At our World Economic Forum Trade and Investment meeting earlier this month in Dubai, Council members spent considerable time arguing about the extent of damage to the global trading system. All agreed that the system is in trouble, but group members disagreed about the magnitude. Most think that problems are significant but probably manageable.
I am not convinced. I believe the Titanic has hit the iceberg and is now slowly sinking.
Most of the efforts to date in addressing the trading system, such as trying to craft alternative dispute resolution systems or sort out new plurilateral or “minideals” with coalitions of the willing, amount to rearranging the deck chairs and shimming and shoring up pieces of furniture in a valiant attempt to make things appear level. Crew members and many on the boat keep trying to argue that the band has never sounded better: “This is a fantastic opportunity to reassess past practices and make needed adjustments.”
The problem is bigger than just a profoundly dysfunctional World Trade Organization (WTO). It involves more than just one unhappy large trading partner with a very different leadership team and approach to trade.
The global trade system now involves rising levels of discontent with a host of issues, including how governments will grapple with technology shifts that are rippling through job forces with significant disruptive implications coming extremely quickly; climate change and sustainability issues that are rapidly altering a wide range of what gets produced and consumed, where this takes place (or not), and how goods get moved; increasing levels of interconnectedness that makes the pool of “stakeholders” in trade conversations larger and more diverse than ever before; and a breakdown in consensus at the domestic level in many countries about the importance of trade.
Council members at WEF reflected the deep levels of unease felt much more widely about confronting all these deep changes simultaneously. While recognizing the extent of many of the challenges, some argued that the trading system can adapt or that the system will simply have to adapt. After all, business is not about to stop. Consumers will not suddenly cease to be consumers.
Certainly this is true, but I think that the terms under which business will operate is changing much more quickly and potentially in more profound and significant ways than many want to acknowledge.
Some, of course, are going to celebrate this statement. But the sinking of the Titanic is going to come at enormous cost and with significant consequences that cannot be fully imagined.
For nearly the entire lifetimes of most people, trade has been underpinned by certain rules. Not every country, of course, participated in the same ways and not all followed the rules that have existed to the letter. But, on the whole, global trade operated with greater and greater certainty.
This system has allowed firms to become global and to create distributed supply chains with more of the right “slice” of production and services in the right geographic location. It allowed smaller firms to become mini-multinationals. It let consumers to find products and services from anywhere.
Of course, this system has never been perfect. It has delivered uneven results—between countries and within countries. But the key point here is that it had a level of consistency and certainty.
This is now gone. To mix analogies, going forward, the game of football will be played without referees. For a short while, it may be the case that players continue to uphold the rules. In some games, players will stick to the old system, even without referees on the pitch. But in many places, players will start testing all sorts of boundaries very quickly. Over time, the game itself will change, as local adaptations will evolve to suit local conditions without one rulebook to govern football.
We have not seen this sort of global trade system in a very long time, so it is not possible to imagine fully what it will look like. But to return to the Titanic discussion, if the main boat is sinking, what will happen? Everyone will be desperately looking for any way possible to avoid drowning.
The ideal scenario is to have another luxurious cruise ship nearby to pick you up. For some countries, this trade option is available. The European Union fits the bill for some lucky passengers. Slightly less fancy, but still desirable, will be the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which gives members significant benefits from being inside a new luxury liner.
A bigger boat is much better in a wide ocean than smaller boats. The Regional Comprehensive Economic Partnership (RCEP) with 15 members in Asia is slightly less well-appointed than the CPTPP, but will do quite nicely for most Asian countries.
Some countries will be looking for any lifeboat, including tiny rowboats made from lashing together bilateral deals with key trading partners. Some will get stuck trying to straddle a bunch of smaller boat options.
Finally, some members will have no true options and are facing the freezing waters. One of the main purposes of the multilateral trading system, in fact, has been to help smaller, poorer countries navigate a world of bigger, more powerful countries. Once the Titanic sinks, this safety net is no longer available. Drowning is a real risk.
This fractured world is certainly not ideal. It will probably not last forever. Eventually, perhaps, people will realize the extent of what has been lost and reconvene to build a Titanic 2.0—hopefully one that better accommodates the realities of the time and the aspirations and hopes of a greater set of engaged stakeholders.
Between now and then, though, the global trading system is in profound trouble. It is slowing sinking. Recognizing the true extent and depth of the overlapping set of challenges is an important first step in addressing the problem.
Absent clear recognition of where we actually are in global trade, we are just going to continue to rearrange deck chairs and hope for a satisfactory outcome.
This is not a temporary challenge that will go away in a few years. Stitching up a few reform proposals for the WTO will not address the wider issues that also impact the trade system.
Just like the original passengers on the Titanic, the slowly dawning realization that an “unsinkable” ship can, in fact, sink is hard to accept. Fortunately, at the moment, it looks like the system will not go down in a matter of minutes but will give a bit of time for panicked adjustment.
It is coming. Passengers on the trade ship “Titanic” need to be getting ready.
***This Talking Trade was written by a very gloomy Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore, who is happy she has space on a few boats in Asia… See us about how you can book your seats now.***