Saturday, March 31, 2018

Interview with Dani Rodrik: “Globalization Has Contributed to Tearing Societies Apart”

"Globalization Has Contributed to Tearing Societies Apart"

Interview with Dani Rodrik

As populist parties and politicians in Europe keep racking up electoral victories, and the (somewhat overblown) fears of impending trade war whip US media into a frenzy, it is clear that the populist backlash that has roiled Western democracies in the past two years is far from over, as devastated communities and workers that have seen the benefits of globalization pass them by continue their insurrection against business and political elites.


While this populist backlash has shocked many over the past two years, it didn't shock Dani Rodrik. The widening chasm between the winners and losers of globalization, the damage that globalization wrought upon low-skilled workers in Europe and the United States, the dangers that this social disintegration would inevitably result in a huge political backlash—all were subjects that the Harvard economist explored and predicted in his seminal 1997 book "Has Globalization Gone Too Far?"


To understand where globalization has gone wrong, and how best to counter the rise of populist nativism, we recently interviewed Rodrik, the Ford Foundation Professor of International Political Economy at Harvard's John F. Kennedy School of Government. In his interview with ProMarket, Rodrik explained why trade agreements often serve rent-seeking by politically well-connected firms, how the "fetishization" of globalization's benefits helped deepen inequality, and why he believes the only solution to the dangerous rise of today's political populism is an economic populism that reimagines the institutions of capitalism. 


The following interview has been condensed for length and clarity:


Q: In a recent paper, you argue that contrary to the prevailing view among economists, trade agreements are the result of rent-seeking by politically well-connected firms. Can you elaborate?


Trade agreements are political documents. Special interests, lobbyists, industry, and labor groups have always played a critical role in shaping them. I think what has changed is not that trade agreements involve special interests and political horse-trading, but the balance of interests.


The traditional economists' story about trade agreements is that they tend to restrain or rein in protectionist interests. In this story, trade agreements are political, but essentially are a way of limiting the influence of groups that would close off the economy from the rest of the world. I think economists haven't sufficiently appreciated that the world and the nature of trade agreements have changed and that the balance of interests, in terms of who shapes these trade agreements, has also changed. I think there is less and less reason to believe that, on balance, trade agreements are pursuing what an economist might consider the gains from trade or appropriate social objectives and are more and more being shaped by the agenda of special interests.


Q: When did this change occur?


I think the watershed event was probably the 1990s. The creation of the World Trade Organization, for me, is the turning point. In the '50s and '60s, the world was very heavily protected, economies were insulated from each other, and the struggle then was to push against the prevailing protectionism. By the 1990s, the world economy had already become fairly open, and the WTO marked a fundamental transformation in the nature of trade agreements. They changed from trying to remove barriers at the border—the traditional import tariffs or quotas that economists tend to think about when they talk about trade barriers—and instead began to focus increasingly on behind-the-border rules and regulations, things like investment rules, rules on subsidies and health and safety, intellectual property rights.


These are all areas where the economic benefit of global agreements has to be scrutinized very, very carefully because there is no natural benchmark. It becomes very difficult in these new areas to determine whether more trade agreements and international rules is a good thing or a bad thing.


"By fetishizing globalization and exaggerating its benefits and understating its downsides, we have essentially privileged and prioritized a set of powerful interests. The fact that pharmaceutical companies or foreign investors find it so easy to get what they want is in part because of our existing narratives, or existing ideas, about how the world does or should work."


Q: A recent report by the United Nations Conference on Trade and Development argued that the hyperglobalization of the past 30 years has led to a sharp increase in market concentration, which in turn led to a proliferation of rent-seeking. Do you agree with the assessment that globalization has increased rent-seeking?


I'm not saying that it has increased rent-seeking. I'm agnostic on that. I think it's changed the relative power of different groups of rent-seekers and that the terrain over which the rent-seeking is taking place is different. I don't want to make a blanket statement that we're in a world where rent-seeking has increased. I think it's always been there. I think what has happened is a combination of changes in our ideas and changes in the financial power and other powers of different groups, and this combination is reflected in the various parts of our global economy.


I think that by fetishizing globalization and exaggerating its benefits and understating its downsides, we have essentially privileged and prioritized a set of powerful interests. The fact that pharmaceutical companies or foreign investors find it so easy to get what they want is in part because of our existing narratives, or existing ideas, about how the world does or should work.


Q: Who are the rent-seekers empowered by trade agreements?


