact, the original 1991 Treaty of Asuncion mentions the “optimum use of available resources”  “preserving the environment,” as well as “economic development with social justice.” This is exactly the alternative vision and priority that the current globalized system needs in order to improve its trajectory and something Mercosur can and should pride itself in. 

One important deal currently being drafted, and of great importance to the southern hemisphere’s economic platform, is between Mercosur and Singapore that would cover a variety of issues, such as further easing trade barriers, boosting intergovernmental negotiation, providing space for e-commerce, supporting micro and macro enterprises, etc. Though this deal is also facing a delay, due to Argentina’s need to focus on the economic crisis at home ignited by the pandemic, the deal has huge potential due to Singapore’s immense experience in similar deals and its connection to Association of Southeast Asian Nation (ASEAN) countries, which are another significant bloc of the “global south.”

Thus, cooperation between ASEAN and Mercosur is exactly the kind of increased economic activity between the countries of the so-called “global south” that this article is arguing for. This would gradually shift the focus of globalization from the “north” and allow for better worldwide integration, expansion and diversification of available perspectives on development in the mainstream climate of the international community. It is important, however, not to let the pandemic slow down the process, and actually understand the benefit that integration and cooperation during the pandemic can have in the long-term. 

In this way instead of continuing the current trends of environmental damage, sidelining of minority and indigenous groups, disregard for multilingualism and multiculturalism, and lack of concern for increasing inequality, there would come an age with a new perspective. Still, this can only be attainable if emerging economies of the so-called “global south,” and particularly so in South America, are able to stay true to their constitutional and regional agenda that, unlike northern counterparts, begin their focus with regard for these very issues. The “global south” has had time to observe and learn from mistakes or shortcomings of the current system which made it possible to have such holistic treaties as 1991 Treaty of Asuncion that made sure Mercosur actually positions environmental and social health as its priority where the EU and the US had to learn from their mistakes and are reluctant to, as stakeholders in the current system, take on a fully different base for the way they conduct business. Bolivia, a contender for membership in Mercosur, prides itself in being a plurinational state and actively recognizes historical injustices and works on maintaining its indigenous languages. If such examples remain prominent in the region, and are reflected in both text and actions, then the “global south” will provide a truly viable fresh perspective the current system needs. 

Conclusion 

Globalization continues to be challenged and it is certainly lacking even integration and provision of equal opportunity to citizens of the world in its current trajectory. Thus, greater integration amongst the countries of the so-called “global south” will allow for greater opportunity to be achieved in order to allow for diversification of major players in the global economy and political thought, allowing for more voices to be heard, including of those who have been largely on the losing end of the current neoliberal policies that govern the world as is the case with current “developing world of the global south.” Instead, the Latin American region and the “global south” as a whole can develop a system of support amongst the countries disadvantaged by the system and thus provide an alternative to what is positioned by those who are more likely to reinforce the status quo they benefited from.

To achieve this, it is important to turn to organizations such as Mercosur, that has already had some success in integrating the region, and make sure it addresses the political and economic instability, as well as increase its cooperation with other blocs of the “global south” aimed at political, economic, and social integration, such as ASEAN and the African Union and decrease dependence of the south on the north. These corporations would eventually begin to tip the balance of world trade, and allow these regions to promote economic equality and political independence on their own terms. 

However, it is important that these organizations use their advantage of being newer and able to offer a new view to global development and progress. Mistakes of the past, such as disregard to ecological and social health that has been an unfortunate and gruesome collateral product of the current track to globalization as spearheaded by the “global north,” should be avoided, and this are some of the hopes and still insufficiently explored potentials that emergence of a strong southern market would bring to the stage. 

Brazil Takes Off as Washington-Beijing Trade Dispute Grows

Despite working to meet a December 15th trade agreement, dubbed “Phase I,” President Trump has repeatedly threatened to increase the levied tariffs on Chinese imports should one not be reached. United States (U.S.) Trade Representative Robert Lighthizer explains that Phase I only includes about 35 percent of the total trade discussion with China. Despite Washington and Beijing inching closer to an initial agreement, the world’s two largest economies maintain tariffs on a combined total of more than half a trillion dollars of goods, with rates ranging from 5 percent to 30 percent. The tariffs continue the Trump Administration’s critique of China and its trade practices with the United States. 

In 2018, trade of goods and services between the two countries (two-way trade) totaled US$737.1 billion, with total exports valued at US$179.3 billion and total imports valued at US$557.9 billion. Such values put China as the U.S.’ single largest trading partner by total traded goods and services. Despite this, President Trump has maintained his harsh critique of the Chinese, fulfilling a campaign promise to combat China’s alleged unfair trade practices. As the U.S.-China trade dispute wages on with both sides retaliating with additional tariffs, Brazil —namely Brazilian farmers— have emerged as beneficiaries of the confrontation.

Chinese Trade with Brazil

Since the beginning of the trade dispute in 2017, Chinese firms have been shifting to Brazilian agriculture products. For Instance, Brazil passed the U.S. as the world’s largest soybean producer and exporter as a result of the increased demand from China—a demand increase of more than 20 percent. Brazil’s dominance in soybean production was not unforeseen; in fact, between 2011 and 2018, the overall production of the crop in the country has nearly doubled to 119.3 million metric tons and is expected to reach nearly 129 million metric tons by 2027. Since President Trump began his anti-China trade rhetoric, Brazilian soybean exports’ value swelled by US$13.86 billion, while American farmers will be left with an unwanted “record high level of ending stock,” as exports to China will be one-third of what they have been for the last few years. As a result, competitive Brazilian farmers have directly benefited from the trade dispute, while American farmers have truly felt the negative effects of the trade dispute. While Beijing and Washington work on finding common ground to settle their trade dispute in Phase I, Brazilian officials remain confident that they can retain the increase in trade. 

While trade between Brazil and China has a lesser two-way trade value than that of the U.S. relationship, Brazilian trade with its Asian counterpart has increased by 170% within the last decade, to nearly 100 billion dollars, according to Brazil’s Ministry of Economy. During the same period, trade between the U.S. and China grew by only 68 percent. China has been Brazil’s largest trading partner, ahead of the U.S. for nearly a decade. To further emphasize Chinese engagement with Brazil, 2017 Chinese Foreign Direct Investment (FDI) in Brazil was US$19.5 billion, comprising 31.9 percent of the total global FDI destined for Brazil; in contrast, Chinese FDI in the U.S. was valued at US$39.5 billion, more than double of that in Brazil. However, Brazil was the largest recipient of China FDI in South America. As tensions between the U.S. and China unravel as a result of the trade dispute, Chinese firms have looked at other markets to import necessary products from. One beneficiary of this market exploration is Brazil. The South American nation, home to nearly 210 million people, has experienced a direct increase in two-way trade and improved diplomatic relations with China. However, Brazil’s recently elected president made some in Beijing uneasy about China’s relations with Brazil.

