The Case for Compensated Free Trade–The CFT Plan


November 17, 2018

The Case for Compensated Free Trade–The CFT Plan

by

https://www.project-syndicate.org/

Image result for dani rodrik trilemma

 

According to Harvard’s Dani Rodrik, the nation-state, democracy, and globalization are mutually irreconcilable: we can have any two, but not all three simultaneously. In fact, there may be a solution to Rodrik’s “trilemma.”

LONDON– Almost all liberals support globalization and oppose economic nationalism. They ignore the mounting evidence that, in its current form, globalization is dangerously incompatible with democracy.

Image result for dani rodrik the globalization paradox

In his 2011 book The Globalization Paradox, Harvard’s Dani Rodrik says that the nation-state, democracy, and globalization are mutually irreconcilable: we can have any two, but not all three simultaneously (he calls this a “trilemma”). All over the world, the “nation” has been revolting against globalization in the name of democracy.

That became clear this year when US President Donald Trump imposed the first of a widening set of tariffs against Chinese goods, with China retaliating in kind. Trump has also torn up two major international trade treaties and threatened to withdraw from the World Trade Organization.

The trigger for America’s turn to economic nationalism is its widening trade deficit – $566 billion in 2017, and growing – as the US economy recovers. But the deeper reason is the correct perception that the resulting current-account deficits are not “benign” when they are being financed by inflows of short-term capital, or “hot” money.

A current-account deficit means that a country is importing more than it is exporting. And those excess imports can lead to a net loss of “good” jobs. Six million manufacturing jobs disappeared in the first decades of the 2000s. The Rust Belt made Trump president. “It’s time to rebuild Michigan, and we are not letting them take your jobs out of Michigan any more,” he told cheering crowds in Detroit in 2016.

Trump’s protectionism also has a geopolitical root. Metal imports have led to the closing of many enterprises that might be needed for defense. China’s strategic “Made in China 2025” plan is a high-tech industrial policy aimed at transforming China into a dominant global leader in the industries of the future. It significantly relies on stealing advanced technologies from the United States. If MIC25 is successful, the US will have a depleted economic and political future.

In strictly economic terms, the political character of one’s trading partners should not matter. However, in a world of strategic competition, international commerce can be, and usually is, an instrument of policy, and its use in that context should not be denied simply because it breaches the sacred principle of free trade. As Friedrich List, the nineteenth-century pioneer of economic nationalism, pointed out, free trade assumes a peaceful world.

Selective tariffs can be useful for protecting defense-related industries or to prevent other countries from stealing cutting-edge technologies. But as an overall trade policy, tariffs are crude and inexact. The US will incur high costs and might end up without a substantially lower trade deficit or other meaningful benefits.

Is there a way to limit free trade that does not lead to trade wars? The economist Vladimir Masch has advocated an ingenious “compensated free trade” (CFT) plan as a way to achieve legitimate protectionist aims without disrupting the world economic system.

Under this plan, policymakers would establish a ceiling for the trade deficit each year and impose limits on trading partners’ surpluses. (Any products needed from a surplus partner would be exempted from the partner’s export limit.) In the US case, this ceiling would largely affect China, Mexico, Japan, and Germany, which contributed $375 billion, $71 billion, $69 billion, and $64 billion, respectively, to the overall trade deficit in 2017.

Under CFT, a trade surplus country can reduce its exports to the set limit. But it could also exceed its export quota if its government paid the partner government a fine equal to the value of the excess exports, either collecting the necessary sum from its export producers or using its currency reserves. (The receiving government could use the fines to enlarge its own investment programs.) But if the surplus country tried to exceed its export limit without paying the fine, its surplus exports would be blocked.

This “smart” protectionism has several advantages over crude tariffs. First and foremost, it would automatically prevent trade wars. Because CFT imposes limits just on the trader’s surplus, any attempt by the surplus country to decrease the value of its imports from the US would automatically decrease the value of its allowed exports.

Second, CFT would confront, in one stroke for each partner, government subsidies, price and currency manipulations, and the other dirty tricks of international trade. In contrast to prolonged and often fruitless haggling over trade treaties, results would be obtained immediately.

Third, by re-balancing the financial and trading arrangements of the global economy’s participants, CFT would represent a step toward addressing its current dysfunction. CFT is not a complete solution, because it leaves open the question of who should adjust to whom. A reformed global payments system, which mandates symmetrical adjustment of global imbalances, would need to tackle this issue.

Fourth, because of America’s leverage, its adoption of CFT would “nudge” reluctant trade surplus countries to accept such a payments system. Global finance would have to operate within the limits that a balanced payments system establishes.

