The most vexing, complicated and elusive question in international relations is how to achieve an order, based on rules, that enjoys legitimacy, rewards investments in cooperation, reconciles clashing interests and deters conflict. It is not a problem over which a magic wand can be waved. But in our own time, immense and patient efforts have been made towards that general goal, however imperfect the result.

The concept of the ‘rules-based international order’ refers today in its most general sense to arrangements put into place to allow for cooperative efforts in addressing geopolitical, economic and other global challenges, and to arbitrate disputes. It is embodied in a variety of multilateral institutions, starting with the United Nations and running through various functional architectures such as the Bretton Woods system, the corpus of international law and other regimes and treaties, down to various regional instances where sovereignty is pooled or where powers have been delegated consensually by states on a particular issue.

Some aspects of the rules-based order are heavily informed by distinct values, such as those contained in the Universal Declaration of Human Rights. But, more often than not, they simply prescribe a set of basic principles for how the business of international political and economic relations is to be transacted. The parameters of legitimate and illegitimate behaviour are specified. Compliance is incentivized, and some scope to sanction transgressors is provided for.

For some, the rules-based international order is a politically highly charged concept. Indeed, the absence of a common standardized definition of it is perhaps a by-product of the controversy which the mere notion of a rules-based order often attracts – among those who had no or little part in its shaping; those who regard multilateralism as an infringement of sovereignty and a straitjacket on national ambitions; and those who sense in it a presumption of universal values and shared interests that jars with their own particular historical experience and political preferences. And in a world in which each country occupies its own place on the spectrum of attraction to, tolerance of and resistance to multilateralism, it is inevitable that the present system should be a patchy and incomplete one.

If that patchiness seems increasingly apparent today, then this reflects the proliferation of problems on a truly global scale that multilateral initiatives have as yet failed to keep up with. This is partly because of the sheer pace of change and the deep complexity of problems, and partly because any significant programme of coordinated action requires a focus and consensus that today is in shrinking supply.

More than that, some of the sharpest challenges – climate change; the lack or weakness of rules in the sea, space and cyber domains; the dilemmas thrown up by technological change – are problematic precisely because they are areas in and through which geopolitical competitions are being contested. The policy challenges may be new, but the pattern of behaviour currently surrounding them presents some dangerous echoes from the past.

Throughout history, most attempts to form international orders have been conceived in a coercive way. From classical antiquity to the 20th century, the dominant form of order has been that imposed or attempted by successive territorial empires, or by predominant powers who made the rules by fiat and were deferred to by their neighbours and satellites.

Significant attempts at more collaborative conceptions of order, aimed at coexistence and minimizing risk through rules and accepted conventions, have been far rarer. And the key point about them is that they have been attempted only after competition has spilled over in an uncontrolled, exhausting and ruinous conflict that has called for mechanisms and understandings to prevent a recurrence of disaster. That, in any case, has been the European experience, and subsequently the result of the engulfing crises that radiated out globally from Europe in the 20th century.

Early efforts at order-building focused on mutual recognition and the management of what were felt to be inevitable rivalries. The Westphalian Peace of 1648 emerged from a 30-year period of religious war in Europe. It emphasized the sanctity of sovereignty and non-interference in the internal affairs of other states as a precondition for order, but relied on a jostling balance-of-power approach to the preservation of a basic stability.

A tolerance of conflicts to correct imbalances was implicit to the scheme. But its acute sensitivity to shifts in alignments of power contributed to the later conflicts – from the wars of the Spanish Succession and Austrian Succession to the Seven Years’ War – that ravaged Europe in the 18th century and occurred in an increasingly global theatre of military operations, tracing the development of European imperial projects.

Despite these shortcomings, the balance-of-power model was produced again as a remedy to uncontrolled conflict, at the Congress of Vienna in 1814–15, following more than 20 years of French Revolutionary and Napoleonic wars. A Concert of Europe, accommodating a rehabilitated France, was instituted to regulate the system and periodically decide major geopolitical issues. But it fell into disuse. And although Europe did not suffer a general war for the rest of the 19th century, the salient geopolitical facts were ones not of power balances but of the sharp relative decline of France and the vertiginous rise of Prussia, which defeated Austria and France on the path to German unification.

These dynamics produced convoluted and ever-widening balancing manoeuvres that by the eve of the First World War in 1914 had congealed and hardened into the opposing Triple Alliance and Triple Entente systems, which trapped their respective members into tangled commitments to fight at the trigger of a crisis.