Bolsonaro’s Evolving Chinese Trade Rhetoric

Despite China’s investments in Brazil, President Jair Bolsonaro had been a harsh critic of Chinese investors. In October of 2018, the same year Bolsonaro was elected with an 11 percent margin, the then-president-elect warned, “what we need is to become aware that China is buying Brazil, not buying in Brazil, it is buying Brazil.” Importantly, Brazil’s president is often referred to as the “Trump of the Tropics,” for his similar rhetoric on social, political, and economic topics, including his critique of China. In a March 2019 speech at the U.S. Chamber of Commerce, Bolsonaro’s Minister of the Economy, Paulo Guedes, went on to state that “Temos um presidente que adora a América,” translating to “We have a president that loves America.” 

However, President Bolsonaro’s criticism of his Chinese counterparts has not dissuaded new investments in the country. In fact, according to the Brazilian Ministry of Planning, Development and Management (now a division of the Ministry of Economy) from 2016-2018, Chinese firms announced 11 greenfields and 38 brownfield investments, a total investment value of US$19.4 billion. Greenfield investments, defined as a form of FDI, is when a firm establishes operations in a foreign company and constructs new facilities. Alternatively, brownfield investments are considered as an operational expansion of a company in a foreign market, normally seen as the expansion of an existing facility. Such investment activity indicates a long-term commitment on the part of Chinese firms to invest in Brazil. Despite President Bolsonaro’s previous rhetorical repudiations of Chinese investments, the country is actually drawing closer to China, its largest trading partner. 

Notably, the Brazilian-Chinese relationship has changed as President Bolsonaro altered his tone with China. In October, while the U.S.-China trade meetings dragged on, a Brazilian delegation including the president visited multiple countries in Asia, most significantly China. There, President Bolsonaro not only made amends with his Chinese counterparts regarding the remarks he made during his campaign trail but also signed two trade protocols and outlined strategic growth in the relationship. He went on to assure that the Brazilian and Chinese governments are "completely aligned in a way that reaches beyond our commercial and business relationship.” Preserving such a relationship is crucial to the Bolsonaro Administration, which inherited a sluggish economy with high unemployment and inflation. 

Thus far, the administration has worked diligently to position Brazil more competitively on the global stage by pushing reforms in the areas of pension and tax, easing government regulation in select industries, and negotiating foreign trade agreements with individual nations and economic unions. All these initiatives ultimately pushing for economic liberalization. In the meantime, Brazil will be the beneficiary of the U.S.-China trade dispute as escalations make a final resolution between the two countries more difficult. 

Moving Forward

While Brazil’s new government is at the center of domestic and international controversy, that parallels the political polarization in the U.S., the government has taken proper economic initiatives to stimulate its sluggish economy. By proposing and passing vital reforms, Brazil has an opportunity to catapult its industries to the world stage and develop one of the “world’s most closed big economies”. The government has already announced two of the country’s largest trade agreements in its history between MERCOSUR, the European Union, and the European Free Trade Association (EFTA), valued at nearly US$22 trillion and US$1.1 trillion, respectively.

China’s agricultural purchases in Brazil and direct investment have also contributed to the necessary fundamental changes and economic opening that is needed in Brazil. However, it is important that Brazil holds its neutrality in the trade dispute between the U.S. and China, as noted by Vice-President Hamilton Mourão in a meeting last month with Chinese President Xi Jinping in Beijing. While China is Brazil’s largest trading partner by value, historically, the U.S. imports a greater amount of higher value-added products, such as aerospace and heavy machinery products. While this may be true in the past, China’s new-founded interest in diversifying its investments in Brazil, beyond purchasing low value-added goods, could reshape political ties, as already slightly seen with Bolsonaro’s revised rhetoric. 

Until then, Brazil will continue to silently draw itself closer to China amidst the Washington-Beijing trade dispute and push necessary reforms to develop its domestic industries to a formidable global competitor.

The Two Poles: The ‘Rise’ of China and U.S.-China Trade Relations

The U.S.-China trade war reads like a poorly written political script: leaders spew vigorous polemics at each other, denounce policies made by the other while adopting those same policies, and take flawed actions that actually only hurt their own citizens. What the script reveals at the end, however, is not a scene where the protagonist flies off happily ever after in a grand resolution. Instead, the story continues indefinitely, causes a global downturn, alienates allies, and establishes a dangerous precedent of divorcing sound trade policy from foreign policy.

With the recent round of trade talks aimed at resolving the trade dispute between the United States (U.S.) and the People’s Republic of China (China) coming to an end, both sides have expressed that “new progress” was made and the talks were “constructive.” However, what these conciliatory comments ignore is the fact that the crisis was first brought about as a result of misunderstanding economic concepts and neglecting international dynamics. While the U.S. is home to the largest economy in the world, its growth is marred by superficial and unsustainable policies—such as the recent levying of tariffs—that will likely prove to be long-term detriments to the U.S. economy. This trend is best captured in U.S.-China trade relations, recently stained by hostile trade policies that assumes a U.S.-China trading partnership made decades ago while ignoring sound economic and foreign policy.

A Primer on the U.S. Trade Deficit

On the trade balance, Adam Smith once wrote that “[it’s] unnecessary to lay extraordinary restraints upon the importation of goods from those countries with which the balance of trade is supposed to be disadvantageous. Nothing, however, can be more absurd than this whole doctrine of the balance of trade.” Trade deficits occur when a country imports more than it exports. In macroeconomic terms, a country’s exports minus its imports is equal to savings minus investment. In the wake of the Tax Cuts and Jobs Act of 2017 and tariffs levied against products such as steel, aluminum, and other Chinese goods, the U.S. trade balance has reached unprecedented levels, widening to $891.3 billion. Trade imbalances with China account for almost half of that number, rising to $419.16 billion for 2018. But analyzing these numbers in a vacuum as some are apt to do risks adopting the same flawed reasoning that has led to U.S.-China tensions.

Multiple elements can influence the trade deficit, such as more government spending, the exchange rate of the dollar, and a growing economy. In the U.S. context, the stability and size of its economy encourages increased purchases of American assets, appreciating the dollar. As the dollar strengthens, foreign goods become cheaper to purchase and American consumers buy more and save less. In the shadow of weakening global growth, financial and trade conditions internationally have contracted while the consumer-driven U.S. economy continues to expand, contributing to the deficit. Additionally, increased government spending over the past several years has also widened the deficit.

As economist Martin Feldstein notes, it often becomes politically expedient to blame the trade deficit on unfair practices adopted by foreign governments. While it may be correct to assert that governments such as China do engage in improper economic activities, constraining those countries’ access to U.S. products or markets will not drastically change the trade balance. This may be considered a legitimate negotiating strategy, but a belligerent trade policy that adopts this fallacious attitude damages important country relations and harms domestic consumers, making the costs greater than the benefits.