Fifth, in terms of economic benefits to the US, implementing CFT would stimulate the return of off-shored enterprises and jobs, thus restoring the country’s industrial potential and social balance.

From a historical perspective, CFT essentially amounts to a unilateral activation of the scarce-currency clause (Article 7) of the Bretton Woods Agreement, which allowed the International Monetary Fund to declare “scarce” the currency of a country running a persistent trade surplus, permitting other members to discriminate against its goods. It is consistent with Article XII of the General Agreement on Tariffs and Trade (the WTO’s predecessor), which states that any country “in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.”

Inshort, CFT addresses trade deficits, overcomes the limitations of tariffs, fights trade manipulation, corrects current mainstream economic theory, and is a necessary step toward re-establishing a feasible global payments system. In a nutshell, it overcomes the Rodrik trilemma: one can have the nation-state, democracy, and globalization at the same time.

But only one nation-state, the US, has the clout to deliver this. By doing so, it would stop the global stampede to a virulent form of economic nationalism. For that reason alone, the Masch plan deserves serious consideration.

Lord Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

 

 

Awkward moments at ASEAN Summit in Singapore


November 17, 2018

Awkward moments at ASEAN Summit in Singapore

by mergawati zulfakar

http://www.thestar.com.my

Image result for asean summit 2018

IT is an ASEAN homecoming for Tun Dr Mahathir Mohamad at the summit hosted by Singapore. The last time he attended an ASEAN Summit was in Bali 15 years ago where then Indonesian President Megawati Sukarnoputri gave a tearful farewell speech.

This week at the 33rd ASEAN summit, all eyes will be on the Prime Minister again as he sits down next to another female leader who he has been critical of in recent weeks.

Image result for aung san suu kyi and mahathir in singapore

And because of ASEAN’s way of doing things, the seating arrangement will be done in alphabetical order – which means Dr Mahathir will be seated next to Myanmar’s Aung San Suu Kyi.

In his Address at the United Nations General Assembly (UNGA) in September, Dr Mahathir blamed Myanmar authorities, including a Nobel Peace Laureate, for closing their eyes to the fate of Muslims in Rakhine state who were being murdered and forced to flee their homes.

 

In an interview conducted the same week in New York, the Prime Minister made it clear that Malaysia would no longer lend its support to Suu Kyi over her handling of the Rohingya. He remarked that Suu Kyi seemed to be a “changed person” and he had lost faith in her.

For years, it was taboo for ASEAN leaders to even mention the word “Rohingya” during their meeting, skirting the issue by using words like Muslims and Rakhine state, bearing in mind ASEAN’s non-interference in the domestic affairs of another country.

But the situation became worse, and it is understood that Malaysia started raising the matter during the leaders’ retreat as recent as three years ago.

“The leaders’ retreat is where they can raise any issue but it will be unrecorded. But when we saw no serious efforts from Myanmar, Malaysia started using ‘Rohingya’ at official meetings,” said an official familiar with the issue.

“Obviously, Myanmar didn’t like it. It was an affront to them. We all know this is beyond the red line for them but we did it,” he added.

And Suu Kyi, who has been attending these summits, showed her displeasure. “You could tell from the body language and all that. She did not like it,” said an official.

At the ASEAN summit, the 10 leaders would normally pose for a group photo holding hands and giving their best smiles to the international media.Even former Prime MInister Datuk Seri Najib Tun Razak felt uncomfortable, telling his officers it was awkward.

So how would Suu Kyi handle someone who has lost faith in her? Would she care enough to find time and explain to a leader who once fought hard for Myanmar to be a part of ASEAN despite the world condemnation against the military regime that curtailed her freedom?

As for Dr Mahathir, the rest of ASEAN must be looking to him, wondering what he would do next.

“What else is Malaysia doing after such strident statements by the Prime Minister?No ASEAN country in recent times has singled out the leader of a fellow AASEANean country especially on the United Nations platform,” said an official.

When Dr Mahathir says he no longer supports Suu Kyi, what does he mean exactly? Suu Kyi is a legitimate leader who is still popular among her people.

“What is it that you want to do when you make that statement? What message are you sending? “How do you translate it through Malaysia’s foreign policy,” asked an observer.

“Malaysia must realise there could be some repercussion over such remarks. It may affect not only relations with Myanmar but also other ASEAN countries because “we are like a family”.

Whatever the Prime Minister utters is officially national position. Which means officials will have to rationalise it and implement it in the best way that will protect and promote Malaysia’s interests, not only in its relations to the country concerned but also ASEAN and globally.