The peacemaking efforts, in Paris in 1919, that followed the war entailed conscious efforts to overturn the balance-of-power model. The tone was set by US President Woodrow Wilson’s Fourteen Points, with their emphasis on transparency and openness, while the concepts of egalitarianism among states, the drive towards disarmament and the practice of collective security were central to the revolutionary creation of a League of Nations in 1920.

But the peacemaking also included a punitive dimension – the designation of German culpability, the demand of economic reparations and territorial adjustments – imposed by victor on vanquished. To its critics, the international order being evolved, and the rules drafted to underpin it, had the attributes of an involuntary settlement more than those of a construct built by equals.

Lacking a comprehensive membership – crucially, the US had demurred, while other major powers progressively withdrew or were thrown out – and the military means to impose itself, a divided and often circumspect League faltered in meeting a succession of international crises. It then collided fatally with the revanchism of Germany, Italy and Japan that produced the Second World War.

The ambitiousness and eventual institutional intricacy of the UN system founded in 1945 marked a response to the scale of the ordeal through which the world had passed, and sought to correct the deficits of the League. The UN’s membership and the activity of its main organs and specialized agencies all grew prodigiously in succeeding decades, as did its efforts to advance the spirit and culture of multilateralism.

But by giving special privileges to the victors, principally through veto rights held among a small group of permanent Security Council members, the UN reflected and perpetuated a certain historical circumstance: there was no formal institutional adaptation in its highest structures to account for a progressive redistribution of international power, the rehabilitation of defeated countries, the rise of the decolonized world or the desire of emerging powers to assume international responsibilities commensurate with their heft. Rather than a mechanism for international governance, it remained an intergovernmental body through which states pursued their specific or collective priorities.

Indeed, the dominant questions around order in the first five decades of the UN’s existence were those posed by the Cold War conducted by the US and the Soviet Union and their respective allies and satellites, while the UN in effect was a prominent arena in which this global antagonism was carried out.

The world order was bipolar in concentrating power in two camps, with a swath of neutrals, non-aligned and swing players in between; and bi-systemic in the complete contrast in the ideological affinities and economic models that were promoted. Nuclear weapons raised the stakes associated with direct conflict to an existential level, and so pushed armed contests to peripheral theatres or on to skirmishing proxies.

The collapse of communism in the early 1990s ushered in a new dispensation. Those who divined the arrival of a ‘unipolar moment’ for the US were perhaps more accurate in their choice of epithet than they knew. At least on the surface, the US became by far the preponderant power. The decline and 1991 dissolution of the Soviet Union, in consequence of its economic decrepitude and strategic overstretch, not only removed the US’s peer competitor, but also opened up avenues for promoting economic liberalization and democratic government.

This shift was manifest in particular in changing dynamics in Europe. The US had sponsored the reunification of Germany and was a patron of its subsequent embedding in an integrating, democratic and liberal region. Over time, this drew the former Warsaw Pact members into EU and NATO structures (albeit at a pace and with a completeness that Russia’s strategic calculations could not be accommodated to).

And yet, despite these advances, in retrospect the chief development of the 20 years after the Cold War was a different one: globalization had at a gathering pace prompted a redistribution of political power, while its interlocking economic structures created a dense web of interests and dependencies that moved in all directions. It was likely in these circumstances that the appearance of any major emergency would produce insistent voices demanding what they saw as a more inclusive, legitimate and effective form of international order.

Crises duly arrived, first in the shape of the 2003 US-led invasion of Iraq, which strained alliances and stirred controversial debates about the justice and permissibility of military interventions and the need for constraints on US power; and then in the form of the financial meltdown of 2008, seen by many as a principally Western debacle calling for new global economic governance structures as instanced in the improvised G20. Neither set of debates was conclusively resolved, but each persisted against the backdrop of quickening systemic change.

The dilemmas about the shape and maintenance of a rules-based order with multilateralism at its core have since only deepened. The world is pulling in different directions. The ‘America First’ posture of the Trump administration has upturned the central feature of the system. It entails a distaste for multilateral agreements, a disavowal of traditional notions of US leadership, and an insistence on the unimpeded exercise of American power in pursuit of defined national interests.

China asserts the centrality of multilateralism, and practises it selectively, but on the whole favours binary diplomatic transactions where it holds asymmetric advantages; it has used this approach in the construction of its Belt and Road Initiative, as well as on other fronts.

