Huawei and Bytedance are prime examples of a new regional approach to trade
Regional retrenchment
In response to the US moves to restrict its activities,Huawei is nowtrying to forge closer supply alliances with companies in China and elsewhere in Asia, such as Samsung. TikTok could be making a similar move but in the opposite direction,amid reportsthat several US investment capitalists might buy the brand from owner ByteDance and separate it from its Chinese version, which is called Douyin. In both cases, these companies appear to be retrenching from a global to a regional focus.
These developments are being driven by the growing antagonism between China and the US – but many other multinationals are facing a similar dilemma because the global trade system is at risk of breaking down. Multinationals established their dominance by forging global supply chains that maximized thecomparative advantagesof each country involved.
They have been encouraged since the 1940s by global trade policies that have struck down national trade barriers and deepened global economic integration. In recent years, this has been done through WTO agreements.
But the wealth created by globalizationhas beenvery unevenly distributed, which has caused a domestic political disturbance in many corners ofthe world. Nationalist governments haveresponded tothis new reality with protectionist measures, of which theUS-China trade warisonly the mostprominent example.
As a result, the trade liberalization promoted by the WTO has run into difficulty. This was clear fromthe breakdownof the Doha Round of negotiations in the mid-2010s due to unsolvable tensions between the member states. The WTO’s system for resolving trade disputes between countrieshas alsobecome dysfunctional,stemming from a rowover how it operates. Regrettably – but not surprisingly – the WTO’s director-general, Roberto Azevedo,announced he wasstepping down a few weeks ago – a year before his term was due to end.
The emerging trading order
In parallel with the rise in protectionism and the WTO problems, countries have increasingly been building regional trade blocs. Examples includethe renewedNorth American Free Trade Agreement (NAFTA), thePacific rim’sComprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP), and theforthcoming China-ledRegional Inter-sessional Comprehensive Economic Partnership (RCEP).
These agreements are all about further liberalizing trade between member states within a region. They do this by cutting tariffs, reducing administrative burdens by mutually recognizing one another’s technical standards, harmonizing public procurement rules, establishing similar employment levels and environmental protections, and giving easier market access to services.
These measures significantly reduce companies’ operating costs, particularly if their production lines are spread across the countries in the bloc. Ultimately they make supply chains more regional, making it easier to buy and sell goods and services within the zone.
But just like the US-China conflict has caused difficulties for Huawei and TikTok, this regional approach to free trade creates tensions with the multilateralism of the WTO. Regional trading blocs run against the principle on which the WTO is founded, namely “most favored nation treatment”. This says that whenever one nation grants a trading concession to another, it should be extended to all other nations in the world.
Whenever regional blocs expand trade within their region, producers outside the bloc who can make the same goods more cheaply end up being discriminated against. Global welfare suffers as a result. For multinationals trying to operate global supply chains and trade around the world, this also represents a spaghetti bowl of red tape.
Yet the fact that we are now going to have rival trade blocs in Asia when RCEP launches at the end of the year suggests that more regionalism could be the shape of things to come. If so, this could further fragment the global trade system.
It is of course possible that more regionalism could stimulate global free trade in the long run. Once the nations within a bloc have become highly economically integrated, it may encourage outsider countries to join in an attempt to take advantage of the bloc. The UK’smove toparticipate in the CPTTP could be an early example. If this eventually encouraged multinationals to trade across regional blocs, global trade liberalization could move back up the agenda.
Equally, the superiority of certain players within certain blocs might make this happen by necessity. For example, Huawei’s dominance in5G technologiesand its efforts to establish an alliance in Asia and other developing countries raises the possibility that it might one day overtake the US tech giants. If so, it may make western governments think again about whether protectionism was working as intended, and encourage them to re-embrace the system of global trade.
This article is republished fromThe ConversationbyZhongdong Niu, Lecturer in Law,Edinburgh Napier Universityunder a Creative Commons license. Read theoriginal article.
Story byThe Conversation
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