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Cooperation And Governance In Trade

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Question:

Discuss about the Cooperation and Governance in Trade.
 
 

Answer:

Introduction

US President Donald Trump has taken a pledge to abandon all trade negotiations, mainly multilateral trade deals and he has solely negotiated bilateral trade agreements for his nation. However, it is not clear for Trump that bilateral trade agreements can produce far rich economic values than multilateral trade agreements. Donald Trump's administration has not equally evaluated future and all current trade agreements based on their merits, however, they just confine the US to trade agreements. In the previous occasion, Donald Trump took his office and he had withdrawn all memorandums that the United States had with the Trans-Pacific Partnership. After that, he subsequently took a pledge to nullify all multilateral negotiations with nations. In past, Trump proclaimed that bilateral trade agreements are beneficial than multilateral trade agreements and he wanted to have bilateral trade agreements with the UK and Japan (Deal-making of Trump, Economist.com). Trump is trying to take protectionism trade policy restraining trade between nations through economic methods. Free trade is a blessing that a government can offer to people and some think that Trump's protectionism is a fainthearted decision that tries to protect the US from numerous competitors.

US economy has been growing with 3% annual rate in last quarter and Economists were expecting at least 2.5% economic growth. US have trade agreements with WTO and OECD and other countries that are both bilateral and multilateral. GDP of US was $18.55 trillion and GDP per capita of USA was $57,436. The US is one of the developed countries in the world and inflation rate of the USA is 0.4% in recent time (Deal-making of Trump, Economist.com). However, US President tries to cancelling all the trade agreements of US and that has been shown in abandoning the ambitious 12-nations Trans-Pacific Partnership. President Trump ended the traditional trade policy and he put an end of multinational agreements of trade that can set global economics for many years. Trump wants to put an end to the concept that the previous government’s orthodoxy in expanding global trade of US. Trump thought the trade rules with Japan, Chile, Canada and Australia are complex web and that Trump wanted to put a stop to trade agreement. Instead, Trump thought that American employees can be protected against competition from low-wage countries like Malaysia and Vietnam. On the other side, China can fill the vacuum what the US is going to make in the global economy by cancelling all kinds of trade agreements. Trump's withdrawing decision from the trade of Trans-Pacific Partnership reversed a free-trade policy adopted by presidents of two parties in past during the Cold War. Trump thought that the multilateral and bilateral trade deals are like ridiculous agreements that are taken employees from the US and taken the companies from the US, stopping the trade agreements can make the situation reverse. Dealing North American Free Trade Agreement (NAFTA), Trump has scheduled meetings with diplomats and leaders of Mexico and Canada (Deal-making of Trump, Economist.com). NAFTA has always been a major factor in American trade policy and critics blamed this to lower wages and loss of jobs.

 

US President’s decisions on cancelling bilateral and multilateral trade agreements in favour of a protectionist trade policy

Trump's opinions about trade deals are zero-sum and adversarial. Trump opines that other countries to which the US are dealing in trade are the spoils and they are not just the trade partners. Trump puts the China's accession to WTO as a bad deal and it has destroyed the chance of American supremacy in trade and it has been creating issues in American jobs. American president tries to spread the trade deficit issues around the world and not just the USA. Trump faces the threat from China and Chinese competition captured export orders from the US, they also try to encroach the domestic customers and the global market is filled with cheap products imports (Irwin; p.56). Trump’s view on trade policy is ambiguous; however, his alarm is not only the foreign completion but also trade deals suspicion (Aggarwal et al. p.67). However, Trump does not want to be radical in his decision of trade policy; however, he wants to see the cabinet choices with making a transformative and seismic shift in trade policy. In Trade policy, he wants to be US's most protectionists President and Protectionism around the globe is creeping up and the recent trend can be turbo-charged. Trump imposed a tariff of 35%-45% on products coming from China and Mexico and these countries could go to WTO's court to intervene. Moreover, US might face issues in exporting their products to China also a many of the products are sent to China from the US as China is a potential market.

Bilateral trade agreements can be defined as the treaties between two countries giving the countries favour in trading status with each other (Lester et al. p.56). The main aim of the bilateral agreement is to give the countries expanded access in each other’s countries in order to accelerate the economic growth of both participants. In bilateral agreements, there are mainly five general parts in order to standardise the business. These five operations keep one participant away from stealing the innovation, products and dumping the products at lower prices. Both countries in the bilateral agreement cannot do unfair subsidies in the prices they are offering (Cooper; p.45). These agreements clearly state the standardise regulations like environment protection, labour standards. This process needs to discuss eliminating the tariffs and trade taxes.

