Global Trade and Trade Governance During De-Globalization

Global challenges, from the climate crisis to digitalisation, are faced by businesses as well as governments and international organisations such as the WTO and the OECD. Responding to these challenges requires large-scale co-operation and shared development goals. Co-operation on global trade and trade governance are no exception. Thus, there is a need for an in-depth understanding of the international trade and investment landscape and, in light of this, how recent shifts in the patterns of globalisation present a major challenge to traditional trade policy systems. It is necessary to develop new knowledge that helps to identify the implications of these trends on the links between trade, international business and development. This chapter gives an overview of the development of research on trade policy, with a particular focus on the international business studies perspective. It will highlight the main contributions and identify key themes. The chapter reflects on the development of trade policy as a phenomenon and the academic research related to it. Thus, the chapter contributes to the increasing interest in policy-related studies within international business research, with an emphasis on the role that international business scholarship can play in the development of new knowledge that is relevant to global trade-related policymaking.

Economic crises and geopolitical conflicts have had a profound impact on the historical evolution of global trade policy regimes. As has been shown in previous research, conditions of trade have historically depended on the power relations and the structure of the international system as a whole. An open trade regime has required the support of a great power or powers. The supporting power’s inability to provide a liberal trade regime with the necessary political leadership has resulted either in the regime’s gradual erosion, or in the case of crises, a relatively rapid transition from one regime to another. The chapter discusses the dissolution of the classical global free trade system in the late 1800s and early 1900s and the turn towards protectionism in the First World War and especially in the 1930s economic crisis. It then looks into the creation of the global free trade regime after the Second World War under US hegemony and the liberalization of trade in the Western world. This was followed by globalization of free trade from 1980 until the financial crisis in 2008, when the share of global trade of GDP peaked. Finally, the effects of a multipolar international system and renewed geopolitical tensions after 2008 are discussed.

The creation of the WTO in 1995 was emblematic of a moment in time. Three factors determined its shape: globalization was gaining rapid momentum; the collapse of the Soviet Union (before the rise of China) left the US as the sole superpower; and the economic consensus in the west had shifted from a post-war Keynesian to a neoliberal view that markets were the best way to allocate resources. The resulting WTO rule book for transnational economic governance was written by the west, particularly the US, to protect the rights of private firms while reigning in government intervention. The chapter explores these features and then turns to the challenges to the organization’s legitimacy, beginning with discontent among developing countries, which considered its terms to be unfair to their development prospects, and civil society. The US gradually came to resent the constraints that the WTO dispute settlement mechanism placed on its own behavior. As China grew as major trading power, several western countries began to agitate for changes in the rules to constrain the Chinese model of capitalism. The WTO is now strained further by rising geostrategic competition between the US and China and the economic and health effects of the global coronavirus pandemic. The chapter lays out three possible futures for the WTO as it navigates these complex currents.

The spectacular spread of the Regional Trade Agreements (RTAs) over the world has become a distinctive feature of international trade. We underpin the setting up of an interconnected global RTAs network that could be considered a basis for the new global trading system, parallel to the existing multilateral framework, so great is the scope of agreements linking states from all regions. RTAs cover more than half of the international trade. The nature of modern RTAs has undergone a dramatic change too. RTAs have become more extensive and comprehensive, embracing new disciplines that are not fully covered within the WTO, for instance environment, e-trade, human rights, SDGs, and others. At the same time, during the crises, a trend for the increased fragmentation of the global order is also mounting. RTAs could both represent a new form of protectionism, or provide a chance for trade liberalization. A hope for a breakthrough in global trade regulation depends more than ever on the RTAs and on the character of cooperation between the states participating in these agreements. For business and governmental policy-making, taking into account the legal arrangements within the RTAs networks becomes an imperative.

