[SINGAPORE] We've known for a while that the world is in change. The traditional signposts are vanishing. But the contours of a new global system have yet to emerge. So we're in a transitional moment, which is unknown, unsettled, and becoming increasingly unstable. The latest "Liberation Day" tariff pronouncements by the United States underscore a harsh reality: the age of rules-based globalisation and free trade has ended.
This shift is not just economic; it has profound geopolitical implications. The US has long been the linchpin of the global economic order, but its current actions signal a retreat from the multilateralism that has defined its role since World War II. This move away from international cooperation could lead to a more fragmented and contentious global landscape, where countries increasingly look to their own interests rather than working together for mutual benefit.
This represents a significant turning point. We are entering a new era in international politics, one that is more arbitrary, protectionist, and deadly. America has served as the global anchor for free-market economies for about 80 years, dating back to the end of World War II. It promoted free trade and open markets and spearheaded efforts to establish a multilateral trading system.
This World Trade Organization (WTO) structure brought about decades of global growth and stability. It boosted trade and brought millions out of poverty. It benefited the entire world while also strengthening America's economy.
However, the WTO system has faced increasing scrutiny and criticism in recent years. Some argue that it has not kept pace with the rapid changes in the global economy, such as the rise of digital trade and the increasing complexity of supply chains. Additionally, the WTO’s dispute settlement mechanism has been stalled, further weakening its effectiveness. These challenges have contributed to a growing sense of dissatisfaction among some countries, including the US, with the existing global trade framework.
And, objectively, America continues to have unrivaled economic strength. In reality, the United States recovered faster than other advanced economies from the Covid epidemic, and it has surpassed all of its key competitors in the advanced industrialized world.
However, not all Americans feel the same way about their economy. There are ghost communities in what was once America's bustling industrial belt. Some people have lost their jobs, while others have seen their earnings stagnate. They feel that America's economy is fundamentally broken.
Discontent was already obvious in the 1990s, when demonstrators disrupted a World Trade Organization summit in Seattle. Frustrations deepened following the global financial crisis of 2008, and more recently, after the Covid pandemic.
These economic anxieties have been exacerbated by a perception that the benefits of globalisation have not been evenly distributed. While certain sectors and regions have thrived, others have struggled to adapt to the changing economic landscape. This has led to a growing divide between those who feel they have been left behind by globalisation and those who have prospered from it. This divide has become a potent political issue, influencing public opinion and policy decisions.
To be clear, the global economic system requires reform. Singapore, along with many others, has called for change. And we've been working with like-minded countries and partners at the WTO to modernize its procedures.
China is a major source of concern in America, with many believing that the US gave up too much by allowing China to join the WTO and that China competes unfairly, for example, by massively subsidizing its own enterprises, erecting non-tariff obstacles, and denying market access to US firms. These concerns should be addressed under the WTO framework.
In instance, trade agreements and concessions negotiated when China was barely 5% of the global economy should be modified now that China accounts for 15% of the world's GDP. If there are problems, they should be settled through the WTO's dispute settlement mechanism, which is currently paralyzed and urgently needs to be restored and overhauled.
It is worth noting that China has signaled a desire to engage in constructive communication and negotiations to address these concerns. Both sides are interested in preserving a stable and mutually beneficial economic relationship. However, the current policy of unilateral tariffs and protectionist measures is not conducive to achieving a long-term solution.Instead, it risks escalating tensions and further destabilising the global economy.
However, what the United States is doing presently does not constitute reform. It is rejecting the very system that it built. The US has put a blanket 10% duty on imports from practically all countries. Furthermore, it has imposed higher tariffs of up to 50% on selected countries, particularly those having a trade surplus with the United States.
According to the administration, the sweeping tariffs are required to address America's trade deficit. However, there is nothing inherently wrong with having a trade deficit. Simply put, American consumers buy more from the world than the world buys from America.
Furthermore, the emphasis has been mainly on the goods trade. That merely provides a partial picture. In fact, the United States has a service trade surplus with many of its trading partners, exporting software, education, entertainment, financial, and commercial services. However, this information has been entirely overlooked.
In Singapore, we have a free trade agreement (FTA) with America. We impose no tariffs on US imports, and we actually have a trade imbalance with the US, which means we buy more from them than they do from us.
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