Huawei and TikTok Are at the Forefront of a New Drift to Regionalism – Many Others Will Follow

But the wealth created by globalization has been very unevenly distributed, which has caused domestic political disturbance in many corners of the world. Nationalist governments have responded to this new reality with protectionist measures, of which the U.S.-China trade war is only the most prominent example.

As a result, the trade liberalization promoted by the WTO has run into difficulty. This was clear from the breakdown of the Doha Round of negotiations in the mid-2010s due to unsolvable tensions between the member states. The WTO’s system for resolving trade disputes between countries has also become dysfunctional, stemming from a row over how it operates. Regrettably – but not surprisingly – the WTO’s director-general, Roberto Azevedo, announced he was stepping down a few weeks ago – a year before his term was due to end.

The Emerging Trading Order
In parallel with the rise in protectionism and the WTO problems, countries have increasingly been building regional trade blocs. Examples include the renewed North American Free Trade Agreement (NAFTA), the Pacific rim’s Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP), and the forthcoming China-led Regional Inter-sessional Comprehensive Economic Partnership (RCEP).

These agreements are all about further liberalizing trade between member states within a region. They do this by cutting tariffs, reducing administrative burdens by mutually recognizing one another’s technical standards, harmonizing public procurement rules, establishing similar employment levels and environmental protections, and giving easier market access to services.

These measures significantly reduce companies’ operating costs, particularly if their production lines are spread across the countries in the bloc. Ultimately they make supply chains more regional, making it easier to buy and sell goods and services within the zone.

But just like the U.S.-China conflict has caused difficulties for Huawei and TikTok, this regional approach to free trade creates tensions with the multilateralism of the WTO. Regional trading blocs run against the principle on which the WTO is founded, namely “most favored nation treatment”. This says that whenever one nation grants a trading concession to another, it should be extended to all other nations in the world.

Whenever regional blocs expand trade within their region, producers outside the bloc who can make the same goods more cheaply end up being discriminated against. Global welfare suffers as a result. For multinationals trying to operate global supply chains and trade around the world, this also represents a spaghetti bowl of red tape.

Yet the fact that we are now going to have rival trade blocs in Asia when RCEP launches at the end of the year suggests that more regionalism could be the shape of things to come. If so, this could further fragment the global trade system.

It is of course possible that more regionalism could stimulate global free trade in the long run. Once the nations within a bloc have become highly economically integrated, it may encourage outsider countries to join in a attempt to take advantages of the bloc. The UK’s move to participate in the CPTTP could be an early example. If this eventually encouraged multinationals to trade across regional blocs, global trade liberalization could move back up the agenda.

Equally, the superiority of certain players within certain blocs might make this happen by necessity. For example, Huawei’s dominance in 5G technologies and its efforts to establish an alliance in Asia and other developing countries raises the possibility that it might one day overtake the U.S. tech giants. If so, it may make western governments think again about whether protectionism was working as intended, and encourage them to re-embrace the system of global trade.

Zhongdong Niu is Lecturer in Law, Edinburgh Napier University. This articleis published courtesy of The Conversation.