AUGUST 29 — Based on the state of world trade today, it is not unreasonable to suggest that it is time we bade sayonara (Japanese for goodbye) to the World Trade Organisation (WTO). Despite its best efforts, trade around the world today has grown increasingly polarised and stands in stark contrast to the very spirit of the WTO’s founding.
The latest of these measures are Washington’s decisions to impose a 100 per cent tariff on electric vehicles (EVs) made in China; a 50 per cent tariff on semiconductor products and solar cells, and a further 25 per cent tariff on lithium-ion battery products and commodities considered strategic to the industry, such as iron and aluminium. As to be expected, the move has been replicated by its closest trading allies in Ottawa, with the EU considering similar measures at the time of writing.
Of course, all this is happening within the framework of an allegedly free and open economy and is justified by a myriad of reasons. The most common cited is to protect American industry from the dumping of goods by China. It is a big part of the Biden administration’s “Investing in America” agenda, implemented through the Bipartisan Infrastructure Law and the Inflation Reduction Act. Both were passed under the guise of protecting the growth of America’s strategic industries such as EVs, renewable energy, and semiconductors. They are designed specifically to reduce the current trade deficit between America and China. While America has always imported more than it exports to China, the deficit has grown exponentially in recent years, rising to US$367.4 billion (RM1.5 trillion) in 2022. This is, of course, reflected in the average American’s savings, which stand at a meagre 7 per cent compared to the average Chinese’ savings of 30 per cent.
As expected, Beijing objected to the restrictions and denied Washington’s claims en bloc, arguing that they constituted a clear breach of WTO’s guidelines and due processes. It is widely accepted that these tariffs are passed entirely to protect any given country’s industry or economy. All can be justified by a myriad of reasons, especially when one is unable to compete in the open market.
But where will it end? Washington’s decision to act against Beijing has triggered not only a series of similar actions by its Western allies but holds an anvil over the heads of China’s neighbours. Washington recently claimed to have identified several countries in neighbouring Asean as new manufacturing hubs for Chinese products that would effectively circumvent the tariffs against China and suggested similarly destructive measures against them.
All the while, China has moved rapidly to strengthen alliances with its allies. The Brics collective — initiated by China some 15 years ago — has grown closer in recent years and is attracting interest for membership from numerous others. It would not be a surprise if Brics were to also begin imposing its own set of tariffs to protect its common interests.
All of that cited above is more geopolitical in nature. But there are many other reasons that can unduly affect trade between countries. We have seen first-hand how the Covid-19 pandemic severely impacted global trade in such a short time, with the global economy shrinking by 3 per cent. The pandemic exposed the vulnerability of many countries in the global supply chain, meaning more are now inclined to protect and develop resources that will ensure the security of their own supply.
Other factors, such as the increasingly dramatic effects of climate change and regional conflicts such as in Ukraine and the Middle East, are driving even more countries to turn inward. Hence with all of the above, is it time to say Sayonara to the WTO?
* Mazli Noor is a Fellow with the Institute of Corporate Directors Malaysia (ICDM) and currently sits as a member of the Board of Directors for a few Public Listed and Private Limited Companies. He has a deep interest in investment and corporate governance.
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
