On September 19, 2019, Professor Danny Quah presented on the 23rd Politics and IR Brown Bag on the topic of World Order and the US-China Trade Conflict: The Essentiality of Friends. Instead of seeing global economics as an aspect of world order, it is possible for us to see world order itself as an object of economics, or rather, a public good that is available in the global market place. While most studies in world order focus on the “supply side”, that is, on the major powers that provide world orders; this presentation focused on the “demand side”, that is, on what kind of world order do smaller states want and how they behave.
However the US-China trade war is going to turn out in the future, the world will be different as before. Through data and historical trends, it is possible for us to look forward into the post-trade war world, even if the trade war is not going to be amicably resolved. One specific domain to do so would be to look into the trading coalition of both the US and China, and see what would the world look like when the global economics is divided into two trading systems, centering on the US and China respectively. If two trading coalitions are going to emerge, then it would require both the supply and demand sides of trading orders, as even though both the US and China are willing to supply, but smaller nations must also be willing to join either trading coalition.
In the US, hollowed out industry, vanishing economic opportunity, rising income inequality, as well as the influx of immigrants have caused many industrial workers in the US to become disenfranchised. Their frustration with the system make them listen to the alternative narratives that brought them to Trump base. They therefore supported the trade war between the US and China since they believe that they are fighting against a country that “cheated” the US in international trade, even though this logic is greatly flawed in terms of economics. The trade war is also fueled by other concerns by the US such as arguments that the BRI is a so-called “debt trap”, or that Chinese 5G is an existential threat to US leadership in technology.
While some realists argue that world order is just about great powers competition, but what if, instead of just great powers, small states matter? In other words, how can these articulate consumers have a say in how the world order should be shaped? Trade is a domain through which we can see both the supply and demand sides of the world order, as it can take place only between states that are willing. Through the records of the WTO, there are till date 42 complaints from 6 nations against China by other member states which are not yet resolved, so this seems to be supporting the argument that China has been “cheating”. However, at the same time, there have been more than 160 unresolved cases against the US, so both sides are no better than the other.
Another thing that we can look at would be trade essentiality. This is a way of accessing how essential are both the US and China to their trading partners. It is not about the absolute volume of trade, but how important is trading with the US or China to their trading partner economies. In the 1980s and 1990s, before the accession of China into the WTO, the US was the pre-eminent trading nation to the rest of the world, while China’s essentiality was negligible. After China’s accession into the WTO in 2001, it began to have greater centrality in terms of trade essentiality vis-à-vis other countries, and both China and the US have become powerful nodes in the international trading network by 2010. Finally by 2015, the network has closely clustered around China.
While we may not see two separate trading networks post-trade war due to the complexity of global value chain, but we are already seeing a growing trading network that revolves around China rather than the US. In a nutshell, world order, especially trading order, is not just a matter of great powers, but it also involves the agencies of smaller states.
During the Q&A, it has been pointed out that instead of looking just at the number of unresolved cases of complaints from both China and the US in the WTO, it will be more comprehensive to look at the overall number of complaints lodged against both countries and the percentage of cases resolved. Also, the speaker pointed out that while China’s accession into the WTO could have augmented the expansion of its trading network, but it is not the sufficient reason for that.
Instead of just using trading network to capture a changing world order, the changes in voting behavior in the UN (such as which countries voted together with China or the US) could also be a good indicator. Security is also a very important component of world order, and we can see from the numbers of joint military exercises or exchanges between the militaries to know which countries are more linked to either China or the US in terms of security, and countries may see either China or the US as their security guarantor. It is also possible to explore how ideologies and cultural differences cause different countries to align or form closer network with either of the great powers.
It was also pointed out that for the statistics on trade essentiality, it could be better to single out Hong Kong, Taiwan, and the Cayman Islands as these entities were crucial to the facilitation and amassment of trade between China and the US especially in the 1980s and 1990s due to their business-friendly policies. Nonetheless, the speaker pointed out that these entities are not included as the research on trade essentiality only included the G20 nations.
If we bring in the agencies of the smaller states into the current big picture of the US-China trade war, we will realize that the trade war forces skeptics to see the interaction of both the major powers and of the smaller states, as the major powers could not dictate to smaller states on whom they can trade with. Smaller states are as important in these cases as major powers, and many of them (the so-called “swing-votes”) have now more choices and could bargain for better terms of trade since both China and the US are trying to win them over to their own sides.
While the US wants the EU to be on its side in the trade war against China, but the EU does not understand why the US is engaging in a piecemeal approach against the EU: Even though the US wants the EU to support the US in its trade war, but the former has been criticizing the EU on (the lack of) NATO commitments. Therefore, the EU has signed on to the AIIB and trade with China is still growing, so it is worth observing where the trends in Europe is going.