Is trade in turmoil a chance for justice?

The global free trade system is being battered like never before. Can any good come of it, asks Vanessa Baird in part one of The Big Story?

Steve Munday

Recently, I was on a march calling for a people’s vote on the final deal for Britain to exit the European Union (EU). There were the usual young people, with faces painted in the blue and gold of the EU flag, and the now familiar chants of ‘Bollocks to Brexit’ and ‘EU, we love you’. The first I was happy to go along with. The second – well, that was more troublesome.

I value cultural diversity and the social, labour, environmental and equality rights and protections and the peace that have come with EU membership. I am determined to fight the dog-whistle racism, xenophobia, lies, misinformation and sheer criminality that has underpinned and surrounded the pro-Brexit campaign.

But I’m also acutely aware of the negative power of the world’s biggest free trade bloc. For many around the world, the experience of globalization and the doctrine of free trade upheld and exemplified by the EU has been far from ‘lovely’.

While trade liberalization was a boon for big business, able now to chase cheap labour and exploit newly opened markets, it has been bad news for many millions of ordinary citizens around the world.

And the EU, like any big trade bloc, has used its power to get its way with weaker parties, especially if they fell for the free-trade delusion – ‘the more trade the better for all’ – and failed to protect the basic needs of their own citizens.

For sure, many people – especially in East Asia – have benefited from globalization. Living standards have risen with increased manufacturing and trading and many have been lifted out of rural poverty into a new industrial, middle class of consumers.

But around the world there have been millions of losers too, who have lost their jobs and livelihoods when local markets were flooded with imports from richer nations, who have found the price of essential utilities like electricity and water rocketing when public services were opened up to rich-world providers.

Often fledgling industries could not sustain the onslaught. Shockingly, sub-Saharan Africa is less industrialized today than it was in the 1980s. Unemployment and shrinking opportunity have produced the so-called ‘migrant crisis’ out of Africa – a crisis that the EU has been signally unable to respond to collectively, fairly, humanely and appropriately.

Back in 2005 I attended mass protests against the World Trade Organization (WTO) during its ministerial meetings in Hong Kong. I remember one chant in particular: ‘Junk, junk, junk the WTO!’ Most gathered here were environmentalists, leftists, trade justice and social movement activists. Indian and South Korean farmers joined forces with Filipina maids, Brazilian environmentalists with South African miners, Western NGOs with Bangladeshi garment makers and trade unionists. All agreed that free trade was far from free or fair and the WTO, the multilateral platform for negotiating these free-trade deals, was not a level playing field.

A big issue was ‘sovereignty’ – food sovereignty in particular. Powerful nations, including the US and those of the EU, were using a variety of dirty tricks to subsidize their own farmers and dump their excess production on poorer countries in the South, ruining farmers’ lives and livelihoods. The result was to be seen in many thousands of farmer suicides.

Well, ‘sovereignty’ has become a key word today – especially in the agonies of Brexit. And ‘de-industrialized’ can now be used to describe many ‘left behind’ parts of the US and Britain.

The privatization of services by foreign transnationals, like that which caused riots in Bolivia, is now a concern of any British person trying to save the National Health Service from, say, US private healthcare and medical insurance vultures.

Rich-world backlash

The issues have finally hit home in the rich world too. And now, bizarrely, it’s the president of the United States who is calling the WTO names. It is a ‘disaster’, he says, and is threatening to take his country out of the organization that the US did so much to set up – and which has served its interests so well for decades.

Today, complaints about globalization, free trade and its emblematic bodies are coming from the mouths of the populist Right, leaving leftists scratching their heads and wondering what to do.

‘They ate our lunch,’ is how academic and veteran campaigner Walden Bello puts it. ‘It was the non-establishment Left – the Left of social movements – that began and developed the critique of globalization, neoliberalism and free trade in the 1990s and the 2000s... The extreme Right... opportunistically expropriated our message, rebranded themselves as anti-neoliberals opposed to the Centre-Right as well as the Centre-Left, and now they’re eating our lunch.’2

British trade justice campaigner John Hilary sees it more positively: ‘I think the debate has been won. Everybody is now recognizing that untrammelled free trade causes massive problems. What was interesting about Trump’s election campaign was that he actually took up the mantra that we would take to be from the social movements and said “yeah, it has been absolutely no good for workers in America”.’