In bilateral trade agreements, both the parties can easily negotiate in differences and make the things clear. As compared to multilateral trade agreements, bilateral trade agreements are easier to involve the two nations and to negotiate (Drury et al. p.67).

Concept of multilateral trade agreement

Multilateral trade agreements can be defined as commerce treaties that are done between three or more countries. Moreover, in multilateral trade agreements can decrease tariffs and these make the business easier to export and import (Gleeson et al. p.23). However, in this treaties or agreements, it is difficult to negotiate as there are many countries associated with this agreement. Once all countries sign the trade agreement, it becomes robust and it can create large scope for the countries to do the business. As compared to bilateral agreements, these agreements are complex and hard to resolute the conflict among countries. Multilateral agreements can impact on economic growth on the countries as there are many other nations related to this. In this kind of trade agreement, there are lower trade barriers among the participating countries. These agreements can result to increase in economic integration among the counties. As suggested by Mathiason et al. p.34), in order to liberalise the trade in order to make an interdependent global economy, the multilateral trade agreement is helpful.

In multilateral trade agreement, all the signatories behave same with each other; therefore no country can get an extra advantage or better deal. On the contrary, in emerging market, the multilateral trade agreement is critical as it makes the market size smaller and makes the market less competitive. Moreover, a multilateral trade agreement can increase the business for every participant in this trade and it standardises the commerce rules for all trading nations. In addition, multilateral trade agreements enable the trading partner countries to negotiate deals upon the trade, on the other side, these trade agreements need to undergo through the approval process, and therefore it takes time (Hoekman et al. p.89). As compared to a bilateral trade agreement, multilateral trade agreement helps all the countries to develop, unlike bilateral agreement favours only strong economy country. Negotiations are most of the time make the business practices through multilateral agreements make complex and smaller countries with slower economic growth face the issue to compete with giant nations.

 

Trade protectionism

In its essence, trade protectionism is a form of economic strategy or policy that primarily blocks, or at least limits, any form of unfair competition from the foreign industries. Trade protectionism is, in its core nature, a politically motivated defence mechanism for the country’s economy and internal industries (Kerr et al. p.78).

In the principles of economics, comparative advantage is a major theory that forms a strong and acceptable argument in favour of free trade. While even laymen, without any knowledge about the functions and theories of economics, would understand the fact that free trade is a necessary tool to help a country develop and flourish in different industries, the same people would also argue that local companies must be protected and this has to be done by limiting the import of cheap goods from foreign countries (Lewis; p.67). Imposing tariffs, subsidies and quotas are the best and most popular ways of making sure that imports from foreign countries are regulated and exports of the country's own products are higher than the imports. Protecting domestic industries is a necessity, but this must be done with keeping a lot of parameters and aspects in mind. In the process of protecting the domestic manufacturers, if the national economy and performances are hampered, then the adversities are much greater than the positive outcomes.

Protectionism is a bundle of methods and policies that all aim to restrict trade between countries and promote fair competition. But the vital aspect that remains ignored is the fact that protectionism also hampers the advantages that can be reaped from comparative advantage. Comparative advantage and free trade are the two most important and valid driver’s of national development and sustainable development (Yarbrough et al. p.56). The needs for protectionism rise from the objectives of protecting domestic manufacturers from the foreign cheaper products and make the domestic manufacturers more competitive. In most cases, this need arises from weak job markets that can only be revived by making a lot of domestic jobs.

Objectives of protectionism

There are some reasons that are the prime arguments and theories in favour of trade protectionism. Creating jobs is one of the most important outcomes that are to be achieved from protectionism.

Different trade barriers can be used to protect sunrise or infant industries of a country. When a country is getting into a new industry or market, tariffs can actually prove to be beneficial in order to help the new industry to become steady and a strong operational ground that can face foreign and international competition. If domestic industries are ensured protection, there is a high chance that the country would be in turn boosting its own comparative advantage over other countries (Anderson and Yoto; p.45). Comparative advantage means, in a very broad and general way, the capability of one country to produce or manufacture one commodity in a more efficient and optimal process than another country which also produces or manufactures the same commodity. Economies of scale can benefit infant industries if protection is enabled and different methods are imposed. Eventually, these industries would expand and develop skills that would make them eligible to compete with other countries on a global level. The trade barriers and regulations may then be lifted.

