Cordell Hull, winner of the 1947 Nobel Peace Prize, wrote “removing trade barriers would go a long way toward eliminating war”. More recently Donald Trump stated, “trade wars are good, and easy to win”. With a degeneration of the trading system and debilitating obstacles facing Australian exports to China, we are told “the drums of war” are beating. Does the G7 Declaration hold the solution to rising global trade tensions?
Cordell Hull, the long-serving US Secretary of State under President Franklin D. Roosevelt, wrote in his memoirs, “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.”
More colloquially, “If goods and services are crossing borders, tanks and soldiers don’t.”
Cordell Hull was responsible for the intellectual underpinnings of the rules-based multilateral trading system, first embodied in the General Agreement on Tariffs and Trade (GATT) and now the World Trade Organisation (WTO). Interestingly, his 1947 Nobel Prize was not awarded for economics, but for peace. Peace has prevailed for the past 75 years.
However, the mind set of some has defied this wisdom. According to former President Trump, “Trade wars are good, and easy to win … When we are down $100 billion with a certain country, and they get cute, don’t trade anymore – we win big. It’s easy!”
With half the United States voting for Trump at the last US election, President Biden has some clawing back to do, both nationally and internationally.
The warnings of Cordell Hull have a special resonance today for Australians. Against the backdrop of debilitating tariffs and other Chinese obstacles to a wide range of Australian exports, the Secretary of the Department of Home Affairs has declared that “the drums of war” are beating”.
This coincides with a marginalised WTO trading system at its lowest ebb over the past decade. The responsibility for this rests squarely on the shoulders of its 164 member countries, with their abandonment of agreed disciplines and rules, their failure to update and extend rules (adopted 27 years ago) and the destruction of the dispute mechanism.
Every G7 declaration since the creation of the WTO has been rife with what has proved to be hortatory language, devoid of accountability, stressing the importance of the multilateral trading system and increasingly, the importance of reform.
The critical question today is whether the latest G7 declaration in 2021 will prove more effective in restoring the authority of the WTO than any of its 25 predecessors.
I would like to think so, and here’s why.
In the bigger picture, the motivations of the principal contestants in the battlefield of international relations are now different. As the Council of Foreign Relations has remarked, the G7 has morphed into a D10 (now with Australia, India and Korea) addressing nothing less than global democratic values. The G7 calls for “democratic nations to unite behind a shared vision to ensure the multilateral trading system (i.e., the WTO) is reformed”. The novelty here is the G7 now calling on “democratic” nations to act, not “all member states” as in the past.
Leaving generalities aside, there is high degree of specificity in terms of instructions for the WTO. The role of international trade is highlighted 23 times in the Declaration, with specific reference to the WTO on an additional 14 occasions.
What constitutes grounds for optimism is the identification of specific areas of reform and expanded responsibility for the post-pandemic WTO.
These include: a conclusion of multilateral negotiations on fishing susidies; advancing negotiations on e-commerce; measures to support reliable supply chains for COVID materials including vaccines; concluding negotiations on the domestic regulation of services; protecting against forced technology transfer and intellectual property theft; addressing market-distorting actions of state-owned enterprises; and respecting the notification and compliance obligations of a strengthened WTO.
What is urgently needed is to prioritise these objectives, coupled with a road map to move forward within a realistic time horizon. Most importantly, rapid successes are required prior to the WTO Ministerial Meeting in November this year. This will raise the credibility of the WTO and give credence to its capacity to deal with the ambitious work program.
There should be a note of caution not to raise false expectations. Ever since the creation of the WTO, wealthy nations have attempted to impose their domestic social, labour, and environmental preferences on other countries, via the trading system. This action has never worked and never will without a total dismantling of the trading system, and no one wants that.
Nevertheless, the G7 calls for trade policy that: ensures women’s economic empowerment; upholds human rights; and eradicates the use of all forms of forced labour (ahead of the G7 Trade Ministers’ meeting in October 2021). I would add the debate on carbon border adjustment measures, almost hidden in the G7 text as “acknowledging the risk of carbon leakage” … while working … “collaboratively to address this risk and to align our trading practices with our commitments under the Paris agreement”. Former WTO Director General and EU Commissioner Pascal Lamy has indicated that China, India and others would “systematically take action at the WTO if any country were to introduce a carbon tax or border adjustment measure.” This alone would be enough to derail the G7 ambitions for reform of the WTO.
Noble as they may be, these causes are all dealt with by United Nations bodies, with both the mandate and expertise to deal with them. Overloading an already fully charged agenda could be the demise of efforts to reform the WTO.
The G7 Declaration must not result in a widening of the division between democratic and non-democratic countries. Its contribution must be to build a stronger appreciation by governments of all political stripes of the lasting significance of the wisdom of Cordell Hull.