The True Toll of the Trade War Sep 5, 2019 RAGHURAM G. RAJAN

https://www.project-syndicate.org/commentary/trump-trade-war-damage-by-raghuram-rajan-2019-09?utm_source=Project+Syndicate+Newsletter&utm_campaign=d58b1700af-sunday_newsletter_8_9_2019&utm_medium=email&utm_term=0_73bad5b7d8-d58b1700af-93854061&mc_cid=d58b1700af&mc_eid=be3809ebbc



For much of the last century, the United States managed and protected the rules-based trading system it created at the end of World War II. That system required a fundamental break from the pre-war environment of mutual suspicion between competing powers. The US urged everyone to see that growth and development for one country could benefit all countries through increased trade and investment.



...trade affected domestic workers unequally, but now moderately educated workers in developed countries – particularly small towns – bore the brunt of the pain, while higher-skilled workers in urban service-sector industries flourished.



...Like Japan and the East Asian tigers, China grew on the back of manufacturing exports. But, unlike those countries, it is now threatening to compete directly with the West in both services and frontier technologies.



...Most problematic, though, with China challenging the United States both economically and militarily, the old hegemon no longer views China’s growth as an unmitigated blessing. It has little incentive to benevolently guide the system that enables the emergence of a strategic rival. No wonder the system is collapsing.

Where do we go from here? China can be slowed but cannot be stopped. Instead, a powerful China must see value in new rules, even becoming a guardian of these rules. For that to happen, it must have a role in setting them. Otherwise, the world could break up into two or more mutually suspicious, disconnected blocs, stopping the flows of people, production, and finance that link them today. Not only would that be economically calamitous; it would increase misunderstanding and the possibility of military conflict.

Ideally, they would conclude a temporary bilateral patch-up. Then, all major countries would come together to negotiate a new world order, which accommodates multiple powers or blocs rather than a single hegemon, with rules that ensure that everyone – regardless of their political or economic system and state of development – behaves responsibly.