As a trade spat between the US and China threatens the global economy, the EU and other partners are struggling to keep free trade alive. For the Union, 2019 will be about governing tech and regaining trust to remain a global actor – and trade may actually help.

Andrea Tognoni
Consultant

A New Hope

After last years’ focus on the backlash against trade and its externalities, this World Economic Forum tried to see the glass half full. Yes, China and the US are engaging in a tit-for-tat tariff battle that could cause a global recession. Yes, any and all disruption in global supply chains will cause damage due to high integration (Brexit, anyone?). Yes, the WTO is under attack and struggles to adapt to the digital age. And yes, as Canadian Foreign Minister (and former Minister for Trade) Chrystia Freeland said, there will be another global crisis eventually.

But this year WEF leaders can also rejoice. CETA has been applied for a year. The EU-Japan deal –largest FTA ever negotiated – will soon be, and the parties have agreed free flow of data. Canada and 10 other Pacific countries have concluded the CPTPP that Trump had left. And plurilateral deals, notably on E-commerce, are moving at the WTO. This is a good basis to get houses in order and prepare for the next storm. The real challenge Davos talks about is trust.

The Rules-based Order Strikes Back

Most trade wonks in Davos finally recognise that trade has a trust issue. As WTO Director General Roberto Azevedo puts it, trade faces unprecedented challenges, but it is good for the environment – products entering global flows drive efficiency and development – and sustains half of global growth. Yet, citizens do not feel that the global economy works for everyone. Global capitalism by trade has also hit middle classes, created inequality, and fuelled discontent.

This rage is exploited by politicians who blame it on difference – of migrants or foreign products. So, trade faces a somewhat similar challenge as tech: it needs rules to be governed and work for the people. Even for the Davos intelligentsia, it is not only about communicating the benefits of trade anymore. It’s about making it a tool to improve lives and standards that can sustain democracy. As the WEF witnesses attacks on good old multilateralism and democracy, it readies the international rules-based order to fight back.

Return of the Union?

But can the rules-based order, to borrow the Robert Kagan’s metaphor that some panellists used, cultivate a garden out of this growing global jungle? The US and China are entrenching on their positions. Many Western politicians – in and out of office – want to burn down the jungle altogether. Discontent remains despite the economic momentum, and will be there after Trump and Brexit, unless we do something about it. As some panellists said, we’re on a plane where pilot, co-pilot, crew and passengers are fighting. Perhaps that’s where the EU comes in – and it may not be by chance that this year it’s Trade Commissioner Malmström fencing for the Union in Davos.

She tells us that value chains are changing, fast, and we need to move together, putting quality of life at the centre competition. This reformed architecture is not only about institutions and business as usual. It’s about using trade to govern climate change and technology. Tech competition and free trade are good, but if they become confrontation or manipulation, they turn into war, damage rights and destroy democracies. The EU is trying to pioneer a response, without taking sides in the worlds’ polarisations, but putting forward its regulatory and socio-economic models through trade.

Take the example of the Trade for All Strategy, fostering sustainability and social standards through trade. Take the example of GDPR: it aims at governing data flows, putting people at the centre. As Yale’s historian Timothy Snyder puts it, “only Europe has started talking with our century” addressing the issue of rights in the digital age, and exporting its high standards globally though trade. These are the sort of “audacious” things the EU should keep doing. Let us hope the next EU elections in May, the first truly European ones, will allow it to.

Photo credit: Wall Street Journal