Europe has created in its continent a rules-based order par excellence in the shape of the EU, but its energy has been sapped and its introversion fed by a succession of crises, of which the amputation of the Brexit-bound UK is simply one. The EU has yet to chart its future course or define a global strategy to uphold and advance the multilateralism which has been at its core.

Russia unabashedly is subverting the rules-based order as part of a programme of aggrieved self-aggrandizement. Japan champions the principle of a rules-based system, but the country has been disoriented by its abrupt detachment on this issue from its traditional US partner; while Japan has sought to engage like-minded countries in the West, they have not forged a concerted practical plan of action together.

Among other regional powers, Brazil has a populist government that echoes many of the Trump administration’s instincts, and India, whatever its preferences, has yet to acquire a foreign policy or presence on the global stage equal to its demographic weight and economic potential.

Prominent points of risk in this fragmenting picture are the multilateral trade system, efforts to address climate change, and collective measures to deal with entrenched conflicts.

One obvious consequence of the attrition of the rules-based system through the indifference or ambitions of the great powers is that it will leave smaller states much more exposed and hostage to the vagaries of geopolitical competition. A key question therefore is whether such states will choose and be able to defend a system which gives them a measure of protection.

Over recent decades, a variety of regional groupings – ASEAN, the African Union, the Gulf Cooperation Council, the Organization of American States – have evolved as species of rules-based mechanisms and in order to gather their collective weight. They make a ready constituency for those who would build a coalition for multilateralism. But it is also clear that the support of smaller regional players for such an approach depends on a revision of the rule-making system towards greater inclusivity and a broader say as to the issues it should address.

It is in the context of these trends and structural shifts that Chatham House Expert Perspectives 2019 offers ideas for how to modernize and adapt elements of the rules-based international order. As the title of this opening essay indicates, the imperative to ‘adapt’ reflects the gravity of contemporary challenges, and the inability of many existing structures to underpin ever-more-essential cooperation. Chatham House experts do not offer a master plan, but they attack the problem from a variety of indicative angles.

Suggestions are offered as to where gaps in international rules – regarding economic governance, the global health architecture and in respect of under-regulated domains such as space, for example – need to be filled to address immediate problems and advertise the relevance of multilateralism.

Other ideas demonstrate how logjams affecting some aspects of the system can be worked around; how key powers with scope to shape the system should be engaged; how a broader variety of actors beyond national governments need to be drawn into the effort; how rule-breakers might be tackled; and how imposing order on some chaotic situations requires the fundamental premises of existing policies to be rethought.

Chatham House, which celebrates its centenary in 2020, is a child of efforts after the Great War to reconceive the conduct of international relations and fulfil a mission that is today defined as the creation of a ‘sustainably secure, prosperous and just world’. The historical record shows that international orders not built on these attributes will fail.

This essay was produced for the 2019 edition of Chatham House Expert Perspectives – our annual survey of risks and opportunities in global affairs – in which our researchers identify areas where the current sets of rules, institutions and mechanisms for peaceful international cooperation are falling short, and present ideas for reform and modernization.

With international trade discourse taking an increasingly transactional and sometimes belligerent tone, it would be easy to overlook the quiet revolution currently under way to bring new voices into trade policy development and monitoring. The traditional division of responsibilities between the executive and legislature – whereby treaties are negotiated and signed by the executive, and the legislature does what is necessary to implement them – may be undergoing some change.

Growing awareness of the implications of trade and investment treaties for many aspects of day-to-day life – food standards, employment opportunities, environmental quality, availability of medicines and data protection, just to name a few – is fuelling demands by people and businesses for more of a say in the way these rules are formulated and developed.

Various options for enhancing public and parliamentary scrutiny of trading proposals have recently been examined by two UK parliamentary select committees.[1] The reason for this interest is obviously Brexit, which has presented UK civil servants and parliamentarians with the unusual (some would say exciting) opportunity to design an approval and scrutiny process for trade agreements from scratch.