Trade deficits are not inherently bad nor are they good. It’s important to note that sustained imbalances can harm the economy, such as contributing to slow growth and destabilizing financial bubbles. A larger trade deficit provides a challenge in increasing employment and sustaining economic growth. However, the U.S. has experienced remarkably low unemployment rates and consistent economic growth.

In a two-country scenario, large trade deficits can lead to irreversible damage to the U.S. economy. However, despite what some may believe, no country exists in this bilateral sphere. To identify trade imbalances--such as the one between the U.S. and China--as the greatest economic issue is to incorrectly identify the appropriate factors influencing the economy and country relations.

Historically, due to its size and influence, the U.S. may have operated in a global environment closer to the zero-sum world that the Trump administration has painted a picture of. However, the international terrain has shifted, with China possessing more market power and global impact.

The ‘Rise’ of China: What’s the Alternative?

Over the course of 2018, the Trump administration imposed tariffs on at least $200 billion of U.S. imports, with tariff rates ranging from 10 percent to 25 percent. Targeting strategically significant industries, such as steel and goods important to China’s “Made in China 2025” program, this marks the first U.S. trade war seen since the 1930s. President Trump cited unfair terms of trade, the large trade deficit, and discriminatory trade practices by China as the primary reasons behind the recent trade policies. In response to this, several countries, notably China, have levied retaliatory tariffs on at least $121 billion of U.S. exports.

Written in the shadow of these recent tariffs, several studies assert that U.S. consumers are hit hardest by trade tariffs. Economist David Weinstein found that, in the wake of the trade tariffs recently implemented, the full incidence of those tariffs has been passed through to domestic consumers. In an effort to mitigate this, the Trump administration has encouraged Americans to switch to alternative suppliers, believing that if Americans do this, the burden of $200 billion of tariffs against Chinese goods will be paid only by foreign firms. However, if this was possible, it would have happened already. In the short-term, Americans cannot find viable alternatives to the competitive goods that China producers offer.

This suggests that over the past decade, a shift in the global economy has occurred, affording more market power to Chinese firms. As International Monetary Fund data indicates, China currently makes up 19.18 percent of the world’s GDP (in Purchasing Power Parity) in comparison to the U.S.’s 15.01 percent. Additional Chinese geopolitical strategies through the use of markets, infrastructure, and foreign aid continue to strengthen the country’s position in the global community. These actions are what has led some to comment that China is on the ‘rise.’ To use this fearful expression is a misnomer that ignores the fact that China and its influence has always been present on the global stage. However, similar to what President Trump is espousing now, China has historically looked inwards instead of outwards. The change in China’s current international strategy and their increasing presence has prompted a reactionary and protectionist response from the U.S., perpetuating an already weakening U.S. presence.

Driven by substantial economic growth over the past several decades, Chinese producers have become key contributors in the global supply chain created by globalization, further solidifying their position in the global economy. As the investment bank Morgan Stanley comments, “the integration of supply chains both domestically and globally has meant that any trade measures implemented on a single country or sector will likely ripple outward to other regions and sectors.” Action taken in one corner of the world affects the entire world. This economic and political shift in China’s market power and its trade partner ‘elasticity’—meaning that there is increasing market power for Chinese producers and a growing array of markets able to substitute for the U.S.—allows producers to avoid importation prices and instead push a majority of the burden towards U.S. producers and consumers. The U.S. remains the largest economy in the world but stands a close second in production. Poor trade, economic, and foreign policies have allowed other countries, such as China, to inch closer to surpassing the U.S. in influencing the complex web of global supply chains.

Hostile trade and economic policies implemented by the U.S. risk alienating trading partners significant to the U.S.’s economic and international presence. Economic structures and relations form the body that social and political institutions dress. While the validity of those economic structures is a topic that deserves its own lengthy discussion, the reality is that the emergence of economic substitutes to the U.S. weakens its already lackluster presence in the international community. Similar to what countries in the past have done, China is simply capitalizing on the U.S.’s weakening international presence and is pushing towards a softer expression of power to increase its influence. The trade war instigated by the U.S. against China and other countries risks solidifying this.

Divorcing Trade Policy and Foreign Policy  

In the report “Beyond the Water’s Edge” by the Center for Strategic and International Studies, researchers found that many U.S. Congressional members appeared to “view trade issues as distinct from foreign policy.” While it appears to be a concession to the conflict between domestic and international policies, the Trump administration has adopted this perspective, furthering global tensions and diminishing the U.S.’s influence.

Even though the Trump administration asserts that the U.S. economy has been running at a deficit for far too long, the U.S. has underpinned multilateral global policy cooperation efforts since World War II as a result of that deficit. A tightening of trading policy harms not only the global economy but the U.S.’s international status.

The U.S. economy currently provides a majority of liquidity to the world economy while simultaneously driving demand. This has contributed to the large trade deficit as discussed in the previous primer on the trade deficit. Ruchir Sharma, head of emerging markets and chief global strategist at Morgan Stanley Investment Management, argues that by maintaining the deficit and consequently its position as the de facto reserve currency, U.S. international borrowing costs are lowered and its Gross Domestic Product (GDP) growth is heightened. The dollar has served as the most popular global reserve currency and, as Council on Foreign Relations’ James McBride and Andrew Chatzky contend, as the “primary tool for global transactions.” Because it is the de facto reserve currency, other countries use the dollar as the primary currency in their foreign exchange reserves and some even peg their own currencies to the dollar. These reserves are used in the global economy during transactions and investments. Because of these reserves, U.S. influence in the global economy and greater international stage remains profound.  

By pretending that trade policy and foreign policy doesn’t exist in conjunction with each other, the U.S. risks placing itself in the economic and political vacuum it’s created. This directly stems from a fundamental misunderstanding of economic dynamics and how it relates to international relations.

Looking Forward

It’s been said before: the ‘rise’ of China is threatening the current global order. In the wake of increasing tensions between previously friendly countries, China is becoming a more legitimate alternative to an often hostile and unpredictable U.S. administration. Instead of lashing out with poor policies that perpetuates this--such as levying harsh tariffs, backing out of the now defunct Trans-Pacific Partnership (TPP), and swelling the budget deficit--the U.S. should focus on reaffirming economic relationships with those they have marginalized. While there are trade-offs inherent in every economic action taken, multilateral trade deals such as the TPP can be used to counter China’s growing influence without estranging countries who have depended on the U.S. in the past. But while these approaches are legitimate in their prescription, such suggestions imply that a rising China is dangerous to the U.S.

