Understanding the challenges to the world trading system: A review essay

• Published date: 01 March 2018
• DOI: http://doi.org/10.1111/infi.12132
• Date: 01 March 2018
• Author: Meredith A. Crowley

DOI: 10.1111/infi.12132

BOOK REVIEW

Understanding the challenges to the world trading

system: A review essay

Meredith A. Crowley

1,2

1

Faculty of Economics, University of Cambridge, Cambridge, UK

2

Centre for Economic Policy Research, London, UK

FREE TRADE UNDER FIRE (4

th

edition)

Douglas Irwin

Princeton University Press, Princeton, NJ, 2015

THE HANDBOOK OF COMMERCIAL POLICY (HCP)

Edited by Kyle Bagwell and Robert Staiger

Elsevier (North Holland Publishing), Amsterdam, the Netherlands, 2016

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INTRODUCTION

The last 2 years have brought unprecedented challenges to the post-war world trading system that was

established in 1947. Beginning with the General Agreement on Tariffs and Trade (GATT), an

agreement that sought to reduce import tariffs and establish ground rules for fair trade among 23

countries, the system expanded to ultimately embrace a World Trade Organization of 164 countries;

deeper agreements that sought to integrate nations economically, like the European Union; and

hundreds of smaller regional trade agreements like the North American Free Trade Agreement

(NAFTA) that liberalized almost all trade in goods between close neighbours. Seventy years after

establishing the GATT as the architecture to govern and deepen trading relations among nations,

support for free trade and the institutions that support it has plummeted. In 2016, the world witnessed

the British public voting to exit from ever deeper integration with the European Union and the election

of a U.S. president who is a vociferous opponent of free trade and open borders.

The question confronting us today is whether recent changes in U.S. trade policy signal the end of

the post-war liberal economic order and the broad commitment to free trade or just a rejection of

particular institutions and/or specific policies.

The challenges to the rules-based system of trade governance (the WTO) are taking place in the context

of some important and relatively recent changes in the international economy. Firstly, the rise of global

supply chains, facilitated by improved communications and transportation infrastructure, has reorganized

the political economy of trade policy. The long-standing alliance between import-competing firms and their

workers to jointly lobby for import tariffs and other trade restrictions has given way to shifting and, at times,

divided interests with multinational firms having to consider the impact of any trade restrictions on their

foreign subsidiaries before worrying too much about their workers. Secondly, a number of economic

studies have documented the unprecedented magnitude of the difficult reallocation of U.S. workers out of

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© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/infi International Finance. 2018;21:92–98.