There are important differences, though. Donald Trump is not concerned with giving farmers, workers and consumers in the Global South a fair deal; he’s not driven in any way by internationalist solidarity.

For him it’s purely about putting ‘America First’ and seeing foreigners – be they Mexican, Chinese, Canadian or European – as rivals and enemies.

The complex game of negotiating trade has become a bellicose affair of Trumpian threats and tweets. His methods have been described as ‘going fishing with hand grenades’.

Tariff wars

The tariff war the White House started with China last year threatens to destabilize the entire rules-based global trading system. Many would agree that the WTO system is badly in need of reform, but Trump has set about it with the subtlety of a wrecking ball.

By refusing to recognize new appointments to the WTO body that settles trade disputes between countries, the US is effectively sabotaging a key function of the organization. If the problem is not resolved, the multilateral body may become paralysed. It’s an existential crisis.

Centre-Left economist Joseph Stiglitz has seen the trouble brewing in the global trading system for some time. He first wrote Globalization and its Discontents 20 years ago, recently updating it to include the impact and implications of Trumpian policies. His question now is: Can globalization be saved?

‘Trump has leveraged some real grievances,’ notes Dani Rodrik, a Harvard economist and trenchant critic of what he calls hyper-globalization. But, he also notes, ‘as Trump’s presidency has already amply revealed, the inchoate discontent around globalization can be easily subverted to an altogether different agenda, more in line with elite interests.’

The same applies to Brexit. The past two years have shown no sign that its most prominent leaders and champions – people like Boris Johnson, Jacob Rees-Mogg, Liam Fox and Nigel Farage – have any plans or concern for the ‘left behind’ of Britain’s rural shires or post-industrial urban wastelands, many of whom voted ‘Leave’. On the contrary, elite Brexiteers are bent on pulling the UK out of the world’s largest rules-based free-trade bloc in order to pursue even more free trade, but without the rules that help protect citizen health or the jobs of ordinary folk.

Their goal appears to be to turn Britain into a beachhead for the US’s particular brand of ‘savage capitalism’, even willing the ‘shock doctrine’ of a hard Brexit.

Meanwhile, nervousness abounds in international trade circles. At the opening of the 2018 G20 summit in Buenos Aires, WTO chief Roberto Azevedo said: ‘I would say this is the worst crisis for the whole multilateral trading system since 1947.’

The rules are being torn up... Or are they?

Do the current disruptions, wherever they come from, present an opportunity for positive change? And what are people who care about global justice to do?

These are just some of the questions I plan to find answers to on the journey into the maelstrom of global trade in the era of Trump and Brexit.

A rustbelt romance

Enter the 'new protectionism' - and Trump's trade wars.

Steve Munday

You can visit the steel mill town of Gary, Indiana, as a tourist. Rustbelt Ruin Tours will take you to the vestiges of Gary Screw & Bolt Factory, formerly a major employer, for example.

Since 1980 more than six million – that’s more than a third of all – manufacturing jobs in the US have vanished. Much of this loss is concentrated in the Midwest.

The received wisdom of globalization – and its centrepiece, free trade – is that it produces some winners and some losers in the short term, but in the longer term we are all winners. All boats will rise on the tide of free trade.

Well, it didn’t happen in Gary – which also happens to be the town where Nobel prizewinning economist Joseph Stiglitz grew up. Every year, for the past five decades, he has gone back for his school reunion.

During one such event he detected in many former schoolmates who had stayed in the area, ‘a sense of bitterness... They had a feeling that the system was unfair, rigged. I saw in my former classmates what the statistics had been telling me for years.’

Those statistics weren’t just about jobs. Life expectancy in the US Midwest had stopped increasing – education and health services were in decay and crime was up. Recent years have also witnessed an epidemic of opioid addiction in areas ‘left behind’ by globalization. The parallels with some post-industrial towns in the north of England, such as Sunderland and Middlesbrough – where citizens voted to leave the EU – are striking.

Who was to blame for the misfortune of the ‘left behind’? ‘Immigrants’ said the nationalist Right and its media. And people in foreign countries who had ‘stolen our jobs’.

The hitherto dry topic of international trade leapt into daily conversation. US journalists reported people in the Midwest attributing their woes to one word – ‘NAFTA’. For many Britons, battered by years of government-imposed austerity, that word was ‘EU’.