Somewhere far back in the annals of history, someone once convinced us that a unipolar world was the only viable goal for countries. However, the U.S. should reject the notion that the international stage is a pragmatic game of chess with antagonists standing at opposite sides of a board. Most—though they may not admit it—are tired of this narrative or, rather, they should be tired of it. The U.S. should engage with China, join its international initiatives, and continue to establish itself as a leader standing among leaders. If the U.S. is attempting to influence China and its policies, working alongside China instead of against it is the best approach the U.S. can take. Hostile trade and diplomatic policies only succeed in alienating those closest to us and entrenching stereotypical narratives about those who are not. Beyond a ‘rising’ China, the most effective foreign policy that the U.S. can adopt is to engage in multilateral endeavors and strengthen its relationship with other countries through positive economic and international agreements.

Separating trade policies and international relations is a fallacy that disrupts the global economy. Trade policies should affirm relationships with other countries, forcing those countries and individuals to work together for mutual goals. Failing to acknowledge this--or ignoring this--isolates the U.S. and strains global dynamics. The U.S. is still the largest economy in the world and wields immense power in the international community. To implement policies that act as if this isn’t true lacks a depth of understanding and causes the U.S. to become smaller on an already crowded global stage.

An administration that clings to the tattered sleeve of a vacuous economic practice devoid of international context runs the risk of further weakening its position in the world. The Trump administration has made reducing the U.S. trade deficit a key policy position, looking at the global economy through two-dimensional lenses. However, hostile policies ignore the multidimensional nature of foreign policy as facilitated through economics. Instead of implementing policies that could better global relations, the administration has established itself among elitist economists and politicians who are either ignorant or feign ignorance in order to achieve ideological goals. And yet, somehow, the U.S. still hasn’t managed to lessen its trade deficit.

Note

Because there are topics mentioned deserving of their own discussion, this article only seeks to understand and explain the misconstruction of economic elements and the failure to incorporate those elements holistically into international relations. It’s important to acknowledge those subjects that have not been elucidated upon in order to continue having conversations about these issues. There have been several subjects that have been offered in the context of the discussion that have not been appropriately expanded upon:

This article does not seek to specifically only comment on the veracity of trade policies such as tariffs, but instead examines the economic dimensions in which these policies exist and the theoretical failures that have followed. For example, the usage of the dollar as a de facto global reserve currency supports U.S. influence in the international community. However, the article did not ask whether or not that influence has been correctly wielded.

The article does not comment on the geopolitical strategies adopted by China. While often accused of using ‘debt-trap diplomacy’ to gain power, some would assert that these policies offer alternatives to monopolistic initiatives that are arguably an extension of neocolonial practices.  

Finally, the article does not comprehensively comment on the impact of a large trade deficit and liberal trading policies. These policies and practices create positive benefits for consumers, such as contributing to lower product prices, higher overall standards of living, and so on. However, these same policies have arguably led to the consolidation of capitalism and the crystallization of inequality, environmental degradation, etc.

Export Processing Zones and Industrial Linkages under the AGOA

In the last issue of The World Mind, I explored the fate of the African Growth and Opportunity Act (AGOA) under the Trump administration, the implications of its potential termination, and recommendations to policymakers to avoid the undoing of this trade deal that is not reciprocal, but still vital to U.S. interests in Africa.  I made the blanket statement that AGOA has inspired the development of “Export Processing Zones” (EPZ) that build-up infant industries. In this analysis, I will examine my own assumption—do EPZs necessarily bolster infant industries in all cases? What have industry analysts said about EPZs, and if they are not effective, why do they persist?

Export Processing Zones (EPZs)

While “Export Processing Zone” sounds technical, many Americans are familiar with the general concept. In 1934, Congress passed the “Foreign-Trade Zones Act” to manage the negative effects of the Smoot-Hawley Tariff Act within the U.S. In fact, the United States boasts 277 Foreign-Trade Zones (FTZ) and 500 special purpose subzones, as of 2012. The purpose of these zones is to encourage international business and economic development by having geographical locations across from U.S. ports of entry that allow products from abroad to be used in manufacturing without tariffs.

EPZs and FTZs are both types of “special economic zones,” or geographic areas where business and trade laws are different than the rest of the country.  EPZs are established in the same spirit of encouraging investment, but there are important differences between EPZs and FTZs. The World Bank contends that the main difference lies in the overall development objective. For Free Trade Zones, the objective is to “support trade” in a general sense. Export Processing Zones, as the name indicates, are established to encourage exports, namely in the manufacturing sector. For this reason, EPZs are most prevalent in developing countries because they “attract export-oriented foreign direct investment” meant to build up “infant industries.” The concept of infant industries stems from Alexander Hamilton in 1791 when he argued for government protection of certain potentially competitive U.S. industries from British competition. There is a wide literature on infant industries and the assumptions of the economic system within which they operate. For my purpose of examining export processing zones, I will highlight two applicable parameters of this theory.

Diversion from the Infant Industry Argument  

First, the infant industry argument operates under the assumption that the industry being protected will eventually be competitive in the long-run after its initial period of protection.  For this to be achieved, the industry must rise to a certain scale of production to compete in the global market. In the case of AGOA, exports to the U.S. are able to enter without paying tariffs, like other foreign products.  Therefore, the scale these products must achieve is less (since the marginal cost for these products can be higher) than a country without AGOA. However, since AGOA allows for tariff-free entry into the United States, in some instances already fully scaled multinational corporations (MNCs) invest in Export Processing Zones in Africa by establishing new branches so the products they export from those branches can enter the U.S. market tariff-free. While there’s nothing overtly wrong with this business strategy, it undermines the infant industry framework.

In these scenarios, wealth is being created for the local economy with new foreign direct investment, but the economic surplus that results from research and design, innovation, education, and other spillovers that should characterize booming industries under an infant industry framework, is captured outside AGOA countries. In these cases, even if the industry becomes relatively competitive in the AGOA beneficiary country, the investments being made are not for the long-term.

A 2012 study by Lorenzo Rotunno, Pierre-Louis Vezina, and Zheng Wang argues that “African success” in increasing exports from the continent is attributed to “quota-hopping Chinese firms”. They also found, as theory predicts, that African countries “imported quasi-finished products with little assembly work left to do.” This trend is especially harmful in textiles, a sector that many labor-abundant African countries could benefit from. The expiration of the Multi-Fibre Agreement in 2005, which imposed quotas on the volume of textiles permitted from developing countries to developed, further encouraged multinational firms to re-route through Africa. However redirecting trade through Africa to gain tariff-free U.S. entry can occur in any sector; regulations by African governments and international partners can incite more local investment by these companies.

