The Changing Trade and Tariff Landscape

The Changing Trade and Tariff Landscape

Increased protectionism, rise in individual trade policies, and weakening of global trade resolution mechanisms have affected current supply chains as well as led to uncertainty in markets.    Due to fragmentation of global value chains, widespread application of tariffs and non-tariff barriers is expected to slow down global economy growth significantly, hurting developing countries, which rely heavily on international commerce. Therefore, these countries should review their trading strategies. One of the most significant trends that has emerged from this disruption is the renewed focus on South–South international trade and regional cooperation. For instance, China has sought to enhance its economic connections with Southeast Asian countries like Cambodia, Malaysia, and Vietnam while enhancing its role in trading unions such as RCEP, which excludes the U.S. India, for its part, has signed numerous free trade agreements with ASEAN, Japan and the Republic of Korea, among others, to connect with regional economies. Other smaller countries including Fiji and Zimbabwe are looking for new export markets to counter the uncertainty caused by the disruptive current environment.

As a reaction to the new obstacles and prospects brought on by these changes, the RIS, CESD Asia, and the UNESCAP Subregional Office for South and South-West Asia gathered for a High-Level Brainstorming Workshop that highlighted the changing patterns of global trade and the necessary response mechanisms through regional collaboration and South-South cooperation. The workshop was attended by the eminent scholars, policymakers, and trade experts coming from India, Malaysia, and other global institutions, who discussed the necessity of action by developing countries to adapt to the changing reality of trade through cooperation.

The current situation of the multilateral system, to some extent, is a result of this neglect as well. In that sense, the current US administration is not the source of the problem, but the result of it. The backlash against globalization in many other societies and the experience of COVID-19 highlighted the dependence on fragile supply chains, even in areas that are very vital from a perspective of public health, to give one example. Despite this situation, it does not change the fact that the unilateral measures that are being adopted by the major economies are the wrong response. They are, first and foremost, self-harming, and likely harming the less prominent layers of society than those that decide the elections, if you think, for example, of swing states in US elections. But it does not change the fact that economists have for a long time, proven that tariff escalation and other trade barriers create a lose-lose situation for everyone, that is those which impose tariffs and restrictions and those who suffer from them. It has been seen in the 1930s with the US Smoot-Hawley Tariff Act, but also during the first presidency of the Trump administration, that these approaches to weaponize tariffs have triggered very limited results, and US continues to negotiate with China the same issues as during Trump’s first term. Several studies highlighted, for example, that to the extent that the steel and aluminium tariffs created some jobs in the steel sector, many more jobs were lost in the processing industries downstream. So, this classic example of bringing steel production home to the United States ended up with a deadweight welfare loss for the world, as well as to begin with, the United States’ own economy. There were also attempts to change the architecture of existing economic systems with a high degree of involvement of the government and state-run companies via unilateral measures during Trump’s first presidency, and these failed. Even the United States administration has recently acknowledged this. So, it is unclear how these policies by the Trump administration could work, and whether international trade can be replaced through investment in the US because supply chains don’t work this way. This, however, does not prevent politicians from trying out all the wrong options before they try out the right ones.

International collaboration hinges on robust and stable local populations. Nations must possess the ability to deal with domestic matters in order for international economic collaboration to endure. The WTO is still working on incorporating talks over environmental issues into their agenda. In fact, this week in Geneva, we have the first sessions of the so-called TESSD (Trade and Environmentally Sustainable Development) process. The developments could aid the learning process by allowing direct exchange of experience in case the initiatives are properly institutionalized. The trade regime is unlikely to take lead on climate change issues in case proper coordination is ensured. The Montreal Protocol involved trade provisions that also included sanctions if countries were found not to comply with the provisions of the protocol. One of the factors that played a key role in the Montreal Protocol was flexibility in meeting its objectives that included technology transfer, as well as time extensions, and trade sanctions. As trade sanctions form part of a bundle of measures, the core objective of such sanctions remained the preservation of the ozone layer. At the same time, trade sanctions are to be applied only at last resort when countries coordinate their actions in order to achieve a common goal.