Late next month US president Donald Trump and Chinese premier Xi Jinping are scheduled for some face time on the sidelines of the upcoming G20 meeting in Buenos Aires, Argentina. Given the ongoing brinkmanship between the two countries on bilateral trade, speculation is building up ahead of the meeting that the two may bury the hatchet—especially since the US would have concluded its key mid-term poll, where confrontation with China is a central point of debate. Basically, we have to see if indeed either of the two leaders blink and they pull their two countries and the world back from a ruinous trade war.

Regardless of the outcome, the world in general and developing countries such as India, in particular, need to start readying for a new world trade order. On the face of it, a rather radical and counter intuitive thought, but it is unfortunately the new reality. The writing has been on the wall for some time; president Trump has only advanced the timeline on hitting the reset on global trade rules.

The backlash against globalization—the backbone of which was booming world trade—hitherto restricted to developing countries, now includes developed countries such as the US, too.

Dani Rodrik, professor of international political economy at Harvard University and author of a new book, Straight Talk on Trade, blames this on severe dilution of the rules for global capital movement, unleashing what we know as the era of financial globalization. “Essentially, globalization went from being a means for national economic prosperity to becoming the end—with national domestic priorities having to adjust to globalization’s needs instead of vice-versa," he said in an interview published in The Washington Post.

The immediate fallout of this backlash has been a fresh lease of life for populism. It provided an enabling environment to ensure that measures like trade retaliation become the primary weapon to appease the disenfranchised.

It is quite apparent now that the emerging new regime will not be the one defined around the principle of multilateralism embodied in the World Trade Organization (WTO). As my Geneva-based colleague D. Ravi Kanth has repeatedly pointed out in his news reports and columns published in Mint over the last few years, the developed countries have systematically worked to undermine the WTO and deny the inclusive agenda being pursued by developing countries such as India, Brazil and South Africa. The last ministerial conference all but formally buried the WTO.

The new trade order is more likely to be one built around the contours being drawn by a very assertive US under the leadership of president Trump.

The China stand off is of course the high point of this new paradigm. It is part of the carefully developed narrative, which has argued that only China benefitted from the prolonged phase of globalization—which American journalists in their enthusiasm eulogised as the benefits of a ‘flat’ world—enabling it to emerge as the second largest economy in the world; and now threatening to surpass the US.

Growing Chinese hegemony best defined by the One Belt One Road initiative only fuelled this narrative. The perception is that China needs to be contained, especially its peculiar (many would say questionable) ways of acquiring technological prowess. As a good populist, president Trump has been quick to seize the political opportunity to identify China as the prime target.

In fact, the re-negotiated North Atlantic Free Trade agreement (rechristened the US-Mexico-Canada agreement), as reported by the Financial Times newspaper, includes a clause which seeks to isolate China. The relevant section requires a member country to disclose details of any trade negotiations with a ‘non-market economy’ (read China). Basically, if the US has objections to any detail of such a bilateral trade deal entered into either by China or Mexico, then it can walk out of the agreement.

In the final analysis, it is then clear that the global trade order is poised for a reset. It will entail a lot of pain for sure; worse, global trade and, consequently growth, face a serious downside risk.

Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics. His Twitter handle is @capitalcalculus

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