There are industries in every country that are on the verge of decline and are slowly dying out. These industries also need protection from foreign competition so that their decline can be slowed down.

 


Strategic industries of every country need to be protected because they are vital to the well-being of the country’s overall sustainable development (Lewis; p.34). Water, energy, weaponry, food production, heavy engineering are some the basic industries that are given protection from foreign competition.

President Trump has taken a romise to surrender all multilateral trade agreements and to embrace the bilateral trade agreements for the United States of America. However, there is an absence of evidence that the agreements of bilateral trade have produced better economic objectives than the trade agreements with more than one country (Milner and Tingley; p.313-343). The administration under Trump should evaluate equally all the current and trade agreements based on their merits instead of reallocating the America to the bilateral negotiations.

President Trump has taken a promise to surrender all multilateral trade agreements and to embrace the bilateral trade agreements for the United States of America. However, there is an absence of evidence that the agreements of bilateral trade have produced better economic objectives than the trade agreements with more than one country (Milner and Tingley; p.313-341). The administration under Trump should evaluate equally all the current and trade agreements based on their merits instead of shifting America to the bilateral negotiations.

President Trump has been quite clear about the intention to repair the trade policy of United States of America. Days after acquiring office, he took into account the presidential memorandum by withdrawing the country from the Trans Pacific Partnership (Milner and Tingley; p.313-341). This was considered as a 12 nation’s agreement of trade, which has aimed at enhancing the strategic and economic links to the Asia Pacific region. Subsequently, he pledged to give up all the multilateral negotiations supporting the bilateral trade agreements with the countries such as Japan and United Kingdom.

Trump along with his team argued that bilateral agreements have produced trading deals which would prove to be more advantageous to America. In one of his speeches, Trump outlined his priorities that America would further negotiate fair and bilateral agreements, which would bring back jobs and industries to the country. Peter Navvarro, holds same views that the problems with the multilateral deals is that the country tends to reduce its power of sovereignty and surrender it (Fukuyama; p.134). These are the criticisms originated from the belief that the trade agreements with other countries requires United States of America to make more number of concessions than the trade agreements with only single partner, which results in the origin of deals which is harming the economy of Country.

The fear of Trump’s opposition to the multilateral trade agreements have given birth to a significant question: Do the Bilateral Trade yields more growth in economy in the United States then the multilateral deals in today’s America? What are the consequences?

It is tough to find a simple relationship between the specific trade negotiations and health of economy.  However, after examining the trade growth by following the pathway of new trade agreements is regarded as a useful proxy (Fukuyama; p.134). This is perfect because the main aim of the trade agreements in to encourage trade between partners and international trade is considered as an engine to the growth of economy. It enlarges the market entry for the exporters from America, reduces costs of input for the manufacturers from America and prices from for the country’s consumers.

The following charts would demonstrate the increasing in percentage in the total trades (U.S. imports + U.S. exports) with the partners of United States one and five years after several trade agreements of United States came into force (Azevedo, Jost and Ruthmond ; p.231). This incorporates North American Free Trade Agreement (NAFTA) between Mexico, Canada and United States as well as carrying forward the bilateral agreements with the other ten nations around the world. In order to calculate the actual growth in the total trade, the values of dollar in United States exports and imports are being adjusted by the export price indices and import price indices respectively.

 


This states that both the bilateral and multilateral trade benefits America. The reasons that Trump supported the cancellation of multilateralism is that the pie of global trade in shrinking, since the year 2010, when the global trade grew at a 20 percent rate. However, the consequences of embracing Multilateralism are negative. The 80% of the exporters from Mexico now go to USA and 30% of the GDP of Mexico is from the trade of America.. The central bank of Mexico would raise the rates of interest to try to slow down the capital flight, which in turn would cause major unemployment in addition to the import of inflation and a slogging economy. The biggest negative impact of the shift of Trump on the free trade would be on the international economy. This major shift to the bilateral trade agreements would take time; produce a lot of uncertainties as well as the reactions and the counter measures.  This would further served to slow down the volumes of the global trade (Tow; p.100). The emerging market economies would consequently pay a price in the decreasing sales of export for strategic trade shift of Trump, the final aim of which is to restore the economic hegemony of United States in the trade relations over the partners in trading- the hegemony which has been weakening in the last few years. Therefore, it can be stated that through the process of weakening multilateralism, Trump after the failure of WTO DOHA round, the President looks forward to weaken many of the pillars of the post war stability such as NATO, WTO and UN (Sundaram; p.143). Another important result is that the other countries would undoubtedly look forward to bypass United States, when it comes to the trade and investment policy.