This chapter discusses how the phenomenon of global value chains is challenging trade policy thinking. It starts off by explaining how global value chains have elevated the importance of the trifecta of tasks, linkages, and firms in trade policy discussions. Next, it analyzes how the enlarged scrutiny on this trifecta has influenced policy thinking in four leading trade narratives in which GVCs play a central role: the global value chain participation narrative which focuses on the importance of participating in GVCs to boost economic development; the resilience narrative that concentrates on the impact of global value chains on a country’s economic resilience against global economic shocks; the economic upgrading narrative that focuses on the fastest pathways for countries to increase their value capture in global value chains; and the sustainability narrative that focuses on improving local social and environmental conditions in global value chains. The chapter concludes with a discussion of the complementarities and inconsistencies that exist between these narratives and what they mean for trade policy.

This paper attempts to examine the U.S.–China trade relations and policies. In this perspective, the U.S.–Japan trade frictions of the1980s and 1990s are instructive and reveal common features with the current U.S.–China trade war. Many of the U.S. government allegations raised against Japan in the past are currently raised against China. The focus is made on complaints of bilateral trade imbalances, “unique” economic or business organizations, and exchange rate manipulations. Relevant contemporaneous research and policy lessons are drawn from the management of previous U.S.–Japan trade disputes and their potential applicability to the current U.S.–China trade competition. Discrepancies between the two episodes are also taken into consideration, particularly the emergence and prevalence of digital companies and the technological competition between China and the United States. We highlight that the trade war is only part of a substantial debate in the United States about China’s rising economic power. The economic emergence of China is increasingly worrying the United States, as China is technological upscaling and is now a leader in several sectors (5G, Internet of Things (IoT), etc.)

Other than COVID-19, the biggest question in International Business in the United Kingdom (UK) and the European Union (EU) at present is the uncertainty arising from Brexit. Although this important issue has been shadowed by COVID-19, it is the most important factor that will influence the British and European Union (EU)’s trade policies and well-being for years to come. It has already caused great hostility and destructive competition between UK and EU for the management of COVID-19 and vaccination policies. However, beyond COVID-19, how UK will organise its international trade is of a great concern not only to businesses but to all stakeholders, consumers, suppliers, manufacturers, government institutions and the society in general. The future of UK economy depends largely on post-Brexit Britain and its international trade relations with the rest of the world. Brexit is a political, economic and social phenomenon that has not received much attention from researchers from business and management. To comply with result of a referendum that was held in 2016, the UK government triggered Art 50 to leave the European Union which is called Brexit (Britain exits the EU) on March 29th, 2017. However, it took more than three years to agree on the terms of this divorce, while a number of important issues have still not been agreed upon. UK definitely left EU on January 1st, 2021. It has captured global media interest and its consequences are not yet fully understood. Brexit has triggered some academic interest into the negotiation analysis and consequences from a suboptimal agreement (Ott and Ghauri, Journal of International Business Studies 50:137–149, 2019), however, its impact on the economy has not been systematically investigated. The British approach to looking outside Europe for trade relations needs to be closely investigated from an analytical perspective. This paper investigates the post-Brexit scenarios for trade with non-EU countries and their impact on British economy.

Trade challenges arising from international markets can affect all countries differently, even if they are similar in size and face similar or equal challenges—small states in particular. Because no two small states are the same, their responses to such economic challenges may differ. Domestic conditions and reform have always relied on effective democratic consensus and social coherence to address such challenges. Since the nature of economic challenges is unknown, this social consensus may be the only trade policy that any small state should strive for. This paper aims to look at how Iceland and Latvia coped with the common 2008 and 2009 economic and financial crises. Both experienced similar severe financial market challenges, resulting in an economic downturn. Nonetheless, their perspectives on the crises, international institutions, and actors from the standpoint of domestic responses differed. The outcomes of these responses and decisions in Iceland and Latvia had an impact on democratic consensus and social coherence in both cases. Furthermore, these responses and decisions had long-term consequences for Iceland’s and Latvia's prospects for social coherence and democratic consensus in dealing with future trade challenges.