Doubtless, EU authorization, liaison and approval procedures (which include a scrutinizing role for the European Parliament) will be influential,[2] as will the European Commission’s experience with stakeholder engagement on trade issues.[3] The recommendations of both UK select committees to include human rights impact assessment processes as part of pre-negotiation preparations[4] echo calls from UN agencies and NGOs for more rigorous and timely analysis of the human rights risks that may be posed by new trading relationships.[5] Again, EU practice with what it terms ‘sustainability impact assessment’ of future trade agreements provides a potential model to draw from.[6] 

However, process is no substitute for action. Human rights impact assessment is never an end in itself; rather, it is a means to a positive end, in this case a trade agreement which is aligned with the trading partners’ respective human rights obligations and aspirations. It bears remembering, though, that the idea of assessing trade proposals for future human rights risks is a relatively recent one. Do we have the tools and resources to make sure that this is a meaningful compliance and risk management exercise?

Thus far there is little evidence that human rights impact assessment and stakeholder engagement exercises are having any real impact on the content of trade agreements.[7] This is the case even in the EU, where practice in these areas is the most advanced and systematic.[8]

There are several possible reasons for this. First, the methodological challenges are enormous. Aside from the crystal-ball gazing needed to forecast the social, economic and environmental effects of a trade intervention well into the future, demonstrating causal links between a trade agreement and a predicted adverse impact is often highly problematic given the number of other economic and political factors that may be in play.[9]

Secondly, there are many challenges around the need to engage with affected people and listen to their views.[10] The sheer number of possible impacts of a trade agreement on different individuals and communities, as well as the range of rights potentially engaged, makes this a difficult (some would say impossible) task. Some prioritization is always necessary.

This makes for difficult decisions about who to engage with and how. Perceived bias or an apparent lack of even-handedness – favouring business compared to civil society, for instance – can sow mistrust about the true aims of such a process, undermining its future effectiveness as participants begin to question whether it is genuine or worthwhile.[11]

The challenges are even more acute where impact assessment practitioners are tasked with investigating potential human rights impacts in other countries. Even if it is possible to get past the inevitable political sensitivities,[12] the sort of in-depth consultations required will be beyond the budget and time constraints of most assignments.[13]

There are good reasons why trade policy should be subject to greater public and parliamentary scrutiny, and why there should be more opportunities for public participation in the formation of new trading regimes. By building more opportunities for stakeholder consultation at these stages, we can acquire perspectives on trade that are not available from other forms of assessment and analysis.

However, policymakers should be wary of overstating the benefits of existing procedural models. Human rights impact assessment processes are still struggling to provide compelling analyses of the relationships between trade agreements and the enjoyment of human rights, let alone a roadmap for policymakers and trade negotiators as to what should be done.[14]

And financial and practical barriers to participation in stakeholder engagement exercises mean that, at best, these will provide only a partial picture of stakeholder impacts and views.

Experiences with human rights impact assessment of trade agreements so far demonstrate the need for realism about two things: first, the extent to which one can sensibly anticipate and analyse human rights-related risks and opportunities in the preparation stages for a new trading agreement; and, second, the extent to which problems identified in this way can be headed off with the right form of words in the treaty itself.

Both recent UK select committee reports place considerable faith in the ability of pre-project transparency and scrutiny processes to flush out potential problems and prescribe solutions. Of course, there may be cases where frontloading the analysis in this way could be useful, for instance where the human rights implications are so clear that they can readily be addressed through upfront commitments by the parties concerned, whether by bespoke or standardized approaches.

More often, though, for a trade agreement running many years into the future, human rights impacts and implications will take time to emerge, suggesting the need for robust monitoring and mitigation frameworks designed with longevity in mind. Ideally, pre-signing approval and assessment processes would lay the groundwork for future action by both trading partners, either jointly or separately (though preferably both).

To this end, as well as developing ideas for more robust substantive provisions on human rights, policymakers should consider the institutional arrangements required – whether pursuant to the trade agreement or by complementary processes – to ensure that human rights-related risks identified during the planning stages are properly and proactively followed up, that emerging risks are tackled in a timely fashion, and that there are opportunities for meaningful stakeholder contributions to these processes.

Notes

[1] UK Joint Committee on Human Rights (2019), ‘Human Rights Protections in International Agreements, Seventeenth Report of Session 2017–19’, HC 1833 HL paper 310, 12 March 2019, https://publications.parliament.uk/pa/jt201719/jtselect/jtrights/1833/1833.pdf; and House of Commons International Trade Committee (2018), ‘UK Trade Policy Transparency and Scrutiny, Sixth Report of Session 2017-2019’, HC 1043, 29 December 2018.