Conclusion

In the recent global scenario, the President of the United States of America, Donald Trump has imposed a number of import duties and regulations to promote American exports. This has had a large and widespread impact upon the global economy, as the country is one of the biggest and most powerful economies in the world. With the rise of the modern era, the concept of globalisation and a much more integrated world system, it was only the logical option for the countries to adopt free trade. Free trade fuelled the global development and during the post-World War era, this helped the newly independent countries with providing the support they needed for a fair and balanced market competition. Free trade was one of the biggest reasons for the developing countries to quickly catch up, up till a certain extent, to the Western powers. The countries which had not embraced free trade initially also saw its positive sides and decided to adopt it in their foreign and economic policies and they had all reaped the benefits of the same.

 

Reference List

Aggarwal, Vinod, and Shujiro Urata, eds. Bilateral trade agreements in the Asia-Pacific: Origins, evolution, and implications. Routledge, 2013.

Anderson, James E., and Yoto V. Yotov. "Terms of trade and global efficiency effects of free trade agreements, 1990–2002." Journal of International Economics 99 (2016): 279-298.

Azevedo, F., Jost, J. T., and Rothmund, T.. “Making America great again”: System justification in the US presidential election of 2016. Translational Issues in Psychological Science, 3(3), (2017) 231.

Cooper, William H. "Free trade agreements: Impact on US trade and implications for US trade policy." Current Politics and Economics of the United States, Canada and Mexico 16.3 (2014): 425.

Drury, A. Cooper, Jonathan Krieckhaus, and Chika Yamamoto. "How Democracy Facilitates South Korean Interest in Free Trade Agreements." Korea Observer 45.1 (2014): 39.

Economist.com. (2017). Deal-making of Trump. Available at: https://www.economist.com/news/briefing/21711498-whatever-he-thinks-dealmaking-wont-help-mr-trumps-trade-negotiations-donald-trumps-trade [Accessed on 6 Nov. 2017].

Fukuyama, F.. US against the world? Trump’s America and the new global order. Financial times, 11. (2016)

Gleeson, Deborah, and Sharon Friel. "Emerging threats to public health from regional trade agreements." The Lancet 381.9876 (2013): 1507-1509.

Hoekman, Bernard M., and Petros C. Mavroidis. "WTO ‘à la carte’or ‘menu du jour’? Assessing the Case for More Plurilateral Agreements." European Journal of International Law 26.2 (2015): 319-343.

Irwin, Douglas A. Free trade under fire. Princeton University Press, 2015.

Kerr, William, and Jill Hobbs. "Protectionism is" Alive and Well"-Agriculture in the EU-Canada Trade Agreement." 2015 Conference, August 9-14, 2015, Milan, Italy. No. 211840. International Association of Agricultural Economists, 2015.

Lester, Simon, Bryan Mercurio, and Lorand Bartels, eds. Bilateral and regional trade agreements: Commentary and analysis. Vol. 1. Cambridge University Press, 2016.

Lewis, Joanna I. "The rise of renewable energy protectionism: Emerging trade conflicts and implications for low carbon development." Global Environmental Politics (2014).

Mathiason, Tiffany, and Angela Cabral. "Symposium: Managing the global environment through trade: WTO, TPP, and TTIP negotiations, and bilateral investment treaties versus regional trade agreements: Introduction." American University International Law Review 30.3 (2015): 1.

Milner, H. V., & Tingley, D.. The choice for multilateralism: Foreign aid and American foreign policy. The Review of International Organizations, 8(3), 313-341. (2017).

Sundaram, J. K.. Free Trade Agreements, Trade Policy and Multilateralism. Development, 59(1-2), 40-47 (2017)

Tow, W. T.. Trump and strategic change in Asia. Strategic Insights. (2017)

Yarbrough, Beth V., and Robert M. Yarbrough. Cooperation and governance in international trade: The strategic organizational approach. Princeton University Press, 2014.

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