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US-China trade war
OpinionComment
Dani Rodrik
Dani Rodrik

The View | Why geopolitics, not protectionism, is the global economy’s true enemy

  • What some decry as protectionism and mercantilism ruining the global economy is really a rebalancing towards addressing important national issues
  • The biggest risk is not this broader reorientation – which should be welcomed – but US-China rivalry that threatens to hurt everyone

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US President Joe Biden speaks at an event at the Flex facility in West Columbia, South Carolina, on July 6. The Biden administration has enacted a series of measures designed to bring manufacturing and other jobs back to the United States and friendly countries, which some have decried as protectionism. Photo: Bloomberg
Dani Rodrik

“The era of free trade seems to be over. How will the world economy fare under protectionism?” This is one of the most common questions I hear nowadays.

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But the distinction between free trade and protectionism – like the one between markets and the state, or mercantilism and liberalism – is not especially helpful for understanding the global economy. Not only does it misrepresent recent history, it misconstrues today’s policy transitions and the conditions needed for a healthy global economy.
“Free trade” conjures an image of governments stepping back to allow markets to determine economic outcomes on their own. But any market economy requires rules and regulations – product standards, controls on anticompetitive business conduct, consumer, labour and environmental safeguards, lender-of-last-resort and financial-stability functions – which are typically promulgated and enforced by governments.

Moreover, when national jurisdictions are linked through international trade and finance, additional questions arise. Which countries’ rules and regulations should take precedence when businesses compete in global markets? Should the rules be designed anew through international treaties and regional or global organisations?

Viewed in this light, it becomes clear that hyper-globalisation – which lasted roughly from the early 1990s until the onset of the Covid-19 pandemic – was not a period of free trade in the traditional sense.
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The trade agreements signed in the past 30 years were not so much about removing cross-border restrictions on trade and investment as about regulatory standards, health and safety rules, investment, banking and finance, intellectual property (IP), labour, the environment and many other issues that previously lay in the domain of domestic policy.

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