The infant industry argument also suggests that governments should protect industries that inadvertently bolster other sectors beyond the one being protected. However investments are often made in industries that do not necessarily have linkages to other parts of the domestic economy. For example, by investing in the clothing sector, investments are also being made in the industries that collect raw materials, transport them to the production location, and design new technologies or strategies of increasing productivity.  However, if these linkages are located outside the country, the protection the government is undertaking through the establishment of EPZs (including tax breaks for companies, low labor standards, subsidies, and other incentives) may not result in higher levels of economic development. Howard Stein writes about the regional differences between export processing zones in Asia versus Africa, arguing, “Most zones in Africa have remained rather small, with few linkages to the local economy and small foreign-exchange earnings.” Not only are African countries missing an opportunity for growth, but the incentives aforementioned are costly to local governments. This funding could be channeled elsewhere to ensure linkages, especially if the surplus from transactions in EPZs is not being captured in the local economy.

Beyond these two possible violations of the infant industry argument’s assumptions, the nature of EPZs themselves should be considered to determine how they will affect a country’s long-term economic development and growth.

Criticisms of EPZs in AGOA Beneficiaries

EPZs have drawn many criticisms, the most prominent of which come from  labor rights and deregulation advocates. In a comparative study between EPZs in Asia and Africa, Stein found that “[m]onthly wages for an unskilled textile industry machine operator were less than one third the equivalent wage in Mauritius, half of that in China, and 60 percent of the average wage in India.” In the event of unfair wages, workers in EPZs may be less likely to organize themselves. Unemployment in many AGOA-benefitting countries is high, so workers who organize are able to easily be replaced.  In some countries, such as Togo, hiring and firing laws are different in EPZs. Some multinational companies also strategically ensure that workers are from different countries and regions, so that there is no commonly spoken language between them. This method “divide and rule,” is described in the account of Ramatex, a Malaysian company operating in Namibia.

EPZs are also criticized because of the deregulation that invites foreign investment into the AGOA benefitting country. The “race to the bottom” has become a widely-used scholarly term, as it describes the competition between lesser-developed countries for foreign direct investment conducted through deregulation. As the name would predict, sometimes the country worsens certain measures of its economic development by allowing higher levels of environmental degradation, tax breaks and credits for industries, donation of government facilities for production, and other incentives.

EPZs as a Growth Mechanism

EPZs, especially within AGOA-benefitting countries, have the potential to bolster economic development and truly build up infant industries. While my initial assertion in the last World Mind issue that EPZs build up infant industries in AGOA beneficiary countries was not necessarily wrong, it was generalized. In economic development—especially within an African framework and the diverse political economy of the continent—we should strive towards specificity, not generality, especially when making policy recommendations.

EPZs have great potential to encourage economic growth.  When companies invest in local people, EPZs can encourage growth in the education sector. Local governments can also find alternative ways to encourage long-term growth in emerging sectors, even while allowing for incentives such as lower taxes. Establishing EPZs that help develop linkages to the local economy, respect local laws, and encourage long-term investment is difficult, but the benefits of well-governed EPZs can help AGOA-benefitting countries become even more competitive in U.S. markets in the long term.

Excessive Resource Specialization and Openness to Trade

Above, Saudi Arabia’s King Salman bin Abdulaziz Al Saud in conversation with Prime Minister Narendra Modi of India. Saudi Arabia has almost one-fifth of the world’s proven oil reserves and ranks as the largest producer and exporter of oil in the world.

In an era where global trade is powered by an insatiable thirst for primary resources, those in control of the lands blessed with the right fixes for the world’s addictions bear incredible influence on the futures of their own nations.  Add to the mix a lack of viable economic alternatives and the endowment of an abundant resource can serve as easy temptation for a country to overspecialize.  To a political leader, the allure of lining your nation’s coffers with the riches promised by a hefty resource endowment is hard not to give into.  And indeed, a valuable exportable asset is exactly that; valuable.  But what happens when country leadership goes full throttle with only one tradable resource?  How does this affect the overall trade outcomes of that country?  Throughout the process of overspecialization, the political elite of resource-dependent countries may look at their windfalls and be tempted to rest easily about the economic future of their nation, but data suggests that when it comes to overspecialization, it is typically the resources in control of the countries, not the other way around.

Looking into the issue of excessive resource specialization, there is no shortage of analysis connecting resource overdependence to poor governance outcomes and a host of economic maladies, yet very little is done to take the next step in connecting overspecialization to overall outcomes in trade specifically.  Considering this gap in research as well as the reliance of many resource-dependent economies on exports for their very economic existence, there is a compelling case to be made for us to explore just where embarking down a path of overspecialization leads, especially as it concerns a country’s overall, long-term trade outcomes.  To be sure, overspecialization can mean different things to different people.  Thus, this analysis  will focus on just the most extreme cases of specialization; from economies where one primary resource or resource sector (i.e., petroleum, refined petroleum and petroleum derivatives would be considered one ‘resource’) comprises or comprised at least 70% of exports, and/or at least 25% of national GDP.

Upon first glance, the main culprits of overspecialization demonstrate a few immediately identifiable commonalities.  The most dominant trait across the board is the dominance of mineral resources.  Though non-mineral, primary resource exports like bananas and coffee in some countries like Guatemala and Honduras make up significant percentages of government revenues, it would seem that no exportable asset wields the same potential to completely dominate a country’s export portfolio as raw mineral materials.  Secondly, these over-indulgers in mineral resources tend to be low to middle income economies.  In fact, according to a 2011 study, nearly “75% of all mineral-dependent countries are now low- and middle-income countries, while the number classed as mineral-dependent has increased by 33% since 1996 from 46 to 61 nations.”  The same study also finds a “strong negative correlation between non-fuel mineral dependence and GDP per capita,” suggesting that resource wealth actually aggravates, rather than alleviates, domestic inequality.  This means that we will be talking primarily about petroleum and oil exporters like Venezuela, Iraq, Azerbaijan, Angola and Equatorial Guinea, but also occasionally about exporters of other important commodities like the Democratic Republic of Congo, or Zambia, where copper reserves rake in over 77% of export wealth.  Additionally, given a lack of prior development in many overspecialized economies and the sheer abundance of the specialized resource, export capability tends to vastly overshadow domestic consumption capability, reflecting a domestic economy that is not industrialized enough to consume the abundant resource, further contributing to export concentration.

When it comes to the academic take on the effects of overspecialization, most scholars agree that there is a connection between singular resource wealth and the consolidation of authoritarian regimes and weakening of political and economic institutions.  Though there are disagreements about processes, the main hypotheses on this point can be summarized into three general points: 1) “easy resource revenues eliminate a critical link of accountability between government and citizens” 2) “[resource] revenues generate staggering wealth that facilitates corruption and patronage networks” and 3) “together, [these factors] consolidate the power of entrenched elites and regime supporters, sharpening income inequality and stifling political reform.”  The caveat here, however, is that not all countries that fit the scope of this investigation are officially autocratic, though many of these democracies on paper still indeed display indicators of weak institutions, such as corruption, uninterrupted political terms, as well extra-constitutional powers afforded to political figures.  Examples of these countries would be Azerbaijan, Zambia, DRC, Nigeria, Algeria and Venezuela, all ‘democracies’ given a rating below 45/100 on theOxford Policy Management economic and institutional development index, developed from the World Bank’s six world governance indicators.  These characteristics of resource-dependent states are particularly important to this investigation as they deal with the very policymakers steering a country’s economic vehicle and the economic climates that they operate in.

