COMMENTARY: International Group of Scholars Calls for a New Way Forward in Trade War

With five Nobel laureates among them, group from NYU Shanghai rejects idea that China must restructure entire economy to avoid a ‘decoupling.’
Mark MelnicoeOct 31,2019,02:24

With no end in sight to a trade war that is inflicting real harm to the global economy, perhaps it takes a group of academics to advance outside-the-box thinking to jump-start moves toward a solution. New ideas certainly are not coming from Team Trump or Team Xi.

Some of the world’s best economic minds have been doing just that, and the result is a report out this week, “A Way Forward,” that aims to change attitudes that are inhibiting a resolution to the dispute.

Three dozen Chinese, American and international economists and legal scholars, with five Nobel Prize winners among them, described the trade war as a false choice.

“We believe the acrimony and impasse are in part the result of a worldview that assumes there are only two options:

a) China undertakes significant reforms in its industrial, intellectual property rights and other economic policies to ensure the degree of state intervention in the country’s economy more or less resembles that of other WTO members, while the U.S. reverts back to pre-2018 trade policies; or

b) The two economies significantly reduce their economic interdependence (“decouple”), possibly through an intensification of the trade war.”

This provides a useful framework for looking at just how serious the impasse has become. Here you have two extremes, where either China capitulates by changing its very economic structure or the world’s two leading economies separate in a catastrophic decoupling, throwing globalism into disarray.

This spelling out of the problem and call for new thinking comes courtesy of a group that gathered at NYU Shanghai, the first joint Sino-U.S. research university and one populated by some of the globe’s top economists.

Before a full house in the NYU Shanghai auditorium, the scholars urged the two governments “to adopt a negotiating approach that could enable each country to simultaneously adopt its own economic model, protect itself from economic injury by the other, and allow its citizens to enjoy the maximum benefits of mutual trade,” the university said in a news release.

Dani Rodrik, professor of international political economy at Harvard University’s Kennedy School of Government, described the plan as a new “conceptual vocabulary” to reframe the U.S.-China relationship in a way that protects the interests of both countries while “managing the costs and benefits of cross-border spillovers.”

Specifically, the group called for allowing each country to design a wide range of industrial policies, technology systems and social standards; allowing them to use policies – including tariffs – to protect their policy choices without “imposing unnecessary and assymetric burdens” on each other; and maintaining a set of fair trade rules.

Rodrik maintained that even if Trump weren’t president, U.S.-China relations are off track and need repair.

“What [US political leaders] have not done is fold domestic-oriented trade policies into a kind of international strategy, a global strategy, and what that will entail in terms of their relationship with China,” he said. “What I hope our approach will do is actually provide that missing link.”

China also came in for some constructive criticism, from Yal Yang, dean of the National School of Development at Peking University.

 “China is not a small country if you think about its size, its economy or its influence in the whole world,” Yang said. “So China needs to change its international paradigm (and) also needs to be sensitive to the shocks that the United States has received in the last round of globalization.”

After a year and a half of increasing tariffs, unduly harsh rhetoric (especially from the U.S. side) and a distinct lack of progress, it’s amazingly refreshing to hear ideas for a new approach.

The report was devised by a joint working group of ten scholars at the New York City campus of NYU. Some 27 scholars from the U.S., China, Canada, and Europe – including five Nobel Laureates– have endorsed the plan, which can be read here.

Ker Gibbs, who heads the American Chamber of Commerce in Shanghai, said U.S. business is behind the plan.   

“The American business community is very uncomfortable with the current situation, but we do fundamentally support a rebalancing of this relationship … and both sides need to understand the needs of the other side,” he said, according to the NYU news release.

With Trump in office, it’s hard to foresee his hardline team accepting any of these recommendations, because they call on both countries to seriously consider the other’s position. But the report could serve as a blueprint for both sides when the next U.S. administration takes over. Perhaps then, calmer heads will prevail and an end to the trade war will come within sight.


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