Mohamed El-Erian’s most recent offering at Project Syndicate is heretical:
Over the years, conventional wisdom has stressed that the best option is to maintain an approach focused on cooperative resolution. This implies negotiations that are best conducted free of actual or threatened punishment such as tariff imposition, and it favors reliance on the rules-based framework established by existing multilateral institutions.
The other approach is that adopted by the US President Donald Trump’s administration. Noting that past efforts to reverse the growth of non-tariff barriers have not worked and will not work, this strategy is more open to the use of tariff penalties to influence behavior modification, and the threat of escalation in response to any and all retaliation by trading partners.
First widely dismissed as an unfortunate policy pivot, more people now are beginning to wonder whether the new US approach – provided it’s not used repeatedly – could in fact serve as a beneficial disruption that helps reset international trade relationships and place them on a firmer footing. It’s a view that is underpinned by evidence (the shift from retaliation to resolution by such countries as Canada, South Korea, and Mexico) and the prospect that, due to its limited options, China will have no choice but to do the same by addressing some of its non-tariff barriers.
Let the auto-da-fé commence! I can almost see the stake being erected and smell the torches being lit, hear the crackling of the flames.
There are some things omitted from his post. The old regime of pretended mutual agreement and toothless multilateral institutions worked fine…for our trading partners. For us not so much. They could erect whatever trade barriers they cared to without consequence, distorting international trade in their own favor. They didn’t need to fear retaliation from us or from the multilateral institutions. After all, free trade is better, isn’t it?
” It’s a view that is underpinned by evidence (the shift from retaliation to resolution by such countries as Canada, South Korea, and Mexico) ”
Dont know about South Korea, but the deal with Canada and Mexico didn’t look all that much different than the TTP. Still, I am much more interested in the long term results. Suppose we get a marginally better trade deal now, but the long term results are worse? Canada no longer looks at us as tis first choice trading partner or ally. Mexico decides they dont need us so much after all. Its not just what you accomplish but how you do it and the follow on effects.
Steve