For Malaysia to play a constructive role, it is important to protect and maintain some level of goodwill and trust. Putting it simply, it is vital to maintain good relations and keep the communication lines open”.–Mergawati Zulfakar

An official admitted that any statement deemed critical of leaders of another country could diminish any measure of trust that remains between Malaysia and Myanmar.

“In ASEAN or even Asia as a whole, face saving is very important. You do not humiliate, you don’t admonish if you want to maintain relations and some form of trust,” the official said.

Going tough on the Rohingya issue started in Najib’s time. Is Dr Mahathir’s speech at UNGA an indication that the current Government is not compromising and will take an even tougher stance on this issue?

Whatever the Prime Minister utters is officially national position. Which means officials will have to rationalise it and implement it in the best way that will protect and promote Malaysia’s interests, not only in its relations to the country concerned but also ASEAN and globally.

For Malaysia to play a constructive role, it is important to protect and maintain some level of goodwill and trust. Putting it simply, it is vital to maintain good relations and keep the communication lines open.

Mergawati Zulfakar –merga@thestar.com.my

The Coming of ‘Disruptive Politics’ in Asia


November 12, 2018

The Coming of ‘Disruptive Politics’ in Asia

Khmer Times

ttps://www.khmertimeskh.com/category/opinion/

A few years back, the world was shocked by the political developments in Europe which saw the rise of right-wing nationalism across several countries in the continent. Despite the hope of globalisation being kept alive by the election (and re-election) of pro-establishment forces in France and the Netherlands, the same cannot be said for its other European counterparts.

To the north, the British are certainly grappling on how to make a soft landing for its Brexit move, with many parties now calling for a second referendum to be held to resolve the on-going crisis. Months ago, the same unexpected situation also occurred in Sweden in which Prime Minister Stefan Lovren, as well as his Cabinet, was ousted from power following the post-election’s motion of confidence in the parliament, Riksdag. For sure, this is a blow to the EU as the country that accepted the most migrants, Sweden, is expected to depart from its existing migrant policy in the coming years or so. Germany, on the other hand, recently witnessed the emergence of the right-wing party, Alternative for Germany (AfD).

Whilst the European countries are struggling with right-wing nationalism in a wider scale, we, in Asia are also experiencing a new political wave that is relatively different than the former. The year 2018 is the most crucial year for the continent as there is an emerging trend of (political) regime changes in countries not expected to undergo regime changes in the first place. The main ramification, of course, is potential conflicts with the expansion of Chinese investments as well as China’s push for the Belt and Road Initiative (BRI) in these countries.

There are two types of political regime changes that are occurring in this part of the world.

Image result for mahathir mohamad

The first stunner to the world and China will be the watershed victory of Malaysia’s Pakatan Harapan (PH) in the May general election this year. One of the longest surviving political regimes in the world, the then ruling coalition, Barisan Nasional (BN), had been overthrown from power since 1957. With its ouster from power, it further showed to other long serving regimes in Asia that it is totally possible for such deep-rooted political regimes to collapse through democratic electoral process.

As for China, the PH’s victory proved to be a challenging risk to infrastructure projects which it participated with the Najib administration. Adding to this is the property development and plastic recycling projects that are now being evaluated by the PH government for its multiplier effects and adverse impacts. The Malaysia case, therefore, is the clearest example of how political regime change is affecting not just Chinese projects but also China’s BRI push in Asia.

Image result for maldives new president 2018

 

 

Ibrahim Mohamed Solih, the opposition Maldivian Democratic Party’s candidate, emerged victorious over incumbent president Abdulla Yameen in the election held on September 23.(Reuters Photo)

The other clear example will be Maldives. After its own watershed election, the Maldivian electorate sent Ibrahim Mohamed Solih to power and ousted incumbent president Abdulla Yameen. This is yet another shocking development that rattled the world. Not to mention China which provided millions of dollars in loan to the island nation during the Yammen administration? More importantly, Mr Solih’s victory injected a sense of sanguinity to India as the former is seen to be closer to New Delhi instead of Beijing. Again, the political development in Maldives is worthy to be observed if such claims by Indian and foreign media will be translated into Malé’s different approach to the Chinese projects and the BRI push.

As for Pakistan, the victory of Imran Khan’s Pakistan Tehreek e-Insaf (PTI) in the July election is unexpected in that pundits and media certainly did not foresee the big majority being garnered by the party. Adding to that is the victory of a political establishment which is not from either the Sharif or the Bhutto political dynasties.