I'd say there are three groups, when it comes to trade agreements. First, financial institutions, banks; second, multinational institutions; and third, pharmaceutical companies. We see the impacts of these groups in investment rules, financial services agreements, intellectual property rights.


Q: To what degree is the populist nationalist backlash in Western democracies essentially a backlash against globalization?


I think globalization has contributed to tearing societies apart. You can see some of that in terms of greater inequality, but you can also see it in the increase of what one might call "social distance" between different groups in society: those who are globally networked and feel themselves to be part of a cosmopolitan group that don't recognize or need national borders, who have the assets and the mobility to take advantage of the world economy, and those who think that their fates are tied up with local communities, that don't have the assets or the resources and networks. It's a social and cultural cleavage that globalization has deepened by having very asymmetric effects on different groups.


Q: Did this cleavage contribute to the widespread sentiment that financial and political elites are self-interested and not concerned with anyone's welfare but their own?


Yes, I think that's effectively what has happened and what globalization has fostered. When corporations weren't as footloose, they felt that the health of their local communities was important—it was important for them. You needed to have a well-trained workforce and you needed to ensure that your local government invested in public services. But if you think of yourself as an entity that can essentially operate in any part of the world and move wherever the circumstances are more advantageous, naturally you build up a very different kind of sensibility where you don't feel yourself to be part of the local community, and your connections with local stakeholders are weakened.


These elites will not explicitly tell you, "We don't care about you anymore." They'll tell you, "Look, we can't afford to care about you because we're competing in a global economy and therefore we have to make these choices, we have to outsource and we have to move, we have to look for low-tax environments because we can't afford not do." They'll complain that they have no choice.


Q: Has the fact that globalization is often used as an excuse for policies that benefit politically connected groups and multinational firms helped fuel this backlash?


It certainly has been an excuse, to be used as a bargaining tool, and I think it's been often disingenuous to the extent that these corporations have not valued the services or the importance of local or national governments, except for in moments of crisis. Banks and large corporations think of themselves as being global entities that don't rely on national governments—except during a financial crisis, when they need their national governments to bail them out.


And then of course we have mainstream political groups that have in many ways contributed to demonizing globalization, because they have a tendency to hide behind globalization. Paradoxically, both the right and the left have justified their programs by saying that's what needs to be done to compete in the global economy. You have the left saying that we need to invest in infrastructure and education so that we can compete better in a global economy—that was the New Democrat line—and the right saying we need low taxes and lower regulations to compete in the global economy. What do you hear when politicians are telling you this? You just hear that globalization is this monster out there that's making us do all these things, instead of what I think is a sort of an older tradition of thinking, where the world economy was something to help domestic societies achieve their objectives of prosperity, full employment, inclusion, and equity.


After the 1990s, I think these priorities became reversed and globalization became the end, and countries and societies became the instrument, as opposed to the other way around.


Q: Much of the anti-globalization backlash of the last two years has been xenophobic, racist, authoritarian in nature. What is it about the nature of globalization that led to this kind of response?


I think a lot of it has to do with the fact that the left has been missing in action. Twenty years ago, when I was fretting that globalization would create a backlash, I would have guessed that the main beneficiary of this might have been the left, because it would capitalize on the economic and social grievances that these divisions create. Indeed, when we think about the populisms of the late 19th century—in the US or for that matter Latin America, with its long history of populism—they were by and large not racist and xenophobic, ethno-nationalist populisms, but left-wing populisms that focused on financial elites, on corporate elites, and pushed for social reform and more regulation of the economy.


Today, here and in Europe, we're seeing much more of a right-wing ethnonationalist backlash. I think it's partly that the left has been missing in action and that the center-left and the social democrats have essentially been complicit in many of these changes since the 1990s. New Democrats in the US and New Labour in the UK were at the very forefront of this push for hyperglobalization, so they couldn't easily disassociate themselves from this complicity. I think Hillary Clinton's ill-fated campaign showed that very well.


There were other shocks that made it easier. For example, immigration made it easy for right-wing nativists to provide a much more nativist, ethnonationalist frame for economic and social grievances to which I think one might have responded very differently.


"Economic populism is a populism that takes aim at the sources of economic inequality and at concentrations of economic power."


Q: In a recent New York Times piece, you argue that in order to fend off the racist, xenophobic populism that we see on the rise in many advanced economies, what you call "the bad kind of populism," we need a "good kind of populism." Is this "good" populism, as the title of your piece suggests, essentially the New Deal?