In the most deprived areas, disgruntled Americans and Britons felt they had lost everything. All they had left was their sense of national pride, which had been artfully reignited by patriotic-sounding politicians and media outlets.

Trump told US voters that China was out to ‘rape’ the US economy; that American trade negotiators had been ‘snookered’ and had been given a ‘bad deal’. For Britons it was metropolitan elites in league with crafty Brussels Eurocrats, rather than the post-crash politics of austerity, that had cheated them.

Slapping on tariffs

Trump did not tarry. On his first day in office he used an executive order to withdraw the US from the Obama-era Trans-Pacific Partnership (TPP) negotiations.

He set about renegotiating NAFTA, the controversial North American Free Trade Agreement with Canada and Mexico, and US trade deals with other countries.

Then he started a trade war, imposing tariffs on steel and aluminium entering the US. Aimed primarily at China, it also directly affected the EU, Canada, Mexico and South Africa. Steel would be subjected to a 25-per-cent import levy; aluminium to 10 per cent. American steel and aluminium producers cheered; shares in US Steel and AK Steel rallied.

International trade representative Robert Lighthizer cited ‘national security’ under Section 232 of US law as the rationale for imposing the tariffs, which usefully provided exemption from important trade treaties and review by the WTO.

The EU retaliated swiftly, putting several symbols of Americana – including Harley-Davidson motorcycles and Levi jeans – on its tit-for-tat list of imports to be taxed.

The US administration turned its guns on China again. Lighthizer commented: ‘Years of talking about these problems with China has not worked... China’s unprecedented and unfair trade practices are a serious challenge not just to the [US] but to our allies and partners around the world.’

China is accused of: not being ‘open’ enough to foreign business; ‘forcing’ technological transfer by making access to its market contingent on handing over sensitive technological know-how; ‘stealing’ US intellectual property; giving special terms to its own state-run companies; and ‘manipulating’ its currency to make Chinese goods cheaper.

But it’s the trade imbalance between the two countries that bugs Trump most. In 2017 China exported $505 billion worth of goods to the US but imported only $130 billion worth from it.

At the time of writing, both sides have imposed tariffs on billions of dollars’ worth of goods. The US has hit $250 billion of Chinese goods with tariffs since July 2018, and China has retaliated by imposing duties on $110 billion of US products including soy, beef and poultry.

China has also filed a complaint with the WTO against the US for starting ‘the biggest trade war in economic history’.

Following December talks between presidents Trump and Xi at the G20 summit in Argentina, the two agreed to suspend escalating the trade war for 90 days. The US had been threatening to hit the remaining $267 billion of Chinese exports with tariffs of between 10 and 25 per cent in January 2019. China agreed it would buy more agricultural, energy and industrial goods from the US but did not specify how much.

Fair protection, unfair protectionism

But is Donald Trump wrong to try to protect American jobs and livelihoods?

Trade justice campaigners have long argued for the right of developing countries to apply protectionist trade measures (or ‘trade distortions’ in the free-trade lingo) to defend local agriculture, fledgling industries or basic services.

‘But when tariffs are used by richer countries on top of all that they have already got, they are a way of bullying,’ says Nick Dearden of Global Justice Now.

All major world economies of the 20th century grew up behind tariffs or state subsidies to protect domestic employment or keep basic food items affordable.

Economist Dani Rodrik observes: ‘The guiding principle that governed until the 1970s was that nations needed the policy space within which they could manage their economies and protect their social contracts.’

All that changed when free-market liberalism and economic globalization became the dominant ideology that swept the world. The US and its allies went all out for hyper-globalization. Governments believed that ‘the market’ had its own wisdom and interfering with it was wrong. Trade unions were legislatively weakened; national companies became transnational corporations, free to shift production to parts of the world where labour was cheaper, and using their international status to avoid tax on an industrial scale. Corporations and the super-rich saw their wealth grow while others saw equality shrink and wages stagnate, especially in the US.

The emerging economies that benefited most from globalization were those that didn’t go for full-blown, free-market liberalization but had a more cautious, selective and protective approach.

China, South Korea and India all kept parts of their markets closed while opening other areas to free trade and foreign investment. They did not ‘let their enthusiasm for free trade and free flows of capital get the better of them’, as Rodrik puts it.

