There's a febrile atmosphere round the world trade community. The drumbeat of global trade war is getting louder. Some observers are anxiously scanning the horizon for the equivalent of the assassination of Archduke Franz Ferdinand, which would spark a global conflagration.
In truth, everyone should take a deep breath and calm down. While it would be silly to deny there is serious potential for conflict, particularly around the issue of currencies, what we have seen so far is a fairly routine management of trade tensions. True, Washington and Beijing are trading heated accusations over whether China's continued policy of holding down the renminbi is responsible for global imbalances. But for the moment, as Gary Horlick, a veteran Washington lawyer, says: “There seems to be an implicit deal between the US and China not to start a [legal] fight on currencies and to let the lawyers litigate everything else.”
The last point is crucial. Those who want to be alarmist can portray the big trading powers – and particularly the US – as embroiled in a tangle of litigation and discord. Just last week Brazil threatened again to impose trade sanctions authorised by the World Trade Organisation after it won a case against Washington over cotton subsidies – a ruling with which the US has yet to comply. Last year Mexico imposed similar sanctions over the US's failure to implement a North American Free Trade Agreement ruling that Mexican trucks could operate within the US. And there has have been fusillades of litigation between Washington and Beijing, with China blocking US exports of chicken and starting a WTO case over the controversial decision of Barack Obama, US president, to slap emergency restrictions on imports of Chinese tyres.
This all might look terrifying, but in reality it is pretty much par for the course. The use of trade restrictions such as anti-dumping duties has been quite restrained. Last week's monitoring report by the WTO and other international agencies showed that the rise in such measures actually slowed at the end of last year. And those who predicted that the Chinese tyres decision would unleash a flood of similar actions have been proved wrong – either because it is hard for petitioners to reach the required standard of proof or because they believe the White House would block future actions for fear of more accusations of protectionism.
While iIt would be an exaggeration to say that every problem in world trade can be improved by throwing lawyers at it. IBut it is nonetheless increasingly true that litigation is not a nuclear ption to be used as a last resort but merely part of the toolkit of managing trade relations. China, which once reacted to every legal challenge as though it were a declaration of war, has got much savvier. about litigation.
And so to currencies. As yesterday's intervention from Wen Jiabao, the Chinese premier, underlined, this is undoubtedly the most serious flashpoint in global trade. But it is worth remembering just how hard it is for the US to do anything about it it.
One much discussed option is naming China as a currency manipulator in the twice-yearly currency report, the next of which is due by mid-April. But even this would do nothing more than compelling the US Treasury secretary to negotiate with the Chinese, which he is doing anyway. It resembles the old Robin Williams stand-up routine about an unarmed British policeman trying to apprehend a fleeing suspect: “Stop! Or . . . I'll shout stop again!”
Taking a legal case over exchange rate misalignments to the WTO would probably fail, and take years in any case. The only real route left is to unilaterally slap tariffs on Chinese imports to compensate for alleged currency undervaluation. That would be a nuclear option that really could spark the destruction of the postwar world trading system, and it doesn't look like the US is quite desperate enough for that yet. A second dip in the US recession and a further sharp unemployment rise might do it, but it is not imminent.
Perhaps worrying aloud about global trade has its uses, focusing enough attention on the dangers of protectionism to become a self-denying prophecy. But before justified concern turns into alarm and panic, it is worth remembering that so far we have seen little more than routine skirmishes. It's not time to break out the tin helmets just yet.
