Never, in the post-war era, has support for free trade been so weak in major countries. The rules-based global trading system is breaking down, a casualty of superpower rivalry.
In these dire circumstances, what should Australia and like-minded countries do?
Following the end of World War II, 28 countries established the General Agreement on Tariffs and Trade – the GATT – to begin reducing tariffs and other trade barriers.
The idea was that if countries were economically interdependent, there’d be less incentive to invade each other to gain access to resources. The GATT’s founders sought to prevent World War III.
This philosophy, championed by the United States, worked for a long while, paving the way for an era of post-war peace and prosperity, as countries reaped the gains from trade.
Sadly, in a rare display of bipartisanship among congressional Republicans and Democrats, the United States is now a global leader of protectionism.
It began with the election of Donald Trump, who promised to Make America Great Again by building walls to keep Chinese goods and South American people out of the United States.
Trump declared a trade war on China, which soon retaliated with its own tariffs, resulting in an all-out trade war between the two superpowers.
But Trump’s tariffs weren’t restricted to China. Trump imposed tariffs on imports of steel and aluminium from the EU and many other countries, absurdly claiming it was done for national security.
The Biden Administration has kept most of Trump’s tariffs.
More recently, the Biden Administration has legislated the Inflation Reduction Act that is replete with subsidies for carbon-reducing products such as electric vehicles made in America, again citing national security.
These subsidies discriminate against not only against China but also against allies such as the EU and Australia.
The actions of the Trump and Biden Administrations are in clear breach of the WTO rules. Nobody seriously contends otherwise.
But the US faces no penalties. Why? Because the WTO’s dispute-settling procedures are in tatters.
The US has alleged judicial activism by members of the Appellate Body, which has overall responsibility for dispute settlement. Those allegations probably have merit, but it doesn’t really matter, because the Appellate Body is no longer functioning.
As the terms of the various judges appointed to the Appellate Body have expired, the US has vetoed the appointment of replacements. Now the Appellate Body has no members.
Nor has China behaved in accordance with the letter or spirit of the WTO’s rules, using its own subsidies and applying tariffs on goods from the United States, Australia and several other countries.
The swing states of Pennsylvania, Wisconsin and Ohio are also Rust Belt states. The Democrats and Republicans will not re-embrace the free-trade philosophy as they compete for votes at next year’s presidential election.
How far can multilateralism take us when the two biggest economies on earth are fighting for geopolitical dominance and will not, at least in the foreseeable future, give ground to the other?
And what, in these dire circumstances, should the WTO’s other 162 member countries do?
We can be bystanders, watching the superpower rivalry evolve.
Or we can follow a new pathway, treading our own course while the superpowers play out their economic rivalry.
While WTO rules empower any member to veto an agreement reached by every other member, plurilateral agreements among subsets of WTO members are also permitted.
Several plurilateral agreements have been negotiated, including on government procurement with 48 members and information technology with 82 members.
On the sidelines of WTO meetings Australia has traditionally hosted drinks with what it calls the “friendlies.” These are like-minded countries committed to further trade liberalisation.
While the membership of the “friendlies” might have changed over time, the idea hasn’t.
Some countries that come to mind are New Zealand, Singapore, Brunei, Korea, Japan, Vietnam, Malaysia, Indonesia, Canada, Chile, Colombia, Mexico, Peru, Britain and Norway.
At the WTO, Australia could work with “friendlies” to develop plurilateral agreements.
And at APEC, Australia could use its standing as founder of the organisation to initiate plurilateral negotiations within the APEC membership.
These would be open plurilateral agreements, such that other countries could join the agreement if they matched its ambition.
Australia’s trade minister, Senator Don Farrell, and assistant trade minister, Senator Tim Ayres, have developed good reputations as trade negotiators.
Senator Farrell has made encouraging progress with his Chinese counterpart in easing trade restrictions on Australia, where a couple of years ago no such progress was in prospect.
Whether or not they see merit in this proposal for working with “friendlies” to launch plurilateral negotiations within the WTO and APEC is a matter for them.
My purpose is to propose ways of resisting the wave of protectionism that is washing over the United States and some other countries.
Pushing ahead with liberalisation without the involvement of either of the two largest economies on earth might not be ideal.
But nor is helplessly accepting a reversion to protectionism through the disintegration of the rules-based trading system.
Craig Emerson is director of the APEC Study Centre at RMIT University, a visiting fellow at the ANU and adjunct professor at Victoria University. This is an extract from his recent Stan Kelly Memorial Lecture hosted by the Economic Society of Australia, Victoria.