Implications for Trade

Foreign Direct Investment

At the outset of discovery, a given low-middle income resource overdependent nation typically does not possess the necessary capital, technology and expertise required to get a resource out of the ground and into the hands of consumers and industries the world round (and at a profit at that).  This paves a clear path for foreign MNCs with the right stature to assume the immense risks and costs associated with resource exploration. Thus, at first, there is a high incentive for host countries to embrace foreign access to their country’s resources.  Over the long term, however, governments tend to shed foreign ownership with time.  Today, foreign ownership varies from region to region, being the highest in the least developed countries.  According to a 2007 reportfrom the United Nations Conference on Trade and Development, the share of oil production by foreign firms was 57% for Sub-Saharan Africa, while it was a mere 18% for Latin America, 11% for middle income countries, 19% for all low income countries, and nonexistent for some countries like Kuwait and Saudi Arabia.  But even in these latter cases, initial foreign ownership has proven unavoidable, like in Saudi Arabia, where foreign partners were not completely bought out until 1988, a full fifty years after the discovery of oil.  These transitions make sense given the fortifying effect resource wealth can have on a regime’s grasp on power.  Despite these general patterns for oil producing countries, however, autocratic countries with poor institutions can still ostensibly exercise their domain over the export industry through their control of the enforceability of contracts and their final say on the issue of nationalization.  Furthermore, in some resource-rich sub-Saharan African countries for example, navigating bulky bureaucracies often means engaging in quid-pro-quo transactions that favor the established powers, serving as a tantalizing way to bypass red tape.  It is important to note here that a lack of transparency surrounding dealmaking in institutionally weak countries makes finding official figures notoriously difficult.

Foreign Reserve Usage

If FDI and exploration prove successful in developing a resource promise, host countries face the prospect of being on the receiving end of seemingly boundless sums of foreign reserves.  In autocratic regimes, these windfalls are concentrated in and directed by the hands of the powerful few, who may dispense of their wealth to ensure the continuation and enjoyment of their own entrenched political interests.  Thus, outcomes may be seen as depending disproportionately on the incentives of domestic leadership, and may be used to squander resource wealth just as they may be used to invest in future diversification and trade in other sectors, though the former seems to be more popular choice.  According to a 2015 report from the Natural Resource Governance Institute, “resource-rich governments have a tendency to overspend on government salaries, inefficient fuel subsidies and large monuments and to underspend on health, education and other social services.”  Securing popularity is not free, and in resource-rich autocratic regimes looking to preserve power, high on the list of priorities for the national budget is financing patronage networks that distribute jobs to political supporters and buying off opponents.  Perhaps most recklessly, foreign reserves may be also be blown on lavish personal endeavors.  Consider the ruling families of Equatorial Guinea, Gabon, and Republic of Congo; all nations that fit the confines of this investigation who have international investigations opened against them for embezzling millions of dollars worth of state money.

The implications these spending habits have for trade lie within their sustainability over the long term, and to what extent they direct or misdirect investment to/from industries outside of the resource sector.  This is because overspecialization subjects an economy to the fluctuations of international commodity prices, and when prices inevitably take a dip, if country leadership has not properly mitigated against this inherent risk, governments will likely have to stifle foreign exchange usage so that reserves don’t dry up.  This limits a country’s options for financing imports and is observable time and time again in developing, resource-dependent countries.  In 2015, Angola’s central bank had to request companies and citizens to cut foreign-exchange usage in half amid a dollar shortage caused by dwindling revenue from oil and diamond exports.  This year in Nigeria low international oil prices have devastated government earnings, causing rating agencies to downgrade the economy and President Muhammadu Buhari to slash his budget, reducing the country’s overall growth prospects.  This included ending Nigeria’s infamous fuel subsidies, for which the government this year alone spent over $5 billion trying to maintain.  According to experts, these subsidization policies, as part of government spending in an institutionally weak country, were corrupt and highly inefficient.  In Brunei, where oil windfalls in the sultanate have historically meant no income tax or sales tax for locals, as well as free university education and and subsidized housing, the government has recently had to make sweeping budget cuts in light of falling oil prices.  In Venezuela, where oil exports account for 95% of revenue, and imports account almost entirely for nationwide consumption, socialist leadership has historically diverted money from increasing productivity or ensuring production to building houses for the poor, distributing subsidised food to state-owned markets, and funding social programmes, neglecting not only alternative industries, but the oil producing sector as well.  Today, Venezuela’s economy lies in shambles and the availability of basic products is scarce, to say the least.  As a whole, in countries where transparency is low and institutions are weak, it can be assumed that low accountability for foreign reserve spending diminishes the probability that resource wealth is used responsibly.

Despite these doomsday predictions, however, as noted before, foreign reserves may indeed be used more sustainably, as observed in several Gulf Arab countries. In Saudi Arabia, for instance, serious dedication to attracting diverse foreign investment is corroborated by General Electric’s recent announcement of an investment of $1.4 billion in the country, creating a $400 million manufacturing facility as well as 2,000 new jobs for Saudi citizens.  This implies that nationwide investment in infrastructure (i.e., roads, electricity distribution, etc.) and alternate industries, enhances trade capabilities and widens overall domestic consumption capabilities.

Import & Export Restrictions

Excessive resource specialization can have a sway on leadership in some cases to pursue protectionist policies, such as import substitution, in a vain attempt at diversification.  In describing the political failures of Zambia in its pursuit of excessive resource specialization, Arne Bigsten notes that “during mineral booms, most governments behave as if the inflows of resources are permanent, embarking on new projects, including import substitution.”  Bigsten further describes that once “boom turns to bust,” it can be quite difficult to reverse economic policies as strong economic interest groups become entrenched by large initial investments.  In the case of Indonesia, high worldwide oil prices in the late 1970s brought Indonesia’s mining sector production composition ratio up to 25% by 1980.  Amidst this oil boom, Indonesia chose to overlook the role of foreign investment and pursue policies of import substitution, not switching to an export-oriented policy until oil prices plummeted in the 1980s.  Since 2015, Angola has also taken several import substitution measures to diversify its economy.  According to a report from the World Trade Organization, “customs tariff rates (especially those on agricultural products) have risen considerably and fall within a range of 2% to 50%, with an average of 10.9% (compared to 7.4% in 2005).  These cases reflect a desire to open up trade prospects, but in a way that relies too heavily on government directed-windfalls.

