The 18-month trade war between the United States and China represents the single greatest threat to global economic growth today. A failure to bring the trade war to a satisfactory conclusion significantly increases the risk of recession next year in the United States, Europe, Japan and other developed and emerging economies. It would also seriously undermine China’s near-term growth prospects.
That’s why, as representatives of a group of 10 former prime ministers and presidents from countries that have historically enjoyed close relations with both the United States and China, we are writing to urge Presidents Donald Trump and Xi Jinping to reach a substantive trade agreement by year’s end. It’s time to bring this source of global economic uncertainty to an end.
America and China’s prosperity have been built on global free trade. America has profited immensely from access to global markets since its birth. China, particularly since embarking on its period of “reform and opening” 40 years ago, has been able to lift millions of its people out of poverty largely through global trade. Indeed, much of the prosperity enjoyed by people across the world is anchored in our unprecedented ability to sell goods and services freely across national boundaries.
Now, however, we see global growth in trade lagging behind general economic growth for the first time in decades. In part, this is the product of the expanding trade war between the world’s two largest economies. In part, it is because of a more general outbreak of protectionism around the world. Both these factors now threaten continued global prosperity.
We recognize, as countries with longstanding economic relationships with China, the real difficulties regarding a number of Beijing’s trade and economic practices. We understand, for example, the challenges which arise from Chinese policies on intellectual property and technology transfer, its restrictions on access to its markets, and its subsidization of private and public firms that are active in the global marketplace. We believe these practices need to change in whichever countries may use them. But it is particularly important in China, because it is the world’s second-largest economy.
At the same time, as countries long committed to the principles of free trade, we do not see the ever-widening tariff war, launched initially by the United States, as an effective way to resolve international trade and economic disputes. Tariffs, by definition, are the enemy of free trade. Their cumulative impact, particularly combined with the current resurgence of protectionism worldwide, only depresses economic growth, employment and living standards. Tariffs raise the cost of living for working families as consumer prices are driven up.
This tariff war is also creating economic uncertainty, which is depressing international investor confidence, compounding downward pressure on growth and increasing the risk of recession. The disruption of global supply chains is already profound. Therefore, we believe the World Trade Organization, despite its limitations, is best positioned to address China’s trade practices. We also believe the W.T.O. is the most appropriate forum to resolve trade disputes. So we urge the United States and China — which on Thursday restarted their stalled trade talks in Washington — to work with other member states to strengthen the W.T.O.’s institutional capacity.
Our group of former prime ministers and presidents includes François Fillon of France, Joe Clark of Canada, Enrico Letta of Italy, Jan Peter Balkenende of the Netherlands, Felipe Calderón and Ernesto Zedillo of Mexico and Han Seung-soo of South Korea. Given our collective experience, we are not naïve about the inherent complexities in negotiating international trade agreements. Many of us have actually negotiated free-trade pacts with both the United States and China. We are therefore deeply familiar with the concerns of each country, including powerful domestic political constituencies that may argue for continued protection.
Many of those domestic concerns have focused on the long-term enforcement of any agreement. On this point, we argue that it is in China’s own long-term economic interest to ensure the effective implementation of any new trade deal — whether involving intellectual property, technology transfer, state subsidies or market access. Such policies would also need to apply to all of China’s trading partners, just as they would need to apply to its relationship with the United States.
On the question of enforcement, an issue that is reportedly of major concern to the American negotiators, China must be acutely aware that if it fails to comply with the terms of the agreement, an already damaging trade war is likely to resume. A new trade agreement should include strong enforcement provisions, along with strengthened W.T.O. dispute-resolution mechanisms, to give greater confidence to both parties.
For these reasons, and given the gravity of the global economic outlook for 2020, we urge both countries to exercise every effort to reach a substantive agreement this year. We also urge the United States to withdraw the punitive tariffs it has imposed — and that China do the same with the reciprocal tariffs it has enacted.
Beyond trade, we are anxious about the wider strategic impact of any further decoupling of the Chinese and the American economies, particularly in technology and finance. So much of the world’s current prosperity and stability has rested on the connections between these two great countries — and the integration of their markets with the rest of the world. Such a decoupling would present a long-term threat to global peace and security.
It would also effectively constitute the first step in the declaration of a new Cold War. As with the last Cold War, many nations would be forced to choose between the two powers. And that is a choice none of us wants to make.
Kevin Rudd was prime minister of Australia from 2007 to 2010, and again in 2013. Helen Clark was prime minister of New Zealand from 1999 to 2008. Carl Bildt was prime minister of Sweden from 1991 to 1994.
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