- - Tuesday, November 24, 2020

Since Harry Truman, Democratic presidential candidates have run on platforms championing enlightened internationalism — leadership in free trade and security alliances — and aggressive expansion of the welfare state — most recently the Affordable Care Act.

Presumed President-elect Joe Biden will be terribly constrained. The country can’t afford massive new programs without big deficits or taxes a Republican Senate won’t permit. He will mostly pay his campaign debts with an aggressive Justice Department Civil Rights Division and the regulatory powers of the Departments of Education, Labor and the like.

Internationally, Mr. Biden must reckon with a China that will soon have a larger economy and an impressive navy.

Beijing is militarizing disputed territories in the South China Sea, threatening Taiwan and suppressing Hong Kong’s democratic freedoms.  At best we are in a stalemate, and at worst we could be pulled into a ruinous confrontation that establishes China as the preeminent power in the Pacific.

President Trump’s primary foreign policy achievement, the Abraham Accords, create a virtual alliance among Israel, Arab nations and the United States to counter Iranian mischief in the region. Mr. Biden would be foolish to upset that by re-entering the nuclear deal with Iran without substantially improved terms, which he is unlikely to obtain.

Europe is much richer and more populous than Russia and could afford its own defense. Mr. Biden could reverse Mr. Trump’s decision to reduce U.S. troops in Germany. Longer term, the Europeans will be told, albeit more politely, to do more for themselves, because America’s resources are more needed in the Pacific.

China’s economy is at once complex — a state-orchestrated market system, similar to Germany and Japan in the 1930s — and simple — a free rider in the international trade system created by the GATT and the WTO.

The latter permitted China to accomplish export-led growth and create an economic and military juggernaut that is now bent on reshaping the global system to suit its brand of authoritarian capitalism.

The WTO system was designed to link together the democratic market economies and assist developing countries by establishing rules that promoted trade based on comparative advantage. The agreements very much look as if they were written by economists to create work for lawyers.

Beyond removing tariffs and quotas — something the system was very good at accomplishing, ex-agriculture and textiles, through eight rounds of multilateral negotiations — the system lays out general rules about national product standards, customs administration, subsidies, intellectual property enforcement and other instruments clever mercantilists can employ. It leaves to dispute settlement panels and an appellate body to elaborate their meaning.

The rules must be general, because technology and the consequent ways governments can subvert open trade are ever changing. A de facto common law system has emerged, which when it works well, provides predictable limits on the protectionist pressures domestic interests bring to bear on national politicians.

China’s economic system is too inconsistent with Western market economies for the WTO to accommodate, it has run circles around dispute settlement and does most whatever it likes. Specifically, it targets Western industries by closing its markets, forcing foreign investors to transfer technology and subsidizing exports, and accomplishes dominance, for example, in solar panels and 5G technology.

The Trump administration responded by refusing to approve judges to the appellate body and that crippled dispute settlement. The Europeans, Chinese and others countered by creating a contingent arbitration mechanism outside the WTO to review dispute settlement panel findings.

China should not be in the WTO, but the Europeans want to deal with China there. China has grown too large for the United States to confront without allies, and the Europeans want tangible gestures that show Trump era abuse of friends is over.

Mr. Trump’s steel and aluminum tariffs are on the table but are hardly enough.

Ambassador Robert Lighthizer proposed replacing the appellate body with bilateral arbitration that would not set precedents, but without precedents the WTO system is rudderless and subject to whims of the biggest player — soon to be China.

The Biden administration could accede to the appointment of appellate judges but condition that on an American exception for dispute settlement with China.

That would permit the United States to impose remedies it deemed necessary to counter China’s aggressive protectionism, force the Europeans and other advanced industrialized countries to consider the same and ultimately remove the WTO’s fig leaf for Beijing’s mercantilism.

China needs trade to prosper. Excluding China from WTO dispute settlement would force it to take multilateral negotiations more seriously or face increasing isolation.

• Peter Morici, @pmorici1, is an economist and emeritus business professor at the University of Maryland, and a national columnist.

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