What’s the deal with global trade? The view from Davos 2018

World leaders came to the defence of free trade and global cooperation at the World Economic Forum’s Annual Meeting in Davos this week. Speeches by Narendra Modi, Theresa May, Emmanuel Macron, Angela Merkel and Justin Trudeau declared their countries “open for business.”

In a special address on the final day of Davos, US President Donald Trump said he would always promote “America First”, just as he expected other world leaders to do when it came to their own countries, but added: “America First does not mean America alone. When the United States grows so does the world.”

America targets ‘unfair trade’

Trump told the audience at Davos that Washington would no longer tolerate unfair trade, saying predatory practices were undermining the system as a whole.

“The United States will no longer turn a blind eye to unfair economic practices, including massive intellectual property theft, industrial subsidies and pervasive state-led economic planning. These and other predatory behaviours are distorting global markets and harming businesses and workers.”

Who’s starting a trade war?

North America’s decision to impose tariffs on imported washing machines and solar panels caused some alarm in Davos this week, especially in respect to China’s trading interests with the world’s largest economy.

Asked if he wasn’t concerned the move would prompt a trade war, US Secretary of Commerce Wilbur Ross said: “There have always been trade wars. The difference now is US troops are now coming to the ramparts.”

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Not everyone was feeling so combative. In a separate interview, Jack Ma, head of the Chinese online retail giant Alibaba, made a strongly worded plea not to use trade as a weapon. “It’s so easy to launch a trade war. But it’s so difficult to stop the disaster of this war.”

He said he was scared and concerned, and added: “When you sanction the other country, you sanction small businesses, young people; and they will be killed, just like when you bomb somewhere.”

“If trade stops, war starts,” he said.

Corporate tax cuts and a ‘race to the bottom’

Trump’s decision to cut corporate tax rates last month was still eliciting mixed reactions among Davos constituents. A raft of public figures, from French President Emmanuel Macron to Nobel-winning economist Joseph Stiglitz, issued stark warnings against a “race to the bottom” on tax cuts and regulations.

Meanwhile, the International Monetary Fund announced that Trump’s tax cuts would boost global growth – although only in the short term.

In a panel discussion on the Paradise Papers, Stiglitz railed against the lack of financial transparency, saying that despite two offshore tax evasion scandals the system remained “broken”. He called on Europe to take the lead in the US’s absence and slap a minimum global tax of 15-20% on corporations. “It’s rough justice, but it’s better than the no justice we have today.”

Here’s Stiglitz talking about the race to the bottom of corporate tax giveaways:

Goodbye TPP, hello CPTPP

Justin Trudeau began a speech in Davos on Wednesday by talking up an international trade agreement.

“Today, I am pleased to announce that Canada and the 10 other remaining members of the Trans-Pacific Partnership concluded discussions in Tokyo, Japan, on a new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

It comes a year after the US President Trump declared that he wanted to quit the Trans-Pacific Partnership, the CPTPP’s preceding deal.

Explaining that the agreement would be more progressive and stronger for Canadian workers on intellectual property, culture and the automotive sector‎, Trudeau said:

“The agreement reached in Tokyo today is the right deal. Our government stood up for Canadian interests and this agreement meets our objectives of creating and sustaining growth, prosperity and well-paying middle-class jobs today and for generations to come.”

Is NAFTA dead?

It’s no secret that Trump is no fan of NAFTA. In an interview with CNBC he had harsh words for the pact between North America, Canada and Mexico, calling it “a horrible deal”.

Over in Davos, Switzerland, however, the mood was different. “Who in this room thinks NAFTA is dead?” a trade panelist asked the audience. Not many people did.

For many, the trilateral trade bloc was simply a bit of a fixer-upper.

Ildefonso Guajardo Villarreal of the Secretariat of the Economy of Mexico said: “NAFTA is 22 years old. We need to modernize it.” Sections on data and digital trade would need to be included in the paperwork to update the deal for the 21st century.

President Trump’s isn’t the only shadow looming over the agreement. The whole thing could be called off by one member country pulling out, said Chrystia Freeland, Canada’s Minister of Foreign Affairs.

“Article 2205 gives all parties the right, after a six-month notice, to withdraw from the deal,” she warned.

To use Trump’s words to CNBC: “We’ll see what happens”.

[box type=”note” align=”” class=”” width=””]Written by
Anna Bruce-Lockhart, Editor, World Economic Forum

The views expressed in this article are those of the author alone and not the World Economic Forum.[/box]