[2] European Parliament and Directorate General for External Policies (2019), Parliamentary scrutiny of trade policies across the western world, study paper, March 2019, http://www.europarl.europa.eu/RegData/etudes/STUD/2019/603477/EXPO_STU(2019)603477_EN.pdf.

[3] European Commission (2019), ‘Trade policy and you’, http://ec.europa.eu/trade/trade-policy-and-you/index_en.htm.

[4] See UK Joint Committee on Human Rights (2019), ‘Human Rights Protections in International Agreements’, para 12; and House of Commons International Trade Committee (2018), ‘UK Trade Policy Transparency and Scrutiny’, paras 124–34.

[5] OHCHR (2003), Report of the High Commissioner for Human Rights on Human Rights, Trade and Investment, 2 July 2003, E/CN.4/Sub.2/2003/9, Annex, at para 63; UN Economic and Social Council (2017), ‘General Comment No 24 (2017) of the Committee on Economic, Social and Cultural Rights on State obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities’, UN Doc. E/C.12/GC/24, 10 August 2017, para 13; and UN General Assembly (2011), ‘Guiding principles on human rights impact assessment of trade and investment agreements’, Report of the Special Rapporteur on the Right to Food, Olivier De Schutter, UN Doc. A/HRC/19/59/Add.5, 19 December 2011.

[6] European Commission (2016), Handbook for Sustainability Impact Assessment (2nd ed.), Brussels: European Union, http://trade.ec.europa.eu/doclib/docs/2016/april/tradoc_154464.PDF.

[7] Zerk, J. (2019), Human Rights Impact Assessment of Trade Agreements, Chatham House Research Paper, London: Royal Institute of International Affairs, https://www.chathamhouse.org/publication/human-rights-impact-assessment-trade-agreements.

[8] Ibid., pp. 11–13. For a detailed explanation of the EU’s approach to human rights impact assessment, see European Commission (2016), Handbook for Sustainability Impact Assessment.

[9] Zerk (2019), Human Rights Impact Assessment of Trade Agreements, pp. 14–21.

[10] Ibid., pp. 21–22.

[11] Ergon Associates (2011), Trade and Labour: Making effective use of trade sustainability impact assessments and monitoring mechanisms, Final Report to DG Employment, Social Affairs and Inclusion European Commission, September 2011; and Gammage, C. (2010), ‘A Sustainability Impact Assessment of the Economic Partnership Agreements: Challenging the Participatory Process’, Law and Development Review, 3(1): pp. 107–34. For a civil society view, see Trade Justice Movement (undated), ‘Trade Justice Movement submission to the International Trade Committee inquiry into UK Trade Policy Transparency and Scrutiny’, https://www.tjm.org.uk/resources/briefings/tjm-submission-to-the-international-trade-committee-inquiry-into-uk-trade-policy-transparency-and-scrutiny, esp. paras 23–32.

[12] Zerk (2019), Human Rights Impact Assessment of Trade Agreements, pp. 20–21.

[13] Ibid., pp. 21–22.

[14] Ibid.

This essay was produced for the 2019 edition of Chatham House Expert Perspectives – our annual survey of risks and opportunities in global affairs – in which our researchers identify areas where the current sets of rules, institutions and mechanisms for peaceful international cooperation are falling short, and present ideas for reform and modernization.

Video: Marianne Schneider-Petsinger and Dr Yu Jie discuss key themes from the research paper

Summary

• The underlying driver of the ongoing US–China trade war is a race for global technological dominance. President Trump has raised a number of issues regarding trade with China – including the US’s trade deficit with China and the naming of China as a currency manipulator. But at the heart of the ongoing tariff escalation are China’s policies and practices regarding forced technology transfer, intellectual property theft and non-market distortions.
• As China’s international influence has expanded it has always been unlikely that Beijing would continue to accept existing global standards and institutions established and widely practised by developed countries based on ‘the Washington Consensus’.
• China’s desire to be an alternative champion of technology standard-setting remains unfulfilled. Its ample innovation talent is a solid foundation in its quest for global technology supremacy but tightening controls over personal freedoms could undermine it and deter potential global partners.
• It is unclear if Chinese government interventions will achieve the technological self-sufficiency Beijing has long desired. China’s approach to macroeconomic management diverges significantly from that of the US and other real market economies, particularly in its policy towards nurturing innovation.
• Chinese actors are engaged in the globalization of technological innovation through exports and imports of high-tech goods and services; cross-border investments in technology companies and research and development (R&D) activities; cross-border R&D collaboration; and international techno-scientific research collaboration.
• While the Chinese state pushes domestic companies and research institutes to engage in the globalization of technological innovation, its interventions in the high-tech sector have caused uneasiness in the West.
• The current US response to its competition with China for technological supremacy, which leans towards decoupling, is unlikely to prove successful. The US has better chances of success if it focuses on America’s own competitiveness, works on common approaches to technology policy with like-minded partners around the globe and strengthens the international trading system.
• A technically sound screening mechanism of foreign investment can prevent normal cross-border collaboration in technological innovation from being misused by geopolitical rival superpowers.

