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17 May 2024

Nixon and the art of trade war

How America exploits “free trade” to secure its hegemony.

By Quinn Slobodian

We are addicted to thinking in paradigms. One era begins, another ends. The book market for titles with “the age of X” has spawned a whole subgenre. But what does this version of what the sociologist Mike Savage calls “epochalism” cost us? We see rupture instead of continuity and offer a permanent incentive for political actors to loudly announce a break with all that has come before.

The latest version of this comes with loud announcements of the end of neoliberalism and the arrival of “the post-neoliberalism moment.” The leading evidence for a paradigm shift is US trade policy, in which an era of free trade and multilateral governance seems to have given way to one of zero-sum competition, national protection and state-led industrial policy. The post-1945 era is over, we are told, and the 1930s are back. Some fear that a trade war could lead to a shooting war while others celebrate the revival of manufacturing.

The United States delivered a signature version of “post-neoliberal” trade policy on 14 May when it raised tariffs on Chinese electric vehicles from 25 per cent to 100 per cent, on semiconductors from 25 per cent to 50 per cent, and on steel and aluminium to 25 per cent to protect sectors and make jobs that are “vital for America’s economic future and national security”. Biden’s policy is a continuation of the tactics first used by Donald Trump who rolled out similar tariffs in 2017. At the time, predictions of the effect were drastic (Biden himself opposed them), but they have become bipartisan common-sense very quickly.

But how much of a rupture are they with the neoliberalism that preceded it? Look more closely and it’s easy to see how the tools for this trade war have been there all along. In fact, the US has always been good at combining unilateralism with use of the multilateral rules. 

Two versions of a new international economic order turned 50 this year. One, abbreviated to “NIEO” and revived recently, was spearheaded by the bloc of poorer nations called the G-77. It passed the UN General Assembly in February 1974, called for global redistribution and more resources for industrial development. But this was not the first NIEO. Richard Nixon had already been using this term for a year. What he meant was that the era of reconstruction after the Second World War was over. The vanquished fascist powers of Japan and West Germany were now post-fascist competitors and no longer needed special treatment. He had already freed the proverbial money-printing presses by delinking the dollar from gold. The Trade Reform Act of 1974 launched a series of new eras: of détente, as it was designed to increase trade with the Soviet Union; of new talk of “interdependence”; and of “fair trade.” 

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The primary tool to achieve fair trade was hidden in a subclause with a long afterlife: Section 301. Under this provision, anyone could prompt a US investigation into a trade partner for practices deemed in some way unfair – the list could run from infringements on intellectual property to dumping. Retaliation meant suspending free-trade arrangements until the other party acquiesced. 

The international trade lawyer Robert Hudec saw at the time that “the new authority will not be easy to contain”. America had built an escape hatch into the architecture of global trade rules. Section 301 was strengthened over the years, putting ever-more power into the hands of the executive, meaning both the president and their appointed trade representative.

The next two decades saw a continual stream of Section 301 investigations, mostly targeting Japan, western Europe and eventually the “Asian Tiger” economies of Taiwan and South Korea. They receded to near zero after 2000 as the US pursued its interests through the World Trade Organisation (WTO), which came into existence in 1995, but even then the US made it clear it was not retiring old weapons. Just a few months after the agreement was signed, the US placed $6bn of tariffs on Japanese auto imports. Satisfying domestic politicians meant flashing both the multilateral and unilateral sides of the trade blade.

Looking at history through Section 301 cases – which returned with a vengeance after 2017 – it’s clear that we are not leaving some sun-dappled postwar golden age of several decades. Nor are we necessarily returning to the walled states of the 1930s. If anything, we are leaving a brief early-millennial interregnum of hyper-globalisation when the US opted for WTO cases rather than unilateralism. We are still living in Nixon’s world.

What do we gain by forsaking epochalism and apocalyptic predictions of decoupling and de-globalisation? It is a good reminder that things usually change less dramatically than politicians – and the media – claim. Yet in this case it might be the claims of politicians that are what is most at stake. What matters to Biden – and what explains the timing of the splashy announcement – is less the immediate effect it will have on production as the signal it sends to voters in a rapidly approaching election.

Hudec wrote elsewhere that international economic law has a “political theatre dimension”. It is not just a place where specific interests are protected and economic reasoning rules but where visions of a more just and equitable future are projected. Whether this latest move accelerates a slide towards militarised confrontation with China or boosts the idea of a more self-sufficient multipolar trade order remains unclear. For those hoping for a more equitable American economy, the voter response to “Bidenomics” thus far has been demoralising. Advertising a new paradigm at a moment of high interest rates when people feel stymied by daunting monthly mortgage payments or credit-card minimum payments is a hard sell. The advantage of Section 301 is the power it grants to the executive allows a rare moment when the president can claim direct authorship of an economic outcome. But the meaning of theatre, as critics remind us, is determined in the end not by the actors but by the audience.

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