Trade War and Global Economic Architecture

The recent decision of the United States to impose punitive tariffs on imports from China and the European Union, and the retaliation of these trade partners in tandem, is of concern to the global community. In analysing these contemporary events, it is argued that the genesis of the trade war can potentially be traced to the piling up of global imbalances, and the failure of the global financial institutions or fora—like the World Trade Organization and the International Monetary Fund—to address such imbalances. In such a context, whether the emerging economies have the ability to influence the course and outcomes of the current trade war, and whether this trade war can generate the possibility of reform of the international institutions are explored here.

The authors are grateful to the anonymous reviewer for detailed comments on this paper.

The initiation by the United States (US) of a trade war in March 2018—that has targeted both economic competitors such as China, and close allies such as the European Union (EU), Canada and Mexico—might prove to be a watershed event for the post-war international system. What we are witnessing may not just be an attempt by the US to rebalance its trade, but perhaps also the “end game” for the Bretton Woods system. This system, which has regulated international trade, global finance and developmental assistance, and has been the bedrock on which the post-World War II international economic architecture was built, may be about to experience tectonic changes.

In this paper, we present some aspects of the present “trade war” and suggest that the associated issues go far beyond trade and touch upon other aspects of the global political and economic order centred on the Bretton Woods system. We argue that US actions could trigger countermeasures by other major economies that could destabilise existing international economic agreements and institutions. Finally, we discuss some implications of this for the Bretton Woods system and also provide an emerging economy perspective on the implications of this current trade conflict.