With regard to export restrictions, as described by a staff working paper from the World Trade Organization, “the need for export diversification of a resource rich economy can justify the use of export restrictions to promote domestic downstream production,” though “this strategy has a number of drawbacks.”  Other incentives also exist for export restrictions, such as is commonly seen amongst OPEC member nations, who are widely known for controlling world oil production supplies so as to secure a collective advantage in regulating  worldwide oil prices.  Forward thinking oil exporters may also limit output in the short term through production quotas so as to conserve resources for future, sustained exploitation.   

Conclusion

Ultimately, not every country shares the same story for how excessive specialization came to play such a dominant role in their economies.  In general, oil-dependent Gulf countries (Saudi Arabia, Kuwait, UAE) tend to reflect more positive trade outcomes than the rest of the countries in this investigation.  Noting that oil-exporting gulf countries congregate at the higher end of the previously cited economic and institutional development index, perhaps strong institutions, even under autocracies, can mitigate the negative economic forecast generally predicted by resource dependence, though this explanation still leaves the question of how these institutions became strong in the first place.  Other academics offer that the oil-rich countries of the Middle East have so far escaped some of the worst economic consequences of the resource curse due to a ratio of relatively small population to a vast amount of oil.  The question of what determines sustainable outcomes still remains largely unanswered.  

At the end of the day, however, it can be said with confidence that the incentive and initiative for which policies an overspecialized country will choose and why, ultimately fall on country leadership, according to the demands, strains, and opportunities available to them.  Thus, the connections that can be drawn between resource overspecialization and regime type, as well as economic conditions, are essential to bridging the broader relationship between excessive resource specialization and openness to trade. Certainly, external political and historical factors, as well as personal traits of individual leaders not addressed here wield their influence on trade outcomes, yet all of these factors seem to pale in comparison to the almighty resources themselves.  Ultimately, if a country chooses to devote itself to the riches and promises of one resource and one resource only, it must also accept the unbounding dominance that resource will have on its future.

Can Donald Trump the WTO?

Yes—it’s another piece covering Donald Trump’s policies—but don’t leave quite yet; I promise to not fall into the enticing leitmotifs typical of the current status quo for journalistic coverage of Trump. Allow me to explain.

Be it on the left or the right, there seem to be two major fissures into which commentators fall whenever Trump’s name is mentioned—sardonic, arrogant insouciance, and melodramatic fear-mongering. Those in the former camp will attempt to write the entire Trump phenomenon off as a manifestation of angry whites too ignorant to see that his proposals are all nonsense and that he is leading them to an inevitable slaughter in a general election; they don’t deem his policies worthy of analysis because they believe the probability of his winning is zero. Those in the latter camp will attempt to spin every Trump statement as an apocalyptic forecast, harking a potential Trump presidency as the harbinger of immediate international Armageddon. Both seem, to me, ridiculous. The first comes with the assumption that Trump’s campaign has exposed nothing useful whatsoever; whereas, I concur with scholars like Dani Rodrik and Paul Krugman who believe that the populist wave of support behind a candidate like Trump has highlighted a failure of the US system to share adequately the fruit of globalization and international trade equally amongst the US population. The second sacrifices the reality of the US constitutional system of checks and balances in favor of exaggeration for the sake of ratings and clicks; after all, what would attract more viewers—a piece that recognizes the relative impotence of the US presidency given the division of power between the three branches of government, or one that harks Trump as a Hitleresque totalitarian who will destroy the world?

As with most political polemics, clinging to one ideological line doesn’t lead to much in the way of constructive discussion. Thus, I will not caricaturize Trump using a broad, ideological brush. Nor will I go soundbite-hunting (which honestly requires little creativity during this campaign cycle) in order to cherry-pick quotations that could then be falsely described as Trump’s trade policy. Instead, wary of the aforementioned chasms that flank me on both sides, I will attempt to go straight to horse’s mouth to analyze Trump’s trade policy reform proposals, basing myself only on his one and only official campaign position paper that pertains to trade—“U.S. – China Trade Reform.”

A few final disclaimers before proceeding to the targeted analysis are apposite. First, the paper the policy paper under scrutiny here only directly apostrophizes China; however, the policies proposed implicate much more than the bilateral US-China trade relationship. As a result of this, even though this is the only trade-related policy paper of Trump’s, we can deduce a great deal from the suggestions therein when it comes to understanding Trump’s broader approach to trade. Trump’s trade policy paper does contain a variety of economic figures used to justify the proposals therein. I will not be fact-checking any of these myself; there are plenty of better-suited sources that do precisely this type of work. My intention is to examine Trump’s major reform proposals, explicating both the international legal mechanisms they target, as well as the potential effects they would have if carried out in their entirety.

Distilling the signal from the noise

Some have called the Trump campaign “substanceless,” arguing that he is all talk with no concrete policy proposals. While hyperbolically effective, that is not true when it comes to trade; there are certainly enactable proposals contained within Trump’s policy paper. That said, there is also a great deal that is simply talking point fodder disguised as policy. There are many examples of this type of non-policy proposal peppered throughout the paper—too many for each to be explained in this article—hence, I want instead to begin by offering a framework for sifting through these purely rhetorical proposals, identifying a few glaring examples of strong words, without any legal authority behind them.

When looking for practical trade proposals that could actually be enacted, it is important to remember that the executive branch in the US has relatively little power in determining trade policy. The U.S. Constitution is perfectly clear in its delegation of trade authority to the Congress, not the Executive. Article I, Section 8 gives Congress the sole authority “to regulate Commerce with foreign Nations.” This power is no longer absolute, however. In the 20th century, it was quickly discovered that logrolling in the Congress was a political tendency that would make crafting trade deals in the Congress alone untenable. As such, the so-called “fast track presidential authority” to broker trade agreements was created by the Trade Act of 1974. While this act did delegate the authority to negotiate trade agreements to the President, it is an impermanent power that must be persistently re-authorized by the Congress. Even today—an age that many would commonly believe is dominated by trade agreements in-the-works such as TTIP and TPP, the president’s authority is very limited. The only TPA authority currently active is the Trade Preferences Extension Act of 2015, which grants the Obama administration limited “power to negotiate major trade agreements with Asia and Europe.” In short, the next president of the United States will have to seek renewed TPA from Congress, and even if it is allotted, any deals made or tariffs proposed are entirely at the mercy of congressional approval. With all this in mind, we can craft a strategy for identifying concrete proposals—finding the signal amidst the noise. We should interrogate every proposal by inquiring: what mechanism is being used to accomplish the policy aim (tariffs, duties, etc.), and what legal entities ultimately control said mechanisms.  

