The June G20 summit in Osaka, Japan, saw a temporary ceasefire in the U.S.-China trade war and an easing of restrictions on U.S. companies selling to Huawei. Although welcome, these outcomes failed to meet the larger goal of restoring the stability that was a hallmark of the global trading system before the sharp rise in friction between the United States and China.
The Trump administration’s aggressive stance against China generally, and against Chinese technology companies in particular, has threatened to decouple the world’s two largest economies. That is an alarming prospect, as nearly 60 years of history have shown that the best way for rival countries to avoid war is through economic integration. International organizations such as the World Trade Organization and the G20 make such integration easier, stabilizing trade and easing political tensions.
One of the Osaka meeting’s more encouraging results was that 24 signatories, including China, the European Union, Singapore and the United States, endorsed the Osaka Declaration, a framework aimed at promoting the cross-border flow of data. Signatories acknowledged that the free flow of data across borders fosters innovation and productivity growth. By embracing a new set of principles on digital governance, these signatory countries and regions will help stabilize and stimulate digital trade.
This is welcome news. Global trade plays a vitally important role in maintaining geopolitical stability, and digital trade is a part of that. But it needs to be viewed holistically, with a view toward keeping the digital economy open and accessible. All too often, policymakers view the digital economy as being largely about e-commerce. Instead, it includes the equipment on which the network runs, the content traveling over the network, and the smartphones and other consumer devices that display this content. It also includes the electronic sensors that allow people and objects (such as cars) to connect to networks, forming the Internet of Things. Decision-makers who limit their focus to e-commerce risk missing out on a significant chunk of high-value economic activity.
Policymakers should understand that countries prosper when the digital economy remains open. U.S. actions, such as leveling punitive tariffs against China and blacklisting Huawei, run counter to this basic principle. Industry groups have pushed back strongly, while companies affected by the restrictions are petitioning for exemptions to them. In Osaka, President Trump seemed to suspend enforcement of the blacklist, acknowledging that pressure from U.S. companies played a role in his decision to do so.
Policymakers should also consider that national security cannot always be used to justify trade restrictions. Several commentators have pointed out that the Trump administration seems to be blurring the line between national security and protectionism by invoking national security when imposing quotas on steel imports from Canada, Mexico, the EU, and Australia, and when threatening to impose them on car imports from the European Union. Other commentators have pointed out that while governments must guard against legitimate threats, they should not use national security to justify measures that are essentially protectionist, or to circumvent constitutionally enshrined checks and balances.
Australia cited national security concerns when it blocked Huawei from selling telecommunications equipment into its 5G market, a move experts say will do little to improve the country’s network security. WTO law experts in Australia believe that Australia’s 5G ban could be vulnerable to a challenge at the WTO. Similar discriminatory restrictions in the United States could be equally vulnerable. China would only be asserting its legitimate rights if it were to decide to bring these cases before the WTO.
The economic progress of the last 60 years was built on a stable, predictable, rules-based system of multilateral trade. The outcomes from Osaka hold out hope that the international trading system might be restored to its previous level of predictability, with grievances negotiated or litigated according to established rules and procedures.
The disruptive unilateralism displayed by the Trump administration, particularly the attacks against Huawei and Chinese technology companies, have done enormous damage to the global economy — especially the digital ecosystems on which tomorrow’s most advanced applications will depend. One can only hope that reason and predictability will return soon to the global trading arena.