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Traders make money, not war.
THERE'S HISTORY HERE

Trump is a globalist. Just a chaotic one

Ana Campoy
By Ana Campoy

Latin America reporter

Donald Trump is not a strict anti-globalist. He’s just not a fan of the current variety of globalization.

The US president appeared to further cement his reputation as a modern trade warrior this week when he proposed tariffs on $50 billion’s worth of Chinese imports—and then doubled down by threatening to tax $100 billion more.

Yet Trump’s trade philosophy—which appears to be mostly based on the principle of squeezing partners to extract privileges—harks back to the first wave of globalization at the turn of the last century.

From 1870 to 1914, the world experienced a precipitous increase in trade, driven, not unlike today, by falling transportation costs and faster communications. That first huge wave in the global exchange of goods took place amid stiff barriers erected by imperial powers hell-bent on conquering new markets while protecting their own.

A look at that period provides an idea of what international commercial relations could look like if every country adopted the Trumpian approach: a hostile competition for political, economic, and, in some cases, military dominance. It’s not the best accompaniment to a fracturing international system.

That first iteration of globalization came crashing down with World War I. Trump’s revival of that strain of protectionism comes as geo-political tensions are rising again among the big powers.

Will imperialistic trade policies spread this time around as well?

How globalization first rolled out

The first round of globalization was characterized by rapid and sweeping change. The expansion of railroads and steamships dramatically sped up shipping times. The telegraph did the same for communications. Faraway markets suddenly became accessible, and growing production at factories meant that industrial powers also had more goods to export.

It was a shock to domestic producers everywhere, and governments reacted by raising tariffs to protect them.

They still wanted to sell their own wares to other countries, though. Since they weren’t willing to open their own markets in exchange for access to foreign countries, they had to resort to more aggressive methods to ram their exports through, says Benjamin Fordham, a political science professor at Binghamton University in New York.

The US, for example, threatened other countries with high taxes for their goods if they didn’t grant preferential treatment to American products. In the late 1800s, Brazil agreed to get rid of its duties for American wheat, flour, pork, and farm equipment to prevent the US from slapping tariffs on its sugar, coffee, and hides, according to Dartmouth College economics professor Douglas Irwin, who has written a history of US trade policy.

At the same time, the US tried to block out international competitors by striking bilateral and exclusive deals with trading partners, according to Fordham’s paper “Protectionist Empire: Trade, Tariffs, and United States Foreign Policy, 1890–1914.” As one advocate of that mindset put it in 1901: “We can certainly justify it to ourselves if we ( following the examples of other nations) secure such advantages as we are entitled to through our commanding position in the world of commerce.”

European imperial powers had the commercial upper hand with their colonies. The US sought its own lopsided trade relationships with Latin America, on occasion, occupying small Caribbean countries. The great powers were “very self-interested, nakedly so,” says Fordham.

It’s not all that different from the strategy Trump is advocating. He’d rather negotiate trade agreements country-by-country.

His steel and aluminum tariffs could be read as an attempt coerce partners into sweetening trade deals. After applying them across the board, Trump said “many countries are calling to negotiate better trade deals so they don’t have to pay the tariffs.” In the end, several countries were exempted, including South Korea. In order to skip the tariffs, the Asian country agreed to admit more American cars that fall short of its safety standards and curb steel exports to the US.

Trump has also been exerting pressure on weaker partners, such as Mexico. He set the table to renegotiate the North American Free Trade Agreement by threatening the US’s southern neighbor with tariffs or killing the deal altogether.

While some of those strong-arm tactics might pay off, they render the whole trade system more adversarial—and increase the chances of even the aggressors being at the receiving end of the bullying. The protectionist policies of the first globalization era led to a period of trade wars and isolation that lasted until the end of World War II.

How trade wars contribute to global combat

The dog-eat-dog trade policies of the first globalization wave helped set the stage for World War I. Depending on which academic you ask, they either contributed to tensions between the warring parties or, at the least, kept them from becoming friendlier.

Proponents of the second explanation believe trade reduces conflict because it’s not in the interest of nations that trade a lot with each other to go to war. Both would be hurt economically. Countries have much more to gain from selling stuff to each other than fighting. Commercial ties create built-in protection: the people in both countries who benefit from that trade. They can turn into pretty committed and effective anti-war advocates when their financial interests are in peril.

