Chess masters are able to play simultaneously on several boards with several partners. And the more time passes, the more US President Donald Trump’s international economic strategy looks like such a match.
There are three major players: the United States, China and a loose coalition formed by the other members of the G-7. And there are three games, each of which involves all three players. Unlike chess, however, these games are interdependent.
On Trump’s first board is the “break the rules of trade” game. Many in his administration regard the World Trade Organization’s principles and procedures as an obstacle to bilateral negotiations. They would prefer to clinch deals with partners one by one, without being bound by the obligation to apply liberalization measures across the board and without being forced to abide by the rulings of the WTO’s dispute settlement mechanism.
The underlying reasoning is fairly simple: multilateral rules always protect the weakest players. Why should the US refrain from using its overwhelming bargaining power? The recent United States-Mexico-Canada Agreement shows the way, by imposing US-determined national content obligations on the other two countries and restraining their own trade policy options. More such deals should follow.
Europe, Japan and China have all criticized the US stance and portray themselves as champions of multilateralism. This is only half true: Europe has built its own web of trade agreements, and China, itself a fairly transactional power, regards global rules as an embodiment of yesterday’s Western dominance.
On the second board is the “discipline China” game. For a decade or so, many in the US have claimed that China’s categorization as a developing country, and the resulting favorable treatment it enjoys at the WTO, do not reflect the true strength of an economy whose goods exports amount to $2 trillion, or 11 percent of world trade.
America’s grievances regarding China’s behavior, from its treatment of intellectual property to its implicit and explicit subsidies and policy-motivated takeovers of foreign industrial jewels, are essentially shared by its G-7 partners. Many Chinese experts also agree that letting market signals play a stronger role in investment choices is in their country’s best interest.
More generally, China’s partners argue that trade rules conceived for market economies are not adequate when dealing with a centrally directed economy. This claim is more contentious, because leaders in Beijing regard state ownership of enterprises as a matter of sovereign choice. But there is room for discussion. All in all, the “discipline China” game is one in which the US, Europe, Japan and Canada are largely aligned. All look forward to a robust negotiation with the Chinese.
This makes the “discipline China” game very different from the third contest, the “roll back China” game. This game is not about the enforcement of trade rules, but about the sheer geopolitical rivalry between the incumbent superpower and a rising challenger.
Europe, Japan and Canada are not part of this rivalry -- they simply do not matter in the same way that the US and China do. But they are inevitably part of its diplomatic, economic and security components. If the tension between the two powers dominates global politics in the decades to come, they won’t be able to avoid taking a stance. And, for all their reluctance, they may well end up aligned with the US, for two reasons: a hardening of the rivalry with the US would drive the Chinese leadership further from Western values, and they ultimately depend on the US for their own security.
The problem, however, is that it is still not clear in which game President Trump intends to score a victory.
For the non-US G-7 countries, this uncertainty creates a dilemma. Should they engage with China on WTO reform and the strengthening of the associated disciplines? This is a topic on which they could help pave the way for an eventual global compromise. The risk, however, is that if China fears that the US really aims at winning the rollback game, and expects the rest of the West to fall in line eventually, it will refuse to make meaningful concessions.
Alternatively, the rest of the G-7 could align with the US, at the risk of antagonizing China and eventually being strategically demoted if Trump ultimately settles on a bilateral deal with Chinese President Xi Jinping. If that game prevails, the non-US G-7 will end up being the losers.
Absent a no-risk strategy, Europe, Japan and Canada might well choose to wait and see. This would be the surest way to be sidelined in all possible circumstances and provide a demonstration that only the US-Chinese “G-2” matters. What these countries are facing is a test of leadership, which they may pass or fail. There is no third possibility.
Jean Pisani-Ferry
Jean Pisani-Ferry, a professor at the Hertie School of Governance (Berlin) and Sciences Po (Paris), holds the Tommaso Padoa-Schioppa chair at the European University Institute and is a senior fellow at Bruegel, a Brussels-based think tank. -- Ed.
(Project Syndicate)