I think it's like the New Deal in the sense that it requires significant economic and political reforms that will curb the prevailing abuses of the market capitalism that we have now. But I think its specific details are going to take very different forms. I don't think that the right way forward is to simply enlarge or refine the welfare state that we have, which is based largely on essentially trying to redistribute through the tax and transfer system what the market produces.


I think the challenge today is actually to reform the production stage and the pre-production stage of the market economy, much more so than simply having more progressive income taxation or improved health and employment benefits.


Certainly in the United States, there's a lot that still can be done in terms of social insurance, and the US has a lot more to learn about improving safety nets from Europe. But I think it would be a mistake to think that's the main challenge. The real issues are going to be how to rethink property right systems in a way that's going to make the fruits of innovation and automation much more inclusive, how to make society feel much more [like] an equity participant in technology, closing the gap between this narrow elite that benefits from it and the broad parts of society that are not. How do we increase and democratize our educational system to ensure that the endowments with which workers come into the market seeking jobs diminish this deep cleavage between the technocratic and professional elite and ordinary workers? How do we regulate digital platform monopolies?


These are reforms in education and property rights, in regulation and antitrust policy, that I think are going to necessarily look very different from the challenge that we confronted during the New Deal.


Q: You differentiate between two kinds of populism—political populism, the kind of autocratic populism we see from the likes of Putin in Russia and Erdo─čan in Turkey—and economic populism, which you write is "occasionally necessary" and which you seem to suggest as a potential remedy to our current predicament. What is economic populism, and how is it different from political populism?


I think economic populism is a populism that takes aim at the sources of economic inequality and at concentrations of economic power. Today in the US, economic populism would take the form of bringing the financial sector down to size, reducing the influence of Wall Street in political institutions, and having much greater regulation of the financial sector. It would mean taking aim at concentrations of power in high-tech and digital industries. It would mean taking aim at our current pattern of trade agreements, which often privilege particular corporate interests and investors. All of that would be economic populism that tries to reshape the distribution of economic power and tries to reduce the concentration of economic power but does not try to turn the political system into an authoritarian one, does not necessarily concentrate political power or undermine liberal norms of pluralism and tolerance.


Q: And yet there is a certain overlap between the two, at least in terms of rhetoric. Many far-right populists also attack digital platforms, Wall Street, cronyism. How can we better differentiate between the "good" kind of economic populism, and the "bad" kind of political populism?


I think the similarity is that both economic and political populism have an aversion to agencies of restraint. Just like a political populism doesn't want anybody to stand in front of the so-called people's will, an economic populism wants fewer restraints on what can be done.


The difference, which I think in many ways is more important, is that economic populism is trying to redress economic imbalances and is actually doing things that would fundamentally improve the overall performance of an economy, [rather than] doing things to aggrandize or entrench the power of those who are currently in power.


Q: You write that the populist backlash to globalization "should not have been a surprise, least of all to economists." And yet, most economists did miss it. How did so many economists miss what you suggest is a fairly straightforward lesson from history?


When I say economists should not have missed this, I am suggesting that the very economic theory that we teach in the classroom has very stark implications for inequality and social divisions, and therefore we should have expected these divisions having political consequences.


I think fundamentally, economists were so enamored with the principle of comparative advantage and free trade that they felt that what they needed to do in the public domain was to defend free trade and globalization, even though the specific form that it took diverged very much from what they teach in the classroom. Still, I think they just instinctively sort of felt that they needed to be cheerleaders for this process rather than skeptics. Frankly, I think we didn't do our job very well because of that.


Q: Many of these developments—namely financial deregulation and globalization—have been tied to a set of policies often referred to as neoliberalism. In a recent piece for the Boston Review, you described much of neoliberalism as ideology masquerading as economic science, and criticized mainstream economics for embracing it. Should economists have been skeptic?


I think in a way, economists were definitely a little bit politically naive. During this whole process, if you asked economists about neoliberalism, I think most of them would have said, "What is neoliberalism? I have no idea what neoliberalism is." And yet neoliberalism is a real thing. I think economists either didn't appreciate that they were cheerleading for something that the rest of the world called neoliberalism, or they implicitly made the judgment that on balance this was better than sitting on the sidelines or expressing skepticism, because of their fear that the other side, so-called "protectionist barbarians," would have the upper hand.


Q: Heaping scorn on neoliberalism, you write, risks "throwing out some of neoliberalism's useful ideas." What are those?