For many years critics have complained that free-trade agreements were unfair. And they are, says Stiglitz: ‘Unfair in favour of America and other advanced countries that had created the system and shaped its institutions in the second half of the 20th century.’

‘It was called free trade,’ he writes, ‘but it was really “managed trade” – managed for corporate and financial interests... Under these agreements knowledge moved freely but short-term capital moved more freely. Agricultural subsidies for rich farmers were allowed in developed countries but subsidies to help the poor developing countries to catch up were frowned upon.’

The benefits of globalization could have been shared, he says, but ‘to put it bluntly, the winners as a group were selfish.’

Now the US is not winning as it was and China is about to knock it off the top spot as the world’s leading economy.

Are Trump’s tactics working?

In September the President tweeted: ‘Tariffs have put the US in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable.’

A few weeks later, it was reported that duty on steel and aluminium imports had cost US companies about $545 million in September alone.

By November, General Motors announ-ced it would be shedding almost 15,000 jobs and closing four plants in the US. Tariffs were costing the company $1 billion. Republican Tim Ryan tweeted: ‘I implore President Trump to keep his word when he came to the Mahoning Valley last year and promised the jobs were “all coming back. They’re all coming back. Don’t move. Don’t sell your house.”’

Soy farmers, hard hit by China’s retaliatory tariffs, were promised $12 billion in state aid to offset their losses. But Illinois soy and corn farmer Lynn Rohrscheib said she would have to let staff go if the stand-off with China continued. ‘We don’t want handouts. We want to trade. We want to sell the crop.’

And China’s trade surplus to the US actually rose by 10 per cent in September 2018, to a record high of $34 billion for that month, as US manufacturers rushed to fill their inventories before more tariffs kicked in.

Tariffs are a blunt instrument and trade is complicated, especially in today’s world of complex supply chains. ‘No-one wins in a trade war,’ the saying goes. US business and even senior advisers in the White House are worried about Trump’s tariff war, though he does enjoy considerable support for confronting China.

Can his strategy help American workers? Not likely. Trump’s simplistic view sets worker against worker, farmer against farmer, North against South, when for decades the actual battle lines have been elsewhere – between worker and corporate capital.

And that’s where they lie today – even in the new project that Trump hails as the great symbol of re-industrializing America. The Taiwanese electronics corporation Foxconn is to build a massive facility in rustbelt Wisconsin, encouraged by a controversial $4-billion package of tax breaks. But in a recent BBC interview, a company spokesperson let slip that what really excited him about the move to the US was the shift towards robotics it signified.

Trump’s promise to revive the rustbelt and bring the jobs home has a strong emotional appeal to his base, but it is built on nostalgia. The ‘glory days’ of US manufacturing are over. But there is a silver lining, perhaps, to Trump’s protectionist renegotiation of NAFTA.

In the new US, Mexico and Canada free-trade deal (under the catchy name of USMCA) there is a labour clause stipulating that workers in Mexico producing components for the automotive parts exported to the US must be paid at least $16 an hour. This is progressive indeed – unless, of course, a US robot can make it more cheaply than a Mexican worker.

Another positive surprise in USMCA is that it does not include the hated Investor-State Dispute Settlement mechanism (ISDS) – the topic of the next article.

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Investor Rex

The beast that won't lie down and die - the ISDS 'investor protection' racket is still with us, in all but name.

Steve Munday

Imagine your government does not want you to die a horrible and preventable death. It has listened to calls for action and put in place legislation to help protect you and other citizens.

But those new rules might affect the profits of a company dishing out the product that is risking your health. And that company has special rights – that you and I do not have – to sue your government for millions, maybe billions, not only for loss of current revenue, but also what the company speculates might be its possible future revenue loss.

Actually, you don’t need to imagine any of this. It’s the reality:

• In 2014, US tobacco giant Philip Morris sued Uruguay for $25 million for the introduction of graphic warnings on cigarette packages and other control measures to promote public health.

• Swedish energy giant Vattenfall filed a lawsuit for $6 billion after Angela Merkel announced a phase-out from nuclear power following the 2011 Fukushima accident.

• TransCanada sued the US for former President Obama’s decision to reject the Keystone XL pipeline as part of the US’s (then) commitment to tackling climate change. It dropped its whopping $15 billion lawsuit after Donald Trump reversed the climate-friendly decision in 2017.

