Free Trade
Push for an Open World Economy

Karl-Heinz Paqué analyzes the shift in the international economical order
Hafen Singapur

The last decade has been tough for globalization. Since the early 1950s, the world’s economies had become increasingly intertwined and grown rapidly together. Except for brief periods of recession, exports and imports always grew faster than the global value creation. Growth almost automatically led to integration. Many regions of the world benefited massively from this development: First, the economies of Western Europe integrated among themselves and built transatlantic ties to the market economies of North America. Since the early 1990s, post-socialist Eastern Europe, large parts of East Asia, and the population giants China and India followed suit. Even in Africa and South America one could witness modest signs of economic integration, whereas Mexico forged closer ties with the U.S. and Canada.

After the global financial crisis of 2008/9, this process came to a halt. Some observers already declared the age of de-globalization, while others, like The Economist, coined the term "slowbalization." More worrying than that was the qualitative shift in the global power structure: China launched a global policy that used trade and investment in a neo-imperial fashion in order to create economic dependencies, above all vis-à-vis Africa and the southern periphery of Europe. The drama of Brexit - albeit cushioned with a last-minute deal - dominated Europe, whereas the U.S. pursued a harshly protectionist course under President Trump's "America First" doctrine. While the recovery of global trade after the financial crisis was already rather sluggish, the last few years have only added regression and new threats. Unilateral geopolitics pushed liberal free trade to the sidelines.

In the face of these developments, the parliamentary group of the Free Democrats in the German Bundestag called for a new initiative in trade policy this week. The timing could not be better, as Joe Biden's inauguration offers the opportunity for new approaches to foster economic integration with the U.S. At the heart of the initiative lies the creation of a transatlantic economic area. The economic area could be the European response to the Regional Comprehensive Economic Partnership (RCEP), that 15 countries in the East Asian region, including China, concluded in November last year. The fear is that the RCEP, which covers a market of almost 30 percent of the world's population, will become a new trendsetter for standards in the trade of goods and services. Some of the member states of the RCEP - especially China - are far from liberal in their conception of free and fair trade, but have significant and growing market power. The clock is ticking. Step by step, the scales are tipping in China's favor.

It is clear that countermeasures must be taken, by Europe and the U.S. together. The old transatlantic tie still remains the artery of the world economy; in fact, it is the largest market in the world. Even more important is the fact that it is east and west of the North Atlantic, where the global centers of liberal values are located, upholding the principles of democracy, market economy and the rule of law. It is here where the ideas of free trade were invented; and only here are they fully implemented, in the spirit of fair competition that is fundamentally different from the state capitalism that is practiced in China and Russia, for example.

Therefore, the U.S. under Joe Biden and Europe must act. However, this should be done in a pragmatic fashion: A comprehensive trade agreement like TTIP already failed several years ago – that is even before Donald Trump became President. The failure was not only due to American instincts of protectionism, which do have a long tradition in the history of the country. It was due, above all, to the uncompromising attitude of green-minded opponents of globalization in Europe, and especially in Germany, who feared the power of large American corporations, accusing them of systematically trying to undermine European social and environmental standards and the rule of law. It is time for these ghosts to be chased away and for pragmatic common sense to prevail. America is and will remain an ally - not only in the area of defense and security policy, but also in upholding the basic principles of the international liberal order. The greatest threats to fair globalization do not stem from U.S. capitalism but from the rise of authoritarian regimes and their geopolitical ambitions, which they seek to realize through trade policies.

Make no mistake: there is definitely a place for liberal visions and approaches in the new world of geopolitics. However, they have to adapt to the new realities. Therefore: no ambitious large-scale multilateral projects, but rather tailor-made agreements on a bilateral or plurilateral level that can be expanded step by step until, one day, they apply to the global level – containing standards set by the transatlantic partners and not by the firm grip of China. That is the basic idea of the FDP initiative. With determination, but also with the necessary humility in the face of the new reality, it aims at driving globalization forward again. This includes working on a "scaled-down" transatlantic trade agreement as well as on ratifying CETA, the agreement with Canada, and other bilateral trade agreements of the EU. It also includes reforming the World Trade Organization (WTO) in a way that allows post-Trump America to once again accept and actively support this organization that is paramount for fair trade in the world. This, in turn, requires a rediscovery of common transatlantic interests in order to lead the tough negotiations, especially vis-à-vis China, to modernize the WTO and to make it more powerful.