I think there is really a big distance between neoliberalism and proper, sound economics. But to the extent that it's really about ensuring macroeconomic stability, ensuring proper incentives, ensuring proper contract enforcement and property rights, these are very valuable first-order principles that ensure good economic performance. As I argue in that piece, this does not translate into what neoliberalism is usually thought of. But we should make sure we don't throw the baby out with the bathwater, that we just reject neoliberalism, but not reject the important role that markets have to play and the important role that incentives and macroeconomic stability have.


John Case
Harpers Ferry, WV

The Winners and Losers Radio Show
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Evidence shows collective bargaining—especially with the ability to strike—raises teacher pay [feedly]

Evidence shows collective bargaining—especially with the ability to strike—raises teacher pay

Some recent media reports on a new academic study by political scientist Agustina S. Paglayan give the impression that the paper's findings reflect badly on teachers unions. This is a misreading, however, of the study and of its implications. A key issue lost in the press accounts is that the study is, first and foremost, an historical analysis, examining the effects of the expansion of state collective bargaining rights for teachers between 1959 and 1990. Given the historical focus, the study excludes the experience of the last three decades, where the evidence clearly suggests that collective bargaining raises teachers pay.

But, even with respect to just the historical period studied, the paper's conclusions are much more nuanced than the press reports suggest. A central conclusion, which has been overlooked in media accounts, is the author's view that the reason that teachers unions might not have been effective in raising expenditures on education (including teachers' pay) in the early days of expanding collective bargaining rights is because the laws that allowed collective bargaining often simultaneously restricted the ability of public-sector unions to strike. What the law gave with one hand, it often took back with the other. To illustrate the point, the paper shows that in states where public-sector workers had both the right to collective bargaining and the right to strike, collective bargaining did appear to increase expenditures on education.

More recent evidence on the effect of unions on teacher pay

Any analysis of unionized public-sector teachers' pay needs to separate out two points of comparison: one is a comparison of teachers' pay with what similar workers earn in the private sector; the other is a comparison between what unionized and non-unionized teachers earn in the public sector.

Economist Sylvia Allegretto and I have demonstrated that since the mid-1990s a substantial penalty has emerged for public school teachers relative to similar workers in the private sector. In 1994, teachers' wages were about 2 percent below those of comparable workers in the private sector. By 2015, teachers' wages were about 17 percent below similar workers in the private sector. This wage gap was partially offset by improved benefits, but there was still a record "total compensation" gap of 11 percent in 2015. At the same time, we also found that, "Collective bargaining helps to abate the teacher wage gap. In 2015, teachers not represented by a union had a 25.5 percent wage gap—and the gap was 6 percentage points smaller for unionized teachers." This suggests that teacher unions may have had a more substantial impact in the last few decades than what Paglayan found.

Two other recent papers also conclude that teachers unions do moderately raise wages and benefits and thereby lessen the pay penalty that teachers face relative to comparable workers in the private sector. A February 2018 report for EPI by Jeffrey Keefe, "Pennsylvania's teachers are undercompensated—and new pension legislation will cut their compensation even more" notes that prior research indicates:

More than three-quarters of teachers today (including more than 70 percent of new teachers) say that, absent the union, their working conditions and salaries would suffer. A majority of teachers also agree that without the union they would be more vulnerable to school politics and would have nowhere to turn in the face of unfair charges by parents or students. Fully 84 percent say their union protects teachers through due process and grievance procedures, with 71 percent of teachers giving "excellent" or "good" ratings to their unions. Union teachers were found to be more enthusiastic about teaching and less likely to leave for better-paying jobs.

Keefe conducted his own analysis of Current Population Survey Outgoing Rotation Group (CPS-ORG) data for the years 2013 to 2015 to examine the union impact on pay. Specifically, Keefe compared the weekly earnings of union and nonunion teachers across the United States with controls for education, experience, gender, race, ethnicity, marital status, disability, citizenship, region, weeks worked per year, and weekly hours of work. He found that union membership, on average, resulted in "5.1 percent higher wages and 5.4 percent higher total compensation for its members when compared with the compensation of public school teachers who are not union members."

Separately, Allegretto and Tojerow, in Teacher staffing and pay differences: public and private schools, published in Bureau of Labor Statistics' Monthly Labor Review, provide estimates of the union impact on teacher pay between 1996 and 2012. They pooled Current Population Survey data to estimate pay gaps for four teacher groups: unionized public sector teachers, unionized private sector teachers, nonunionized public sector teachers, and nonunionized private sector teachers. Their results, therefore, "compare teacher pay relative to that of comparable workers and among the four teacher groups." Allegretto and Tojerow use traditional human capital controls plus employ year and state fixed effects.