All these actions and hundreds more were made possible through ISDS – or Investor-State Dispute Settlement – mechanisms that have been written into about 3,000 trade and investment agreements since the 1990s. At first governments did not realize how bad they were. Then, from the year 2000 onwards, corporations wised up and a surge of lawsuits followed.

Energy and fossil-fuel companies have been the most aggressive users of these investor powers, under the Energy Charter Treaty. But many others are in on the game, including pharmaceutical giants.

This creates ‘regulatory chill’ – governments becoming afraid to pass laws for the public good that might upset international corporations.

For speculative high-risk investors, ISDS can be a kind of insurance policy, says Cecilia Olivet, a Uruguayan academic and researcher with the TransNational Institute. For example, Spain is currently being sued for pulling back from renewable energy subsidies – not by renewable energy companies but by hedge funds which invested in them.

Good news

Now, the good news is that public revulsion against this affront to natural justice has borne fruit. The collapse in 2016 of the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the EU and US was thanks largely to civil-society campaigns and Germany deciding to reject the inclusion of ISDS.

Attracting rather less media attention have been the painstaking activities of governments, especially in the Global South, to review their trade agreements and terminate those that contain the ISDS mechanism.

South Africa, prompted by some alarming cases, took the lead. In 2007 the Italian and Luxembourg investors Piero Foresti et al lodged a claim against South Africa for $350 million. Their grievance: a new mining law contained anti-discrimination rules from the country’s post-apartheid Black Economic Empowerment Act, requiring mining companies to transfer a portion of their shares to black investors.

Mustaqeem De Gama, a trade consultant in South Africa’s mission to the WTO, was a key player in reviewing the country’s trade and investment agreements and devising a better idea.

‘We created a model that other countries have followed,’ he says. These countries include Nigeria, Sri Lanka, Indonesia, India, Ecuador and, most recently, Tanzania.

‘We didn’t just uproot the system,’ explains the careful and softly spoken De Gama. A domestic act was created to ensure that foreign investors got fair and non-discriminatory treatment in national courts. There is also an early warning and dispute-avoidance mechanism.

Countries are often told, by their more powerful trading partners, that they will not get foreign investment unless they sign up to these investor-protection clauses.

But research from India, South Africa and Ecuador shows that this is not the case. There is no correlation between a bilateral treaty which includes ISDS and getting investment.

Another good sign is the growing acceptance, within the EU at least, that the system has to be reformed.

Mutant mechanism

The bad news is that the reforms make little difference. The toxic acronym might have been dropped and the EU may have declared the ‘death of ISDS’, but the mechanism is alive and kicking.

‘It has not disappeared,’ says Cecilia Olivet. It just mutated into the EU’s Investor Court System (ICS) which is now embedded in new agreements – CETA, the Comprehensive Economic and Trade Agreement recently negotiated between Canada and the EU, for example; and MXEU, the ‘modernized’ deal between Mexico and the EU. Investor protection is also embedded in a new EU-Japan deal and in a recent agreement between the EU and Singapore. The ink had barely dried on this deal when British vacuum-cleaner tycoon and Brexiteer nationalist James Dyson announced that he would be making electric cars in Singapore, not Britain, after all. It was a timely, if ironic, move – just before Britain was due to leave the EU.

To be fair, the ICS is in some ways an improvement. ‘It is less ad hoc and there is greater transparency than with ISDS,’ says Olivet. ‘But it is still biased in favour of corporations.’

A joint investigation undertaken by a group of European and Canadian institutions put the ICS to the test by looking at what would happen to some of the most egregious cases under the ISDS system were they subjected to the ICS instead.

The report found: ‘Every one of these controversial disputes could still be launched and likely prosper under ICS. There is nothing in the proposed rules that prevents companies from challenging government decisions to protect health and the environment. And there is nothing to prevent arbitrators from deciding in their favour, ordering states to pay billions in taxpayer compensation for legitimate public policy measures.’

Even if they win cases against them, the cost to sued countries can be massive. Lawyers have a vested interest in bringing cases and corporations have ever deeper pockets. Some individual corporations today have wealth exceeding the GDP of several countries.

Though the ICS is in its infancy, there is already recognition at official, political and academic levels that it is flawed. So, enter another variant: the Multilateral Investment Court. (If you have lost the will to read on – or even live – my apologies.)

