For almost two decades now, we have been writing that corruption is a danger to the global order, and especially to global trade. Corruption, we have said over and over, could and would, in time, destroy the values that created that global order and make free international trade impossible. Twice, in support of our contention, we have cited an article written for the Wall Street Journal more than twenty years ago by Thomas Duesterberg, a friend of a former colleague of ours and then a senior fellow at the Hudson Institute, who explained just how perilous and fragile the global commercial order is. He wrote:
Out of the ashes of World War II, the U.S. and its allies erected a new economic order that has produced the broadest and most sustained period of prosperity in world history. Its basis is a system of rules to govern, facilitate and promote commerce. The U.S. and its allies assisted many nations, starting with Japan and Germany, in building domestic commercial and legal codes that assure property rights, promote the free exchange of goods and services and facilitate enforcement of contracts. International trade was fostered by a parallel system of rules covering the exchange of goods and (later) services embodied first in the General Agreement on Tariffs and Trade and its successor, the World Trade Organization (WTO).
Starting with a core group of like-minded nations, the WTO has grown, in terms both of the commerce covered by its agreements and of the proportion of the world's population voluntarily abiding by its rules. The U.S. has remained an acknowledged champion of that system, despite domestic political pressures to stray.
All of this is critical to understanding the current “trade war” that so many conservatives now believe President Trump has started. Yes, free trade is an ideal value. And no, Trump’s actions will not, ultimately, “save” the American blue-collar worker. At the same time, however, his trade actions send a message that desperately needs sending: play by the rules or expect to be punished.
The simple fact of the matter is that many of the nations with which we trade do not play by the rules necessary to ensure that trade flows freely, China in particular. China is NOT a nation that respects the values of a free and open society. It does not fully embrace property rights. It does not promote the free exchange of goods and services. It does not believe that contracts necessarily need to be enforced. It may say it does; its leaders may pay lip service to such values, but that’s all it is, lip service. As we noted back in the ‘90s, when the U.S. Congress was again debating “Most Favored Nation” (MFN) trading status for China: the Chinese do not play by our rules; they never will; and yet we’re inviting them into our sandbox, pretending that they’re just like everybody else.
Less than two years ago, the Business Anti-Corruption Portal (BACP), which is a project created and funded by the European Commission, issued a scathing report on China, which should serve as a warning to anyone doing business with the PRC. In this report, the BACP repeatedly warned of the Chinese government’s exploitation of “guanxi,” a term meaning “social relationships” or personal networks. Guanxi functions, more or less, to ensure that capital is not put to the best or most productive uses, but to those that uses that are the best connected. For our part, we have been aware of and have discussed the pitfalls of guanxi for a long, long time. Indeed, our first citation of the Duesterberg/WSJ piece above appeared in an article we wrote called “Guanxi, Schmanxi” which doesn’t appear in our archives because we wrote it so long ago that the word-processing software we used is not compatible with Microsoft Word.
Sadly, the problems of endemic corruption and the role they play in global commerce are not limited to China. Russia, Mexico, Turkey, Pakistan, Argentina, and so on, are all members of the World Trade Organization, which is to say that they’re all playing in our trading sandbox. And they all do so without any regard for the standards and norms that made the construction of the sandbox possible. Worse still, they know it and we know it and we all keep playing, as if nothing’s wrong.
We don’t want to give anyone the impression that Donald Trump is a pure capitalist or a commendable free trader. He is neither. And he never will be. Nevertheless, when he says that we must protect the country and its citizens from “the ravages of other countries making our products, stealing our companies, and destroying our jobs,” he has a point.
As we said, free trade is an ideal for which we, as a nation, should strive. But that doesn’t mean that we need to disarm ourselves unilaterally.