The forum aims to develop substantive and actionable policy recommendations for the future direction of global trade in a context of changing geopolitical dynamics and rapid technological transformations.

At the core of the Chatham House Global Trade Policy Forum will be the Chatham House Global Trade Conference, a series of roundtable meetings which address the range of regional and systemic trade matters, and a series of written outputs. The activities will culminate in an annual Global Trade Policy Review Briefing paper.

Our unique position in London, and as a world-leading source of independent analysis and with unparalleled convening capacity, enables Chatham House to engage with a committed network of action-oriented policymakers, business leaders, academics, and representatives from the media and civil society to develop trade policy insights. We are committed to the promotion of sustainable growth and more inclusive governance.

The forum’s work is supported by AIG (founding partner), Clifford Chance LLP, Diageo plc, and EY (supporting partners).

View our current work on International Trade and the World Trade Organization (WTO).

Trade has received a lot of attention recently with the US and China still negotiating a trade agreement and the World Trade Organization coming under threat. But the global trade system is also adapting to changing geopolitical dynamics and rapid technological transformations. In light of a backlash against globalization, how can trade be made more sustainable and inclusive? What actions are needed for global trade and the trading system to adjust to changes in technology and environmental considerations? What efforts are key players such as the US, EU and China taking on these fronts?

Against this backdrop, Ms Arancha González will join us for a roundtable discussion on the future of trade and how trade can play a key role in adjusting to the changes that will take place in societies over the next decade. 

The Chatham House US and Americas Programme would like to thank founding partner AIG and supporting partners Clifford Chance LLP and Diageo plc for their generous support of the Chatham House Global Trade Policy Forum.

Global trade policy is not going back to the consensus that prevailed over the past few decades. Even if the growing cycle of tariffs and trade threats is tamed in 2020, the economic consensus that underpinned broad support for open trade is breaking down, and escalation in trade tensions is likely.

What next for the US and China?

The US and China are currently at the centre of these tensions. The equity and bond markets started 2020 off euphorically as news of a ‘phase one’ trade deal between the two dominated headlines. Such a deal involves the US reducing some previously imposed tariffs and tabling another round of threatened ones, while China agrees to buy more US goods, including agriculture. This represents a détente of sorts, but don’t expect it to last; trade between the two countries is not actually at the heart of their trade war.

The question instead is which country will have the biggest economy, based on excellence in industries such as artificial intelligence, machine learning and quantum computing. There is a national security component to this issue as well, given how much these high-tech industries feed into military and national security operations. This has increasingly become a concern for the United States as China has adopted a more aggressive regional stance, particularly in the South China Sea.

Tariffs have been used as a tool by both countries to try to prevent the other from dominating the global economy, and while they have dented both economies, they aren’t a particularly effective tool. In particular, tariffs do nothing to address US concerns about intellectual property rights in China, forced technology transfers and state subsidies for high tech industries. The phase one deal, therefore, is a superficial one that fails to get at the heart of the matter.

US–EU tensions

However, with a temporary US-China détente, the US may turn its attention to Europe. The EU and US are in the midst of negotiating a trade deal, but obstacles have been present from the start.

Last July, France adopted a 3% digital tax that applies to firms with global revenues over €750 million per annum generated from digital activities, of which €25 million are made in its territory. A US investigation determined that the digital tax discriminates against US companies such as Google, Amazon, Apple and Facebook, and so the US has threatened France with 100% tariffs on luxury exports, including wine.

The long-standing tensions between the US and EU over their aircraft manufacturing behemoths, Boeing and Airbus, make reaching a US–EU trade deal more complicated. They also risk undermining US–EU collaboration on some joint concerns regarding China’s trade policies and practices.