This newcomer is the brainchild of the EU and Canada. It is much like the ICS but establishes a permanent body to decide investment disputes. It would adjudicate disputes under future and existing investment treaties and would replace the Investment Court System included in the recent EU-level trade and investment agreements.

Yet again, it does nothing to tackle the issue of investor powers.

‘The reforms are a response to the backlash, an effort to legitimize and keep the system running,’ says Olivet. ‘When people see the impacts they will see it for what it is – a rigged system.’

In case you think this is all just another evil trick of Western capitalism, similar investor powers have crept into the China-led Regional Comprehensive Economic Partnership (RCEP) – the biggest and most secretive trade deal being negotiated in the world today.

And they also exist in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (a resuscitated version of TPP, also known as TPP11) between 11 countries, including Japan, Australia, New Zealand/Aotearoa, Canada, Peru and Malaysia. There is talk of post-Brexit Britain joining too.

Tipping point

There is a solution, however.

Scrap them. Investor protections – whatever their names – have no place in trade agreements.

If companies have a grievance they can always have recourse to the national court systems like anyone else.

‘ISDS has become a core component of trade deals and for me the most worrying part. Investment as a whole should be taken out of trade deals,’ says Nick Dearden of Global Justice Now, one of the organizations taking part in a renewed campaign.

‘Ecuador, Indonesia and others have ripped up bilateral deals that include ISDS, saying “we are not doing this any more”. It feels like a tipping point.’

Former New Internationalist co-editor and regular contributor Richard Swift, who has been looking at this topic from Canada, puts it succinctly: ‘The investor/state system is a mug’s game and should be rejected along with any “free trade” agreement that hosts it.’

Brexit and the dark arts

Lobbyists, chlorinated chicken and tricksy business in the fog of Brexit.

Steve Munday

It’s not often you get to see it in action: a secret video captures an almost comically sleazy fixer spilling the beans about the tricks of his trade. His name is Mark Littlewood and he heads the Institute of Economic Affairs (IEA).

The run-up to Brexit has been a busy time for special-interest lobbying or, to put it more bluntly, ‘cash for access’. Not that they call it that, though. The IEA is officially a ‘thinktank’ and even a ‘charity’ registered with the hard-to-fathom Charity Commission.

Anyway, one of Greenpeace’s Unearthed videos shows IEA personnel telling an undercover reporter, posing as a lobbyist for the US meat industry, about the scale of access their organization has to offer its clients. Four members of the House of Lords in a morning, for example, five MPs for lunch, then a couple of key ministries (for tea, presumably), they outline, charitably.

The IEA claims to have no political position on Brexit, but is, Littlewood says, ‘unbelievably well connected’ to top Brexiteer politicians, including trade secretary Liam Fox, environment minister Michael Gove and former foreign secretary Boris Johnson. Its corporate clients are the type that want safety legislation watered down, especially the sort of EU laws that have been hampering, for example, the import of US chlorinated chicken or hormone-boosted beef. It can get stories placed in the media on behalf of the alcohol industry, has been helping US gambling interests and counts the fossil-fuel giant BP among its clients.

The IEA is coy about where it gets its money from. But according to a Guardian freedom of information investigation, it is one of four rightwing British groups, including Legatum, the Adam Smith Institute, and Policy Exchange, to have received $5.6 million from anonymous donors via US fundraising bodies. The American Friends of the IEA is reported to have transferred $1.6 million to the IEA in the past decade.

Brexit is a massive disruption and a gift for lobbyists and law firms. Thousands of laws are up for a rethink and new deals have to be struck. The job of designing workable policies has fallen increasingly to private-sector lobbyists, notes Tamasin Cave, a campaigner with the transparency website Spinwatch.

Take the ‘Ideal UK-US Free Trade Agreement’, a blueprint prepared by the Initiative for Free Trade (an outfit founded by Eurosceptic MEP and leader of Vote Leave, Daniel Hannan) in conjunction with the Cato Institute, a rightwing US libertarian thinktank funded by the Koch family. Also consulted were the IEA and the Adam Smith Institute, in Britain, and the American Enterprise Institute, the Competitive Enterprise Institute and Heritage Foundation in the US. Researchers enjoyed exceptional access to ministers in the UK Department for International Trade and the Department for Exiting the European Union.