Image result for imran khan

Also, the Pakistan case remains to be relatively clear example of how political regime change will affect both the Chinese investments as well as China’s BRI push in Asia. Following his election, Mr Khan declared his intention to strike a ‘balance’ between its all-weather partner, Beijing and its once ally, the US. Compounding the complexity will be Islamabad’s search for a rescue package from the US-dominated IMF — which in turn, asked the new government to reveal its Chinese debts as a pre-condition for such financial assistance — as well as China’s new loan offers to Pakistan to help solve its national debt crisis.

In all, the three cases of Malaysia, Maldives and Pakistan scenarios indicate that political regime change is an emerging trend in the Asian continent. Considering the fact that it comes at the time Beijing is expanding its footprints in the region and beyond, such trend of regime change is bound to affect in one way or another, Chinese investments as well as China’s BRI push in Asia.

Anbound Research Center (Malaysia) is a subsidiary of ANBOUND, a leading independent think tank headquartered in Beijing. The think tank is also a consultancy firm specializing in China-ASEAN cooperation. For any feedback, please contact: malaysia@anbound.com.

We Are All Isaiah Berliners Now


November 8, 2018

Argument

We Are All Isaiah Berliners Now

The political theorist and historian Isaiah Berlin on Oct. 23, 1992. (Sophie Bassouls/Sygma via Getty Images)

The political theorist and historian Isaiah Berlin on Oct. 23, 1992. (Sophie Bassouls/Sygma via Getty Images)

Nationalism is back, but nobody seems to know what it means. A forgotten essay marking its 40th anniversary can help.

By Robert Zaretsky

At his Houston rally on October. 22, U.S. President Donald Trump got one of his loudest cheers when he used the “n-word.” No, not that “n-word,” but another one that respectable public figures are not supposed to use. Teasing his full-throated audience, Trump clucked his tongue: “Really? We’re not supposed to use that word?” After a brief pause, he brayed: “You know what I am? I’m a nationalist. OK? I’m a nationalist.”

The crowd, of course, roared while commentators pored over the word’s significance. What, precisely, does it mean to be a nationalist? Does it carry the same meaning for those who bawled their approval at Trump or, for that matter, those who bewailed its ascendancy in Western politics? The answer, pretty clearly, is no—but much less clear is whether either side has a clear grasp of what a nation even is.

The best guide to our current encounter with nationalism happens to be celebrating its 40th birthday. In 1978, the renowned political theorist and historian of ideas Isaiah Berlin published “Nationalism: Past Neglect and Present Power,” his final and fullest account of nationalism. Berlin attempted to capture what he called, rightly, “the most powerful, single movement at work in the world today.”

It is, Berlin warned in words all too relevant today, a movement that for those who failed to predict its growth “paid for it with their liberty, indeed, with their lives.”

The funny thing about nationalism, for Berlin, was that he should be discussing it at all in the mid-20th century. When it first appeared on the European stage—and this regional stage, truth be told, was the only one that truly interested Berlin—neither the actors nor audience anticipated a long run. Liberal observers, in particular, dismissed nationalism as a passing phase—a reaction to the despotic reign of thrones and altars across the continent. Once these reactionary vestiges of the dim past were relegated to the wardrobe, nationalism’s role would be made redundant.

Yet, among the many isms formed in the crucible of the French Revolution (1789), nationalism proved to have greatest lasting power.

From communism to totalitarianism, socialism to liberalism, it is the last great ism standing. For Berlin, the sources of this durability reside in our very nature. “The desire to belong to a community or to some kind of unit, which … has been national in the last 400 years,” Berlin once said, “is a basic human need or desire.” This, for Berlin, was less an argument than an acknowledgment—it is, quite simply, how we are built. The need for community is the common grain running through the crooked timber that constitutes humankind.

As for his definition of nationalism, Berlin could prove as hard to pin down as the concept he was hunting. Even sympathetic critics observed that he could contradict himself not just from one article to the next but at times within the same article. Moreover, Berlin did not offer taxonomies as much as he offered tales. His writings on nationalism, with their usual cascades of clauses and subclauses, are discursive and often digressive. (No doubt, Berlin would have agreed with Herodotus’s claim that his own many digressions are his history.) Finally, as a student of nationalism, he was more comfortable in the company of those who thought and wrote about it instead of those who channeled and acted upon it.

Nevertheless, Berlin presents a largely coherent account of nationalism, one that he builds out from four fundamental claims.

First, nationalism claims that all human beings belong to particular groups whose way of life—language, customs, and culture—differ from one another. The critical corollary is that members of this group simply cannot be understood outside the group that has formed and informed them.

Second, it portrays the group as a kind of biological organism, one whose development and ends are primordial. Should the group encounter certain values that are not its own, its own must prevail.

