Finally-some very good news on the trade front! The long-stuck World Trade Agreement (WTO) arrangements on trade facilitation have been approved by just enough members to enter into force. The Trade Facilitation Agreement (TFA) was struck in Bali in December 2013. It is an unusual deal in the WTO that provides more flexibilities to members than we normally see. But the overall objective is to move goods faster and cheaper across borders. The bottom line benefits for growth could be larger than tariff cuts. Trade facilitation is not the sexiest sounding topic. Eyes tend to glaze over whenever it gets mentioned. But the ability to move cargo across borders faster and cheaper is extremely important. Obstacles at the border are unpleasant for bigger firms and can be catastrophic for smaller companies. Consumers pay more for products than necessary.
The Elusive Quest for Inclusive Growth
The point is that the decisions that must be made about how to handle any adjustment falls to domestic level governments and to individual citizens. A trade agreement is not the place to address the issues of French wool growers or the English wine industry. An agreement can provide new opportunities for markets. It can lower barriers to trade in wool and wine. It can make customs procedures faster and easier. It can help service providers design websites or apps to let new customers find unique products. It can make it easier to invest in vineyards or warehouses or factories. It can help spread technology or help license or protect the ideas and intellectual property behind amazing designs. What a trade agreement does not do is provide inclusive growth. An agreement cannot create conditions for growth to spread to everyone or growth to flow evenly. It can only create new opportunities.
Minister Lim: The Importance of Globalisation and Inclusive Growth
Indeed, globalisation is not a panacea for all economic woes nor does it come without costs. While globalisation has lifted hundreds of millions of people out of poverty, and brought immense benefits to consumers, we have to acknowledge the growing discontent. Benefits from globalisation have not been distributed evenly. We also have to recognize the impact of disruptive technologies, which can result in skills becoming obsolete and being displaced. However, we should not make globalization the scapegoat for slowing growth and unemployment. Closing borders and turning inward is not the answer. Economies are so interdependent nowadays that it would be very difficult to disconnect from the global value-chain. If we do so, our businesses and communities will lose out. Markets will shrink, fewer jobs will be created and consumers will have to bear higher costs and will have fewer choices. We should avoid actions which will only hurt ourselves and lead to retaliatory measures, undoing the good progress that we have achieved so far.
When Abe Goes to Washington
This is where things rapidly get tricky. Given the Trump team’s penchant for scoring countries with the crudest metric of all—the size of the bilateral trade deficit in merchandise goods—Japan is headed for a rocky road. Japan has had a substantial merchandise deficit (viewed from the Oval Office) for a long time. It will probably make little difference how many jobs come from Japanese firms in the United States, or how many services are sold by American companies into Japan, or how many parts and components are shipped back and forth, or how much is invested in either country. The Abe team is apparently heading to DC with a long list of details to show exactly how much Japan matters to American jobs now and into the future. They will have plenty of statistics on currency rates and investment portfolios and long-term metrics and pledges to buy lots more energy. Most likely, none of it matters. Not when the trade deficit stands at more than $60 billion and the guys that are in charge care about only one number.
Fragile Institutional Foundations of Global Trade
Once the bigger, more systemically important countries start to discuss allowing trade discrimination and consider implementation of illegal practices, the damage could flow rapidly. Now the bridge may face the largest challenge of all. Donald Trump believes that other countries are getting more benefits than the Americans receive. In his quest to remedy this situation, he and his team seem willing to overturn decades of policy. The assumption seems to be that the system itself will hold. But the system rests on a shaky bridge. The support piling represented by the United States is critically important to the overall structure. If it gets knocked out, the entire bridge will start to fall.