Rules-based Global Governance at Risk: Challenges of US Unilateralism and US-China Superpower Competition

By Masahiro Kawai

Abstract

Rules-based global economic governance is at unprecedented risk due to the US’s departure from multilateralism and global cooperation, its unilateral use of higher tariffs as threats to gain concessions from its trading partners, and its intensifying competition with China in pursuit of economic and technological supremacy. The US has unilaterally raised tariffs on imports of steel and aluminum and threatens to do the same on imports of automobiles for “national security” reasons. The US has also raised tariffs on imports from China in three steps for reasons of China’s “unfair trade practices” such as the infringement of intellectual property rights (IPR). Through these measures the Trump Administration believes that it can correct the behavior of its trade partners, particularly China, the EU, Japan and Mexico, so as to reduce its bilateral trade deficits with them.

While criticizing China’s “unfair trade practices,” the US also perceives China as challenging the US’s global dominance in the economic, technology and military arenas and is determined to deter China’s ambition. The US-China bilateral talks that started in December 2018 may well result in some short-run resolution of conflict by China’s promise to expand its imports from the US, strengthen IPR protection and address some of its policies deemed as trade-distorting by the US. However, bilateral competition for high-tech supremacy will not be resolved in the short run and will likely be a lingering issue for a long time to come.

The policy brief suggests that to restore global economic governance based on rules and norms, (1) the US must return to multilateralism and global cooperation, (2) China must transform itself into a truly market-oriented economy and society, (3) the two countries must resolve and manage the bilateral conflict, and (4) the international community must substantially overhaul the World Trade Organization (WTO) so that it regains its central place as a global overseer of international trade and trade-related rules. It is essential to make the positive outcomes of the US-China bilateral talks (such as China’s market-opening measures, IPR reform, and reduction of industrial subsidies) available to third countries by embedding them into the WTO’s new disciplines.