Presented as a model for future trade post-Brexit, the plan argues for a deal that would loosen government controls on capital and data flows and be ‘more liberalizing than any other free-trade agreement in the world’. It would remove tariffs and throw out the precautionary principle that has guided much EU regulation on pesticides, chemicals in cosmetics, GM food, hormones in meat and so on. And, a big prize, it would fully open up the NHS to private foreign competition.

In the confusion of Brexit, the rising demand for insider access and information has seen many ex-ministers and officials taking well-paid posts with British and US lobbying and law firms.

It’s not much more salubrious in Brussels. Talks between the UK and EU are largely closed to citizen scrutiny. But corporate lobbyists have been there in force, with scores of representatives from the big banks helping negotiators on both sides of the table, according to a joint report from a group of civil-society organizations including Corporate Europe Observatory.

The UK financial sector has ‘brought out the big lobbying guns,’ says the report. ‘Their lobbying offensive aims to influence a future trade deal between the two sides that promotes the interests of the financial sector, not just in London but in the EU27 member states as well.’

If their proposals became reality, the report says, they could block a tax on transactions, stop attempts to make big banks safer and leave governments open to paying out huge fines awarded by investment courts.

One thing of which we can be sure – in the fog of Brexit, the dark arts have become that much darker.

Open China?

China is making promises, but keeping them may be hard...

Steve Munday

‘China will not close its door to the world and will only become more and more open,’ said Chinese president Xi Jingping at a trade fair in Shanghai in late 2018.

‘Protectionism and unilateralism are rising. Multilateralism and the free-trade system are under threat,’ he warned, managing to avoid the name on everybody’s mind.

The speech, a few weeks ahead of a planned meeting between Xi and US president Donald Trump, was designed to be sweet music to the ears of free-traders.

In contrast to a petulant Trump, launching trade wars like a toddler hurling toys out of his playpen, Xi has been sounding like the grown-up in the room – a supporter of the rules-based multilateral system epitomized by the WTO.

At the 2017 World Economic Forum in Davos, Xi had reflected: ‘There was a time when China had doubts about economic globalization and was not sure whether it should join the World Trade Organization. But we came to the conclusion that integration into the global economy is a historical trend. To grow its economy, China must have the courage to swim in the vast ocean of the global market.’

Courage ‘to swim in the vast ocean’ has not been wanting in the Chinese leadership. Take the ‘Belt and Road’ – China’s big plan to link 70 countries by land and sea and the most ambitious geopolitical initiative of our age – for example. ‘It is,’ writes China expert Bruno Maçães, ‘the Chinese plan to build a new world order replacing the US-led international system.’

But when it comes to action on opening up its own market to others, China is more cautious.

‘China wants to be recognized under WTO rules as a market economy but is not behaving like one,’ says Isabel Hilton of the NGO Chinadialogue.

The West accuses China of ‘non-market’ strategies, such as using state subsidies to over-produce steel and aluminium; restricting the import of foreign goods and services, and keeping many sectors closed off to foreign investment.

Trump’s complaints about Chinese trade practices have been the loudest and most undiplomatic – unless you think ‘rape’ is a diplomatic way of describing a trade imbalance. But the underlying complaints are not new. For years European and US chambers of commerce have noted ‘administrative’ and other barriers to those wanting to do business in China.

The Chinese have announced reform, ‘but concrete actions are pretty hard to spot,’ comments Hilton.

Whether Trump’s efforts will succeed where others have failed remains to be seen. China has more to lose in a trade war with the US simply because its exports to the Western power far exceed its imports from it. In a tit-for-tat spat, the US has more firepower.

A trade war also interferes with China’s big plans for the future – such as ‘Made in China 2025’. Unveiled in 2015, this strategic plan aims to lift the country’s industries – from robotics, aerospace and new materials to ‘new energy’ vehicles – up the value chain, replacing imports with local products and building global champions able to take on the Western giants in cutting-edge technologies.

Unsurprisingly, the US, which has long accused China of stealing intellectual property, feels threatened. But, in a sense, the West let it happen. Successive Chinese leaders pressed foreign business to transfer technology and expertise, especially in aeronautics, electronics, cars, high-speed trains and nuclear energy. In exchange, the Western companies got a cheap work force and a developing-world government that was willing to ignore the environmental costs of their activities.

China consequently has managed to develop its own technology companies – Alibaba, Huawei, Tencent, Weibo, WeChat – on its own terms. And the country’s 802 million internet users are mostly inaccessible to the Silicon Valley giants that dominate the rest of the world – Google, Amazon, Facebook and Apple.

