All of a sudden, the world has entered a new era for international trade. The main trade issue has been the United States vs. China, a bilateral struggle with many third parties suffering whiplash. The World Trade Organization, the largest multilateral player, has effectively been rendered irrelevant because it no longer has enough appeals judges to function. Brexit now seems set to happen, and that means the European Union is less of a final word on trade than it used to be.
If the new world trade order could be described in a single word, it might be "jerry-rigged." That pleases neither the economist nor the systematizer in me, but this new order may be more workable than it first appears. It is not so much a repudiation of free trade as an attempt to keep trade free-ish as it gets increasingly complex.
First keep in mind that, even before Donald Trump's presidency, the WTO had run out of steam. Most tariffs for OECD nations already had fallen to low levels, and the remaining agricultural tariffs were not falling.
Furthermore, the WTO has continued to label China a non-market economy. That decision makes it easier to call out unfair Chinese trade practices, but China argues that the original terms of WTO accession in 2001 called for China to attain "market economy" status within 15 years. Whatever your view on these issues, the correct answers do not follow from any simple approach to the rule of law — so again that necessitates kludges and internal contradictions.
When it comes to China, the WTO structures were already being jerry-rigged. If anything, you could say that the point of the new trade regime is to make the jerry-rigging more transparent.
In fact, it is hard to see how trade relations with China could be anything but jerry-rigged. The Chinese economy is simply too different, and far more statist, than those of the economically developed Western nations or Japan. And yet China is now the world's No. 2 economy and largest exporter.
As a surveillance state, and a potentially unstable autocracy, China also adopts a far lower standard for what counts as a national security issue. Is keeping Google search and Gmail out of China an unfair trade practice or a national security precaution? Of course it is both, but even more so it is evidence of a regime of trade discretion, with or without the recent disruptions of the Trump administration. The same can be said of US attempts to limit the reach of Huawei in 5G systems — namely that, whatever your opinion, you will not find the right answer by reading David Ricardo.
The more important technology becomes to the US and global economies, the more issues such as data storage and access will move to the forefront. Can the Chinese government demand that a technology company hand over user data? On whose servers do the data need to be stored? Can national storage be treated as a prerequisite for market entry? Again, the right answers cannot help but be complicated.
It is well-known in economics that exporting services is much more difficult than exporting resources or manufactured goods. It then follows that trade law for services will be messier and kludgier as well. Trade arrangements for services may feel ugly and excessively bureaucratic, but the underlying reality is that the principles of free trade are being extended, not repudiated.
This larger reality is reflected in many smaller arrangements, as is often the case. Have you followed for the last three years the seemingly endless Brexit discussions about the Irish border and so-called backstop agreement? It now seems there will be free trade between the two Irelands but a more complicated arrangement between Northern Ireland and the U.K. The agreement stipulates unfettered access but says it is also "constrained by the international obligations applying to NI by application of EU law." Even this short explainer makes my head spin.
At a larger scale, what to think of the first phase of the US-China trade agreement? It is still difficult to divine the entire agreement, or how much of it will be announced publicly. The real core of the deal may be an impossible demand on the Chinese to buy many additional billions of dollars of goods from the US, with the very impossibility of that demand serving as a cudgel for enforcing Chinese compliance with the less tangible, harder-to-measure aspects of trade relations.
How is that for an ugly kludge?
In short, this new era of international trade certainly looks messier. But maybe that's because the resources of simplicity have been all but exhausted. Free trade isn't yet dead. It's just not quite as free as it used to be.
Disclaimer: This article first appeared on Bloomberg.com, and is published by special syndication arrangement.