Notwithstanding tariffs and competition, rivals with strong commercial ties—such as Great Britain, France, Germany, and Russia—were able to overcome several crises peacefully during the first globalization, according to Erik Gartzke, a professor of political science at University of California, San Diego. World War I, however, was sparked in a region that did little international trade at the time, Eastern and Central Europe. Once Austria-Hungary and Serbia got into their scuffle, they dragged their more globalized European allies into the war.

Gartzke likens the size of the conflict to a migraine, and the pacifying effects of trade at that time to baby aspirin. “The dose of trade that was available wasn’t strong enough,” he says.

If economic interdependence protects against conflict, the world would appear to be much safer today—but not immune. An obvious source of potential trouble is North Korea, essentially unplugged from the global economy and seemingly itching for a fight.

“This is a time when there should be no daylight between the US and South Korea,” said Wendy Cutler, a former US trade negotiator who led talks on the US-South Korea Free Trade Agreement (KORUS). Yet Trump has been testing that relationship. He’s called KORUS, which was rolled out in 2012, “a horrible deal.” Last month, he said he might hold the recently-renegotiated agreement with South Korea hostage until he has secured some kind of pact with North Korea.

Trump’s tariffs targeting China, which has been ramping up its military capacity in the South China Sea, also have the potential of fanning tensions in the region. Keeping trade disputes from spilling over into overall international relations is a tricky balance, says Cutler, who now directs the Washington D.C. office of the Asia Society Policy Institute. 

The birth of a world trade system

The US emerged from its experience of two world wars and the Great Depression with more generous ideas about trade. Here’s how Cordell Hull, secretary of state under Franklin Delano Roosevelt, summed up the new American view in his memoirs:

I saw that you could not separate the idea of commerce from the idea of war and peace. You could not have serious war anywhere in the world and expect commerce to go on as before…  wars were often caused by economic rivalry. I thereupon came to believe that… if we could increase commercial exchanges among nations over lowered trade and tariff barriers and remove international obstacles to trade, we would go a long way toward eliminating war itself.

In 1945, Hull won the Nobel Peace Prize, in part, for his efforts to promote friendly trade. His policies helped spawn today’s international trade system, with the World Trade Organization at its helm.

To be sure, the US was still acting out of its own self-interest in pushing the new multilateral system. It needed war-torn areas to perk up in order to sell its products. In the post-war context, opening trade—not closing it—seemed like the more viable way to do it.

In contrast to the free-for-all of the first globalization, the system that evolved is based on a common set of rules. It has dispute-resolution mechanisms to prevent the most powerful nations from trampling over the weaker ones. “You don’t just get to put your car into reverse and run over the other guy,” says Mary Lovely, an expert at the Peterson Institute for International Economics in Washington.

At least in its early decades, the WTO and its precursor, the General Agreement on Tariffs and Trade (GATT), appeared to be contributing to a less belligerent form of globalization. “These institutions may be far from perfect, but they are better than nothing,” said a group of researchers who analyzed the differences between the first and second iterations of globalization. Yet they issued a warning in their paper, published in 1999 by the National Bureau of Economic Research: “Governments seeking to make the world safe for global capitalism still have a ways to go.”

The unraveling of the WTO

Nearly 20 years later, the pacifying power of those institutions appears to be waning. And it’s not all Trump’s doing.

Since the last successful system-wide WTO negotiating round, in 1986, countries have been gravitating towards less ambitious multilateral and bilateral deals that they can close faster and more easily.

In a telling sign of the dwindling allure of the WTO, the Doha Round collapsed in 2015—after more than a decade of not getting anywhere.

Part of the reason the WTO is being flouted, including by Trump, is that it needs some serious updating. “We haven’t been able to get an agreement on a bunch of new issues,” said the Peterson Institute’s Lovely. Among them are the very issues the US is protesting with the tariffs, including Chinese policies that force American companies investing in China to share their technology with Chinese joint-venture partners.

In order to revamp the WTO to make it more relevant countries first have to commit to the slog of multilateral negotiations—and be prepared to make concessions. Trump’s penchant for tariffs could be a rallying point. Some argue that a new round might actually be a more effective way to stop the offending Chinese policies, which are resented by countries other than the US.

China, too, says it’s committed to shoring up the WTO. In the words of Zhang Xiangchen, China’s WTO ambassador: “In the open sea, if the boat capsizes, no one is safe from drowning. We shouldn’t stay put watching someone wrecking the boat. The WTO is under siege and all of us should lock arms to defend it.”

The world would do well to hold the Chinese to their word.

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