The United States recently threatened to increase its punitive measures against European goods as retaliation for Airbus subsidies. The World Trade Organization (WTO) gave the US the green light to impose tariffs of up to 100% on $7.5 billion of EU exports last October, but the US had limited them to 10% on aircraft and 25% on industrial and agricultural products. Now, the US is threatening to escalate.

Finally, the US has repeatedly threatened to impose tariffs on imported cars from the EU. This threat looms large for Germany in particular, which is a significant producer of automobiles and whose industry is still recovering from the diesel emissions scandal. Germany has for the past two decades been the powerhouse economy in the EU, but has more recently seen sclerotic growth.

US election implications

It is an election year in the United States, and while it is too early to call the election (or even guess who the Democratic candidate might be), the ballot could bring about change on trade. Protectionism has historically been more of a Democrat policy than a Republican one, so there won’t be a complete reversal of Trump’s trade policy if a Democrat were to win. But there might be some changes.

If a Democrat controlled the White House, the US would still want to pressure China, but it might adopt a more international approach in that effort. The US might also reverse the steel and aluminium tariffs that kicked off these heightened trade tensions.

Most importantly, the US might stop hindering the WTO by appointing judges to the appellate body (without which the WTO cannot address rulings that are being appealed) and would likely work with other countries to reform the WTO. The focus would shift from confrontation to negotiation. This, of course, depends on which Democrat is in the White House.

In the meantime, President Trump has a difficult balancing act. Being tough on China and bringing home American jobs were successful slogans in his first presidential bid. He will want to indicate he has delivered on both and will continue to do so. At the same time, tariffs have sparked dips in the markets that have caused the president to de-escalate trade tensions. As the 2020 election approaches, expect the administration to balance these two concerns.

Looking beyond the vote, there may be some changes to the US approach to trade over the next decade, depending on which party is in government. The most pernicious aspect of the trade tensions on the global economy has been the uncertainty they have caused; businesses have deferred and delayed investment as they wait to see what the new rules of the global order are. They know the old consensus on trade won’t come back, but don’t yet know what the new consensus is.

As long as the limbo persists, and it probably will for at least a few more years, trade issues will remain a risk for the global economy.

This article is the first in a series of publications and roundtable discussions, part of the Chatham House Global Trade Policy Forum.

The US and China have entered into an increasingly confrontational relationship over trade and technology. This may force Europe to make difficult choices between the two economic superpowers – or perform a balancing act. Although the recent US-China phase-1 trade deal has eased the relationship for now, the trade and technology tensions are a structural issue and are likely to persist.

The debate over Huawei’s participation in 5G networks is an example of how the UK and other countries may face competing priorities in economic, security and foreign policy. Can Europe avoid a binary choice between the US and China? Is it possible for the EU to position itself as a third global power in trade, technology and standard-setting? What strategies should Europeans adopt to keep the US and China engaged in the rules-based international order and what does the future hold for trade multilateralism?

Sir Simon Fraser will join us for a discussion on Europe’s future role between the US and China. Sir Simon is Managing Partner of Flint Global and Deputy Chairman of Chatham House. He previously served as Permanent Secretary at the Foreign and Commonwealth Office (FCO) and Head of the UK Diplomatic Service from 2010 to 2015. Prior to that he was Permanent Secretary at the UK Department for Business, Innovation and Skills. He has also served as Director General for Europe in the FCO and Chief of Staff to European Trade Commissioner Peter Mandelson.

We would like to take this opportunity to thank founding partner AIG and supporting partners Clifford Chance LLP, Diageo plc, and EY for their generous support of the Chatham House Global Trade Policy Forum.

The WTO Ministerial Conference in June 2020 presents a critical opportunity to move ahead on better alignment of trade and environmental sustainability objectives, policymaking and governance. In light of the challenges facing the WTO, meaningful efforts to address environmental sustainability would also help to reinvigorate the organization and strengthen its relevance. 

In this context, the meeting aims to advance discussion on two questions: How can the multilateral trade system better contribute to meeting the UN Sustainable Development Goals and the Paris climate goals? What priorities and tangible outcomes on trade and environmental sustainability should be advanced at the WTO Ministerial Conference in Nur Sultan in June and beyond?

The event will be hosted by the US and the Americas Programme and the Hoffmann Centre for Sustainable Resource Economy at Chatham House in partnership with both the Global Governance Centre and the Centre for Trade and Economic Integration at the Graduate Institute, Geneva.