They find:

Results indicate that the pay gap between nonteacher workers and similar unionized public school teachers is -13.2 percent while it is -17.9 percent for nonunionized public school teachers. The gap for unionized private school teachers is -26.2 percent, compared with -32.1 percent for the more likely situation of nonunion private school teachers. Thus, unionization helps to mitigate the teacher pay gap with nonteacher workers for both sectors.


For female public sector teachers, the pay gaps with female nonteacher workers are -7.2 percent for union workers and -14.2 percent for nonunion workers; for the male sample of public sector teachers, the corresponding pay gaps with male nonteacher workers are -24.6 percent and -26.8 percent.

Allegretto and Tojerow's results indicate that teacher unionization lifted wages in the public sector by 4.7 percent (17.9 percent less 13.2 percent) overall, by 7.0 percent among female teachers (14.2 percent less 7.2 percent) and by just 2.2 percent for male public school teachers (26.8 percent less 24.6 percent). Consistent with what Allegretto and I found in our earlier study, these results demonstrate that the teacher wage penalty was smaller for teachers in unions.

The role of strikes

Media attention has focused on the finding that the expansion of public-sector collective bargaining between 1959 and 1990 was not associated with increases in expenditures on education over and above pre-existing trends. But, the paper explains these results by arguing that many states granted collective bargaining rights and, at the same time, severely restricted new unions' legal ability to strike. In Paglayan's view, state collective bargaining legislation "often contain[ed] both pro- and anti-union provisions" (p. 30, emphasis in original). Restrictions on strikes, in her view, had a substantial impact on the way teachers unions affect state expenditures on education. In summarizing her findings, Paglayan writes: "…many mandatory bargaining laws contained provisions designed to limit unions' ability to strike…[and] laws that did not contain these provisions did lead to increased education spending." Paglayan's own assessment of her findings is not that collective bargaining failed to increase educational expenditures, but rather it was the lack of collective bargaining coupled with the legal right to strike that limited teachers ability to help to direct additional resources to state educational budgets.

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Friday, March 30, 2018

Trade: The Big Picture [feedly]

Lots of good questions here, but also a lot of low confidence assumptions....and no answers.

Trade: The Big Picture

AP Photo/Nick Ut

Cargo containers are seen on top of ships anchored off the Long Beach Harbor waiting to be unloaded 

In the wake of the announcement on steel and aluminum tariffs, and complaints against China's thefts of intellectual property, the trade discussion emphasizes a U.S. administration perceived as alarmingly protectionist; and the risks of a damaging trade war between the U.S. and China, and perhaps globally.

But the real problem is much broader: a multilateral trade system is seen as moribund, unable to meaningfully reduce barriers and effectively adjudicate disputes.  And there is growing unease about the overall state of economic globalization.

Related questions include: Is the U.S. undermining the WTO, and if so what are the implications? What are the consequences of the US withdrawal from the TPP, and possible withdrawal from NAFTA?

All of these items are merely symptoms of four fundamental underlying issues, which have been slowly coming to a head for years and in some cases decades:

1. The existing trade architecture is deeply flawed. Our current trade system is incapable of addressing a range of practices, which have increasingly come to shape the landscape of trade since roughly the 1980s. With tariffs and quotas reduced or eliminated, the most significant barriers to trade are now embedded in opaque regulatory and industrial regimes, and industrial policies that violate conventional free trade but that are not reached by current trade rules. Discrimination against foreign products and services takes place behind the border, often via un-codified "understandings" that are interwoven into informal public-private relationships. This could include, for example, unwritten rules that manufacturers source inputs from domestic suppliers only, or that indigenous technologies will be preferred over foreign alternatives.

Another issue—currency manipulation—can decisively tilt the playing field of trade, yet it sits entirely outside the trade architecture. And evasion of trade obligations has been elevated to an art form by many countries, but trade institutions have proven incapable of adequate enforcement. 

For countries so inclined, there has been ample latitude to game the rules of international trade, and disadvantage trade partners. Tactics such as dragging out losing dispute settlement cases long enough to allow domestic companies to gain a dominant market position, or simply using trans-shipment through third countries to evade legitimately applied anti-dumping or countervailing duty measures, have all achieved their desired aims.

The result has been a trade system that has failed to produce mutually beneficial trade –in perception and often in reality. This has inevitably eroded confidence in trade and given rise to the populist backlash being experienced in the U.S. and elsewhere. The fact that these sentiments found political expression in the 2016 U.S. presidential election – and in the trade policy of the current administration—should not come as a surprise.  The U.S. administration is not the cause of dysfunction in the trade system; it is a symptom.