Consequently—and this is the third claim—nationalism declares that the beliefs and principles of this group are to be privileged precisely because they are the group’s. There is no higher or greater standard. Finally and fatefully, it holds that a group has the right to force other groups to yield should they come into conflict with it. “Nothing that obstructs that which I recognize as my—that is, my nation’s—supreme goal, can be allowed to have equal value with it,” Berlin wrote.

Image result for Johann Gottfried Herder

From the first to the fourth trait, Berlin more or less travels the distance between what we might call benign and malign nationalisms. The first, and perhaps only, true philosopher of nationalism Johann Gottfried Herder, for whom Berlin had a soft spot, gave voice to the kinder and gentler form of nationalism. Friend of romantics and enemy of rationalists, and the man who coined the term “nationalism”—Nationalismus—Herder portrayed humanity as a dazzling mosaic of peoples, each infused with its own particular values and views but each enthused by the prospect of peaceful coexistence. For him, the group was defined not by blood or race but instead by a shared language and history.

But caught in the ideological sheers of 1848, Herder’s nationalism had the durability of a fruit fly. In fairly quick order, its malign cousin came to dominate European affairs, ravaged the continent during the first half the 20th century, and, after a 50-year respite, now threatens to undo the European Union and, for good measure, the United States. What happened? For Berlin, the answer is found in the metaphor of the bent twig. By this image, he made the case for what we might now call “cultural backlash”—a particular group’s slow accumulation of real or imagined injuries and insults that, when economic, political, and cultural factors converge, snaps back with sudden and sharp violence.

Admittedly, Berlin was not always consistent in his attitude toward nationalism. At times, he seemed to accept it, not embrace it, while at other times he compared it unfavorably to what he called “national consciousness.” Whereas the latter is, he believed, a fact of human existence, the former is a “pathological condition.”

Reaching for yet another vivid metaphor, he described it as a “state of wounded consciousness,” one that lashes out at either its real or imagined enemies. At other times, though, he seemed to believe that nationalism, at least in the tolerant variation he associated with Herder, was not only inevitable but also valuable.

No less importantly, Berlin argued that while demagogues can and will exploit this wounded consciousness, they do not invent it. These wounds instead result from the savage pace of financial, technological, and social changes in liberal democracies. Ambitious politicians who pose as nationalists or populists do not inflict such wounds but instead inflame them for their own ends. What Berlin called “faux populists” seek to create an “elitist or socially or racially unequal regime, which is totally incompatible with the fundamental, if not fraternity then, at any rate, the passionate egalitarianism, of the real populist movement.”

Related image

Along with Richard Hofstadter, Berlin grasped earlier than many observers the growing resentment of citizens toward the cosmopolitan elites. In a 1967 conference devoted to populism, Berlin noted the hostility of what was only recently christened the “silent majority” toward “the excessive civilization of the East Coast, its centralized capitalism, Wall Street, the cross of gold, frivolous, polite, smooth forms of insincere behavior on the part of Harvard or Yale university professors, or smooth members of the State Department.”

At first glance, Berlin’s position smacks of irony. After all, his own life, personal as well as professional, was conspicuously cosmopolitan. Yet he spurned cosmopolitanism as an “empty” claim. People, Berlin insisted, “can’t develop unless they belong to a culture.” In this sense, Berlin might have concluded that the self-evident truths of the Declaration of Independence are the tribute that U.S. particularism pays to philosophical universalism.

But this stance did not make Berlin a conservative—or, rather, it made him as odd a conservative as he was a liberal. While deeply skeptical of multiculturalism, he embraced value pluralism, which claims that human values do not all issue from a single source.

Instead, values are nearly as multiple as are peoples and are consequently often “incommensurable”—one of Berlin’s pet words—with one another. Nationalism, he believed, need not be malignant. By the same token, liberalism need not be blind to the human need to be recognized as members of something greater than the individual and the resentment that festers when this recognition is denied.

Ultimately, Berlin believed the cure to nationalism was more nationalism. Not, though, the closed and aggressive forms of political nationalism now simmering in the West but instead the open and defensive nationalism embodied by Herder.

Image result for ürgen Habermas

Jürgen Habermas

This form of liberal or civic or constitutional nationalism, since taken up by thinkers such as Jürgen Habermas, insists on the existential importance of an individual identifying with a group defined by a common language and values. But it also insists on the existential danger of transforming this sense of belonging into the reflex of abominating other groups.

Robert Zaretsky is a professor of history at the University of Houston’sHonors College, and author of the forthcoming book Catherine & Diderot: The Empress, the Philosopher, and the Fate of the Enlightenment.

We Are All Isaiah Berliners Now