As an example of a proposal that is backed by no concrete policy, let’s examine one of Trump’s suggestions regarding a harmonization of environmental and labor standards:

China’s woeful lack of reasonable environmental and labor standards represent yet another form of unacceptable export subsidy. How can American manufacturers, who must meet very high standards, possibly compete with Chinese companies that care nothing about their workers or the environment? We will challenge China to join the 21st Century when it comes to such standards.

As can be seen, this proposal offers the perfect opportunity to test the framework laid out previously. We see very clearly that there is a policy aim—ensuring that the US and China are both held to similar environmental and labor standards—but there is no mention of the mechanism that would be used to accomplish this policy aim. This is surprising, because resorting to tariffs as a default policy tool is a well-documented favorite of Trump’s. Even though the paper mentions no mechanisms and thus cannot be analyzed as policy, we can still answer the second question of our framework, because there is a legal entity that does in large part oversee the standards that Trump would like to see more equally followed: the World Trade Organization (WTO). In fact, this is not an outlier; in most of the instances in Trump’s trade policy paper where a policy aim is announced without a specified mechanism or legal entity being referenced, the issue likely falls under the umbrella of disputes for which the WTO already serves as a forum. This incongruence hints at what I find to be the most confusing and, in my estimation, untenable characteristic of Trump’s trade policy. It seems to argue on various fronts for vigorous US reengagement at the WTO, pressuring other countries—namely China—via the WTO dispute settlement mechanisms more than ever before, while concomitantly arguing for the brandishing of tariffs and other protectionist measures the likes of which the US has not seen since Herbert Hoover held the presidency.

A trumped-up WTO strategy? – Enforce some rules ardently, while breaking others unabashedly

The internally contradictory nature of Trump’s policy proposal as concerns the United States’ role at the WTO is difficult to untangle, but perhaps no better microcosmic representation of the strategy exists than this paragraph concerning how Trump plans to combat “China’s illegal export subsidies and other unfair advantages.”

The U.S. Trade Representative recently filed yet another complaint with the WTO accusing China of cheating on our trade agreements by subsidizing its exports. The Trump administration will not wait for an international body to tell us what we already know. To gain negotiating leverage, we will pursue the WTO case and aggressively highlight and expose these subsidies.

As we can see, the second sentence intimates that a Trump presidency would not wait for the WTO dispute-settlement process to run its course. While an alternative legal mechanism is not proposed, we can insinuate from the rest of the policy paper that what is implied is that the US would pressure China with countervailing duties and tariffs. That said, the following sentence is a complete reversal; without even skipping a sentence the proposal pivoted from “not wait[ing] for [the WTO] to tell us what we already know,” to “pursu[ing] the WTO case” aggressively.

For the sake of a thought experiment to explore the implications of this internal contraction if actually put in practice, let us assume that Trump carries through on all such promises—both of more aggressive WTO dispute settlement action against China, and of simultaneous tariff use. What would come from this? Those who paint Trump’s policies as perfectly pursuant to John Bolton’s view of international law would be exposed as wrong, because even Bolton, who believes that international law has no moral character and instead is only what states will it to be, acknowledges that certain systems exist—such as the WTO—that can be used by states to secure beneficial outcomes if adhered to. If the two previously mentioned Trump policy proposals were both enacted, the result would be devastating for the United States because of the current structure of the WTO dispute resolution mechanisms.

WTO dispute resolutions over subsidies are governed by the “Agreement on Subsidies and Countervailing Measures,” and given the diverse ways that subsidies can be disguised (which Trump rightly identifies in the policy paper), successfully winning a dispute before the WTO takes time and a great deal of fastidious effort. On the other hand, the levying of a tariff such as those for whose implementation Trump argues all throughout the policy paper, beginning with the very first paragraph of the “Details of Donald J. Trump’s US China Trade Plan,” is in blatant violation of a host of more universal obligations, and Trump’s proposals would bring the US into immediate breach of GATT Article I—the most favored nation principle that WTO members should treat all imports equally—as well as GATT Article II—the restriction of tariffs to a maximum of the “bound rate” established in the tariff schedule.

Why then, would this be so detrimental? Again, it is a matter of the legal mechanisms that undergird these two separate processes. While the WTO dispute settlement for subsidies is a long, complex process, tariffs are the most overt form of protectionism, and, as Scott Lincicome of The Federalist appropriate states, “such an obvious violation of WTO rules would make for the easiest WTO dispute in the organization 20-year history.” Hint, the US would lose.

Thus, the hypocrisy of Trump’s proposals as concern the US’ role in the WTO is damaging not just because they are difficult to understand and ideologically self-contradictory (are we for or against the WTO?); they are prejudicial because if they were actually to be enacted, they represent a fundamental misunderstanding of how the WTO dispute-settlement processes operate, and would lead to disproportionate harm for the United States, while China—the target of all of these policies—would actually be able to impose countervailing duties, and the rest of the WTO member states would be justifiably on China’s side, as they have the strength of numerous international legally binding accords behind them.  

But what about efficient breach? International legal scholars agree that’s a thing, so…

No. Allow me to stop you there. Efficient breach definitely is a thing, but to apply it in light of Trump’s policy recommendations here would be a gross misunderstanding of that legal school of thought. Eric A. Posner—the intellectual father of efficient breach—agreed with Bolton, in that both espoused the belief that international law had no moralistic underpinning, and was thus a tool for states to use to maximize their well-being. This is a line that sounds like it would fit very well with Trump’s “America First,” doctrine, but to take the next logical leap and say that Trump’s plan is thus one that might be espoused by the likes of Posner and Bolton, would be to convolute sound legal theory with obfuscous rhetoric.

The principle undergirding efficient breach is that of economic efficiency of trade-offs; i.e., international norms (such as adherence to WTO rules) can be broken if the relative economic efficiency of breach outweighs that of continued compliance. Trump’s international trade policy proposals highlight a variety of key problems that are sadly oftentimes left undiscussed because of the polemical—and thus media-attracting—nature of other claims therein. He addresses many issues that should be addressed by the next president—be it the disproportionate distribution of benefits from international trade amongst Americans, to the need to pursue greater harmonization of compliance with international commercial standards so that some nations are not disadvantaged while others are able to dodge safety and labor regulations. That said, all of these issues are overshadowed by the self-defeating nature of Trump’s policy proposals vis-à-vis the WTO. Without even broaching the cultural, sociological, and political implications of overtly breaching the GATT—a subject which would merit an entire article of its own—Trump’s trade policy is currently plagued by a coherence problem identified by our previously established analytical framework.  Even if one agrees with every beginning presumption and aim expressed in Trump’s policy paper, the legal mechanisms in place that govern international trade would result in a terribly inefficient breach. WTO law is not all trumpery, and Trump would do well to remember that that which is rhetorically powerful matters much less than that which is legally efficient.