‘Bringing China down’

Is China really ready to open up? It may be hard. The more Trump attacks China the more it confirms that the US is just trying to bring China down – a view endorsed by the US-requested arrest of Meng Wanzhou, a top executive of China’s smart phone giant, Huawei, in Canada, for alleged US sanctions busting.

‘Don’t forget this has been the narrative since 1989,’ observes Isabel Hilton. ‘It’s the thing that justifies the continued rule of the party: “China was a great power until foreigners brought China to its knees. The Party has restored China to its former and deserved greatness but the foreigner is always out to get us.” [So] every hostile move that the US makes against China feeds into that story.’

China is much more open to travelling about the world with its Belt and Road initiative – exporting its model of development in Africa, Latin America, Southeast Asia and beyond.

If successful, Belt and Road will result in a huge increase in Chinese power, locking at least a third of the world’s countries into investment with the economic giant. The driver for Belt and Road is excess capacity in China’s core industries following the country’s industrial revolution.

‘The infrastructure companies are maxed out on pouring concrete at home; they need new markets,’ says Hilton. ‘They have a very powerful combination of state, financial and political backing.’

Some on the Left, such as trade expert and veteran negotiator Yash Tandon, have welcomed the arrival of China on the scene in the Global South, pointing out that it is creating a lot more useful infrastructure than the US or Europe ever did in their exploitative quest for raw materials.

But China’s involvement in Africa, Latin America and Asia-Pacific is contentious. Nations of the South have become saddled with debt in exchange for infrastructure, sometimes of doubtful value. There are warnings of a new debt crisis in Africa, which received $60 billion worth of Chinese investment in 2018. The World Bank now rates 18 African countries at ‘high risk of debt distress’, topped by Zambia, Djibouti and Republic of Congo, all heavily indebted to China.

The environmental impacts of Belt and Road are also alarming. China has made admirable progress toward renewables, mass-producing cheap solar and wind technology. But this is not the model being exported to the developing world. Rather, China’s traditional industrial capacity is being used to open up new coal, oil and other climate-wrecking sources.

Meanwhile, China’s trade with and investment in weaker parties increasingly spills over into geopolitical demands: last year Burkina Faso, El Salvador and the Dominican Republic all broke ties with Taiwan. Coercive commercial tactics may be used when dealing with the not-so-weak, as seen when Britain tried and failed to pull out of a Chinese contract to renovate Hinkley Point nuclear power station or when Argentina tried to end a contract for a big dam project.

More than trade

The background fear is that increased hostility between the world’s two biggest powers will lead to military conflict. It would not be the first time in history that a trade dispute ended in this way.

‘I don’t believe anyone wants a war,’ says Hilton. ‘The US military doesn’t and the Chinese certainly don’t.’ Unlike the US, China, she notes, has been good at getting a lot of what it wants without firing a shot.

For the US, a waning economic power, the sight of China’s physical expansion into the South China Sea is alarming. China keeps building new islands on coral reefs for naval instillations, claiming them as Chinese territory, although this is not recognized by any other country.

The US responds with displays of superior naval hardware and nuclear capability dotted around the region. The US is determined not to sell China military technology, but Britain is keen to relax the post-Tiananmen massacre EU embargo on selling weapons to China, and recently sold advanced dual-use radar equipment. A desperate and weakened post-Brexit Britain is likely to ramp up its arms-trading activities.

One spin-off from US hostility is that China is now being more ‘friendly’ in its relations with the EU, Japan and its regional neighbours. It is also busy negotiating regional trade deals, such as the Regional Comprehensive Economic Partnership (RCEP).

The Chinese leadership is ambitious for sure, but it would be a mistake to overstate the country’s economic stability. Even without a trade war there are concerns about the economy. China has a mountain of debt (250 per cent of GDP) following the 2008 financial crisis, when it spent billions (12.5 per cent of GDP) on a fiscal stimulus and big infrastructure projects – essentially bailing out the global economy. It now has a slowing rate of growth and an ageing population. The leadership admits the situation is challenging.

Who knows what the next move will be in the elaborate power game as China pursues great expansion and the US seeks to contain it. But chances are, China will be playing its cards close to its chest.

Read part two of Trade in turmoil here.