We gratefully acknowledge the financial support for this event from the Chatham House Global Trade Policy Forum’s founding partner AIG and supporting partners Clifford Chance LLP, Diageo plc and EY, and on the Graduate Institute side, from the government of Switzerland.

Trade and investment between the UK and Latin America is woefully underdeveloped. Latin America’s agricultural powerhouses Brazil and Argentina only accounted for a total of 1.6% of the UK’s agricultural market across eight sectors in 2018, all of those areas in which Argentina and Brazil have substantial comparative advantages. 

Conversely, UK exports to the large Latin American economies remain far below their potential.  To cite a few examples, in 2018 in the electrical equipment sector, the UK only exported $95.7 million of those products to Brazil, making the ninth largest economy in the world only the 42nd export market for those goods from the UK; Mexico only imported $91.4 million of UK-made electrical goods, placing it directly behind Brazil as UK’s market for those goods.

As we look to the future, any improvement to the relationship will depend on two factors: 1) how the UK leaves the EU and 2) whether Latin American agricultural producers can improve their environmental practices and can meet the production standards established by the EU and likely maintained by a potential post-Brexit Britain.

In the first meeting of the working group,  Chatham House convened a range of policymakers, practitioners and academics to explore this topic in depth, identify the key issues driving this trend, and begin to consider how improvements might best be made. Subsequent meetings will focus on specific sectors in commerce and investment.

We would like to thank BTG Pactual, Cairn Energy plc, Diageo, Equinor, Fresnillo Management Services, HSBC Holdings plc and Wintershall Dea for their generous support of the Latin America Initiative.

The COVID-19 pandemic highlights the absence of US global leadership. Michèle Flournoy talks with Dr Leslie Vinjamuri about the impact of COVID-19 on US domestic priorities and foreign policy commitments.

Flournoy discusses current US strategy towards China and the Middle East and how this might change under a Democratic administration.

This event is part of the Inaugural Virtual Roundtable Series on the US, Americas and the State of the World and will take place virtually only.

This event is  part of the Chatham House Global Trade Policy Forum and will take place virtually only.

We would like to take this opportunity to thank founding partner AIG and supporting partners Clifford Chance LLP, Diageo plc, and EY for their generous support of the Chatham House Global Trade Policy Forum.

Please note this event is taking place between 2pm to 3pm BST. 

This event is part of the Chatham House Global Trade Policy Forum and will take place virtually only.

International trade has a crucial role to play in tackling climate change. The production and transport of goods is a major contributor to green-house gas emissions, as is the delivery of certain cross-border services. At the same time, it looks inevitable that the COVID-19 pandemic will lead to a radical re-think of global supply chains as companies and governments seek to build in greater resilience while at the same time preserving as far as possible the efficiency gains and lower costs that global supply chains generate when operating normally.

Future international trade rules will have a crucial role to play in addressing both challenges; they represent both an opportunity and a risk. If designed well, they could play a very important role in re-enforcing moves towards a more sustainable use of resources, greater overall alignment of economies with the Paris Agreement, and greater economic resilience. But they could also, if poorly designed and implemented, or overly influenced by strategic political considerations, have significant unintended and negative implications. These include: reduced economic efficiency, increased poverty, unnecessary economic decoupling and reduced consensus on the broader mitigation and adaptation measures required to meet the challenge of climate change.

Against this background, a number of key questions arise: In what areas, if any, do we need to modify or adapt key principles underlying the system of global trade rules in order to respond to the twin challenges of responding to climate change and building greater economic resilience?  Which are the most promising/practical areas on which trade policy experts should focus now to re-launch/re-energize discussions on WTO reform, including, for example, dispute settlement? What national economic policies will be needed to complement the development of new/reformed trade disciplines in these areas? How might future political changes, such as a change in the US administration, affect the prospects for and political momentum behind such deliberations? What in any eventuality is the best way to build the required political momentum?
 
This roundtable is convened by the Global Economy and Finance Programme and the US and the Americas Programme and it is part of the Chatham House Global Trade Policy Forum. The event will take place virtually only.

We would like to take this opportunity to thank founding partner AIG and supporting partners Clifford Chance LLP, Diageo plc, and EY for their generous support of the Chatham House Global Trade Policy Forum.

Please note this event is taking place between 2pm to 3pm BST.