A core component of the European Union’s (EU) commitment to combatting climate change is the international promotion of issues related to sustainable development. Historically, it has done this by means of different instruments, such as international cooperation or development aid, but recently, it has opted increasingly for trade agreements between the EU and third states. These agreements include rules on sustainable development, with the main motivation for their inclusion being to prevent ‘race-to-the-bottom’ dynamics between the EU and its trade partners. The logic underlying a ‘race-to-the-bottom’ scenario is that there is asymmetry in the ambition levels of the regulatory standards in developed countries, on the one side, and developing or transition countries, on the other. This raises the question of whether the trade agreements between the EU and its trade partners which are developing or transition countries are more detailed concerning sustainable development than those with advanced economies. The empirical analysis of 12 trade agreements reveals that the rules on sustainable development vary across the EU’s trade partners. When the trade partners are developing or transition countries, the corresponding sections in the agreements are longer and more detailed. Sustainable development is also addressed in the agreements signed with trade partners that have developed economies, but in a more concise manner.

This chapter will explore the key emerging innovations in EU trade policy, as it seeks to respond to the multiple conflicting pressures within the post-COVID-19 world. This will involve balancing the needs of their economies and businesses with the necessity to protect their populations, workers and the planet. Trade policy will need to respond, not just to the economic crisis and restructuring which COVID-19 has engendered, but also to the longstanding criticisms of globalisation which were widespread in the years leading up to it.

The chapter will highlight the key debates on trade policy, especially as policymakers seek to ensure that sustainability concerns are better integrated into EU policy at the unilateral level. The different proposals which are being enacted (or are under discussion) will be discussed and their potential impacts on international business highlighted. These impacts will vary depending on the sector, the extent to which companies have integrated sustainability concerns into their strategic orientation and their individual value chains. This complicates somewhat the development of a clear business and policy stance.

The chapter focuses on relations of megatrends and trade policy. Megatrend, originally coined by (Naisbitt, Megatrends, Warner Books, 1982), refers to a cluster of events, phenomena and trends that can be assessed to constitute a general direction and quality of future, defined relatively concisely and observed with historical data. Currently, megatrends are commonly discussed in media and public planning through such titles as “climate change”, “digitalisation” and “urbanisation”. However, it is not self-evident how to evaluate the actual impacts of megatrends in specific spatial and policy contexts. Thus, the chapter proposes that there are two lenses to conceptualise the impacts of megatrends. Through the first lens megatrends are unravelled as monolithic concepts, as centres of a discourse. The chapter suggests that there is also a second lens to read megatrends, that is, by perceiving them as contextual concepts. Based on this second lens, the chapter provides an outline of a framework to embed the trends or signals in a particular context, be it state, organisation or company. The chapter is divided into three sections. The first section discusses the common approach to megatrends critically and constructively. The second section outlines a future-oriented approach for contemplating the impacts of megatrends in specific contexts how to consider megatrends in the context of organisations and policymaking, and provides a framework to deconstruct and embed megatrends in a particular context. The suggested framework opens a variegated and relational perspective that aims at disrupting the linear and top-down orientation of mainstream “megatrend thinking”. The third section provides a stylised empirical example of how the future-oriented contextual approach could be used in explicating the European Union’s recent efforts to build an “open, sustainable and assertive trade policy”.

The objectives of increasingly free trade and broad trade agreements are not easily maintained amidst rising protectionism and megatrends such as increasing digitalisation and multipolarity of economic power. Moreover, the recent disruptions in international business and global value chains, particularly due to COVID-19 pandemic and the Russian invasion in Ukraine, put the achievements of globalisation to test and bring to surface new voices questioning even the liberal worldview, both of which have been favored and taken almost for granted in western economies. The chapters of this book comprehensively illustrate and explain the global trade policy evolvement and its implications to international business. Given the increasing number of values and priorities involved in policymaking, we see that trade policy formation is becoming increasingly challenging, complicating also the predictability of international business environment. While trade policy has been considered a rather distant issue to businesses focusing on their daily operations, particularly in the western, open economies, the policy impact on business is increasing, requiring new, strategic preparation and farsighted orientation from companies of various sizes. Some of us might receive these eye-opening times with disappointment, yet they should be seen as a stepping-stone to something new.