Quantitative fundamental analysis
To the extent that freer trade generally helps enrich the economic lives of citizens worldwide, many trade partners seek to reduce tariffs, quotas, embargoes, foreign investment restrictions, and other barriers to free trade. In light of recent tariffs and investment restrictions in the Sino-American trade war, the U.S. further decouples and derisks from China. The WTO continues to help resolve trade disputes as the Biden administration calls for fair and reciprocal bilateral trade engagements with China. For better national security and ESG woke capitalism, many western allies should further strengthen the global supply chains for AI, 5G, semiconductors, rare earths, pharmaceutical ingredients, and electric vehicles etc. Global trade partners must now work together to reduce carbon emissions worldwide in accordance with stringent ESG rules and regulations. With high hopes of woke capitalism, the new world order of trade arises from greater multilateral agreement and legitimacy.
After World War II of the late-1940s, many leaders converged on support for freer trade. These leaders held the basic belief that more open markets would promote growth, competition, and innovation etc to substantially enrich the economic lives of citizens worldwide. Indeed, these leaders pursued these main benefits of freer trade, first in the General Agreement on Tariffs and Trade (GATT), and then after the GATT transformed into the World Trade Organization (WTO) in the mid-1990s. China and Taiwan joined the WTO in 2001. Many western leaders hoped that this admission would lead to economic and political convergence with rich democracies. In the subsequent 30 years, Taiwan became a new open democracy in East Asia, whereas, China enshrined state capitalism in its mainstream industrial trade policy in support of domestic protectionism.
Between 1990 and 2022, the trade-weighted-average global tariff under WTO rules fell by almost 5 percentage points. This pervasive tariff reduction was greatest in poor countries: China’s tariffs fell by 28 percentage points; India’s tariffs fell by 51 percentage points; and Brazil’s tariffs fell by 10 percentage points. This world order of trade prompted a push for bilateral and regional trade pacts. These trade deals expanded from 50 in the early-1990s to more than 300 in 2022. These trade deals cut the trade-weighted tariff by another 3 percentage points.
This open world system supported an explosion of cross-border trade as a fraction of total output, from 30% in the early-1970s to more than 60% in 2020-2022. Over the same time frame, complex global supply chains grew from 37% to 50% of total trade worldwide. This global trade growth arose from both lower transport costs as well as a sharp reduction in economic policy uncertainty. Specifically, this reduction in economic policy uncertainty might be responsible for more than one-third of the recent growth in Chinese exports in the first 22 years of the new century.
In the new world order of trade, cross-country cost differences might turn out to be legitimate forms of comparative advantage. Many western leaders view economic integration as a new way for trade partners to achieve non-economic goals. Apart from free trade, these non-economic goals include national security, environmental protection, labor harmonization, elite-mass conflict resolution, and technological advancement. Not only would open markets benefit from free trade and economic integration, but these markets would also adopt-and-emulate higher standards for environmental, social, and governance (ESG) practices worldwide.
A recent World Bank study empirically shows that a 10% increase in participation in global value chains significantly correlates with an increase in income per capita of more than 10% in the long run ceteris paribus. In a positive light, freer trade has led to higher living standards worldwide. The U.S. International Trade Commission reckons the American bilateral and regional trade agreements have already raised real income and economic growth by at least 1.3 to 2 percentage points. Another survey further finds that poor countries with greater trade liberalization enjoy higher economic growth of 1.5 to 2 percentage points. The long-term benefits of free trade should outweigh its costs, and trade liberalization helps enrich the economic lives of citizens worldwide.
In November 2020, 15 Asia-Pacific countries signed the Regional Comprehensive Economic Partnership (RCEP), the world’s biggest trade block that China currently leads for further trade liberalization. Post-Brexit Britain seeks to cover at least 80% of its trade with preferential treatments, although Britain has erected new barriers to free trade with the closest neighbor, the European Union. With respect to digital markets, America, Canada, and the European Union now discuss common global trade standards for online services such as AI, 5G, e-commerce, and cloud service provision etc.
However, there has not been a general round of WTO trade liberalization since the mid-1990s. This lack of progress reflects a widespread perception that the ideology of free trade has failed to deliver its promises. In the OECD club of rich countries, politicians have experienced furious backlashes against bilateral and regional free trade agreements. The common complaint is that trade liberalization creates both winners and losers. The winners are often powerful multinational corporations that lobby hard to welcome reductions in tariffs, quotas, embargoes, foreign investment restrictions, and other barriers to free trade. The losers are usually domestic sunset industries as freer trade leaves behind many domestic low-skill workers. Although the Biden administration no longer hands out random tariff threats, the U.S. keeps the 25% retaliatory tariffs on $370 billion worth of Chinese imports since the Trump administration.
Despite the post-war embrace of freer trade (due to both GATT and WTO), political support for further global trade liberalization seems to rest on fragile foundations. Our current analysis delves into how governments use the new world order of trade to achieve non-economic policy goals. These goals include national security, labor harmonization, technological advancement, environmental biodiversity protection, and elite-mass conflict resolution. Open markets can further benefit from free trade and economic integration. At the same time, these open markets may emulate the pervasive standards and best practices in ESG woke capitalism. In this new world order of trade, political power increasingly trumps multilateral rules and regulations over global development.
The new world order of trade helps accomplish non-economic policy goals such as national security and technological dominance. - Blog - AYA fintech network platform provides proprietary alpha stock signals and personal finance tools for stock market investors.
In recent decades, trade liberalization has promoted better economic growth and efficiency worldwide...
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