2. The United States and its trading partners have failed to make a deliberate and orderly transition away from the unique and unsustainable role the US played in the immediate post-WWII era. U.S. unilateral market-opening was initially undertaken almost as a developmental program to help devastated allies and former adversaries rebuild.  Given the circumstances, this was not an unreasonable approach:  The U.S. accounted for 50 percent of global GDP and enjoyed unrivaled economic superiority, while Europe was in ruins and Japan was under military occupation. 

In the years that followed, geostrategic considerations were given a place of prominence in trade policy, and trade agreements were negotiated as a means to signal commitment or win influence with partner countries—while domestic U.S. economic considerations often took a back seat. Although the world has changed immeasurably, the vestiges of this initial role have remained in US trade policy.

3. There has been an inability or an unwillingness to comprehendand effectively managethe implications of China's industrial strategy and its integration into the global trade system. Virtually all of the assumptions made at the time of China's WTO entry have proven to be incorrect. The U.S. and much of the West eagerly sought China's integration into the multilateral trade system in the 1990s, believing that this would inevitably cause China to develop along the lines of the free-market Washington Consensus principles, ultimately becoming a "responsible stakeholder" in the U.S.-led global system. 

In reality, China had pursued a state-directed form of capitalism which provides advantages to domestic companies over foreign, combined with a quasi-mercantilist trade regime which conditions market access on technology transfers and local production and partnerships, along with a host of other predatory practices. Large state-owned-enterprises impact global markets, but are often more responsive to central government policy directives rather than market considerations. And recent scholarship indicates that labor market dislocations in the U.S. caused by China's state-led export surge have been far more detrimental than previously understood. 

What is needed—but still lacking—is a clear-cut strategy on how to manage China's ambitions in a way that respects China's legitimate development objectives, but also respects a rules-based trade system and the needs and interests of China's trade and investment partners. A pragmatic, cooperative, and reality-based modus vivendi is required, and could be possible—but only with greater realism on the part of both countries.

4. There is no common understanding on how to assess and rationally debate the costs and benefits of trade, or even define a national interest.

We lack broad agreement on even basic questions such as: Are trade deficits critical or irrelevant? To what extent are labor market dislocations being driven by trade and to what extent by other factors such as technology and automation? To the extent labor dislocations are being driven by trade, have we fully accounted for the social as well as economic costs, and appropriately factored these into trade policy? To the extent that we have national policies to protect worker rights (minimum wage laws, rights to unionize, etc.) how do we reconcile these with "free" trade—or does trade need to be partly conditioned on social norms? In an era of truly global corporations, are the interests of an "American" company necessarily synonymous with the national interests of the U.S. and its citizens? And if not, why do these large global corporations enjoy such preponderant influence over the development of U.S. trade policy? 

For the most part, these issues have not been adequately acknowledged, let along satisfactorily addressed. While the precise path forward is open to debate, it should take into account at least some of the following points:

Move beyond the use of loaded and ill-defined words such as "free," "fair," or "reciprocal" trade. They are frequently misunderstood, easily manipulated, and often used to justify almost anything. The focus should instead be on establishing a framework, which engenders mutually beneficial trade, as understood by the individual trading partners.

More "free trade" is not always and automatically the best answer. Greater emphasis should be placed on ensuring that trade is mutually beneficial, and capable of achieving and maintaining the level of integration envisioned. 

It is no longer 1948the trade architecture needs to catch-up. The existing trade system was predicated on countries more or less following free trade, free markets, and a hands-off government approach to the marketplace. In practice, many countries such as Japan and South Korea, never followed that model. China's rise, built on a model of state-directed capitalism and quasi-mercantilist trade practices, was hidden in plain view, but widely denied. The current trade skirmishes reveal beyond question how ill-equipped the existing system is to adjudicate the inevitable conflicts that will arise between these very different systems.

Navigating this fraught path forward will require the same level of astute leadership that conceived and established the modern trade architecture in the aftermath of the Second World War. Unfortunately, we seem stuck in a counterproductive cycle of denial alternating with tit-for-tat retaliation.

But it doesn't necessarily have to be this way. Escalating trade tensions have a tendency to focus the mind and create a sense of urgency that can otherwise be lacking from staid trade deliberations. As we edge closer to the brink, the pressure of the moment might finally compel long overdue changes to our underlying assumptions about trade and the manner in which we reconcile conflicts between different economic and governance models. 

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