There was some good news this past Sunday for China and the United States and the entire global economy for that matter: The trade war between the two largest economies in the world – the U.S. and the People’s Republic of China respectively – has been momentarily averted. After several days of intense negotiations between delegations led by U.S. Treasury Secretary Steven Mnuchin and China’s Vice Premier Liu He, the two countries agreed to put their proposed tariffs on the import of each other’s goods “on hold”.
This is good news for a few reasons. Firstly, trade wars injure everyone – not just those fighting it. The economies of the rest of the world would suffer from the beggar than neighbor policies that see tariffs and other barriers to trade increase, making goods (including the components for production) more expensive in the countries that raise tariffs. Protectionist policies are the opposite of free trade – leading to trade distortions and higher prices for consumers.
Moreover, bans on imports of goods, like the ban on U.S. exports of telecommunications components to ZTE, the Chinese high tech behemoth, can force companies to actually shutter their operations. After the U.S. Commerce Department announced the ban on ZTE because of its violations of U.S. sanctions by selling equipment to North Korea and Iran, the company announced it would be going out of business. Perhaps as an inducement to the Chinese to negotiation, President Trump sent a lifeline to the Chinese company a week ago Sunday saying that the ban might not go into effect. The opposite of the tit for tat retaliation began in earnest: The Chinese government cancelled the 179% import charge on sorghum from the United States, a crop that is used to feed livestock and to make a liquor product that is popular in China, it had threatened only two weeks earlier.
As the U.S. and Chinese governments were ramping up hundreds of billions of dollars worth of tariffs on products being exported to each other, cooler heads prevailed.
This does not mean that the U.S. government is going to stop complaining that China has long been violating the Intellectual Property (IP) rights of U.S. businesses. Nor does it change the more than $375 billion trade deficit that U.S. endures with China. Much work on those issues is needed. The United States cannot magically start selling the $200 billion more goods and services to China to reduce the trade imbalance. But the cooling down of the looming trade war means that the two largest economies in the world can work out its differences over the long-term rather than engage in short-term trade sanctions that throw the multilateral rules of the World Trade Organization under the bus and seriously impugn much needed global economic growth.
Putting the trade war on hold for the foreseeable future also gives some breathing room for the rollout of the next paradigm shifting technology breakthrough – blockchain. A game changing disruptive technology that will bring transparency, efficiency and greater participation in the global economy this year and those to follow, blockchain technology will establish a universally transparent ledger so that the trade of goods and services can be facilitated without resorting to traditional intermediaries, like banks, currency traders, customs brokers, freight forwarders, global law firms, and web-based platforms. Say goodbye to the old world order wherein quasi-monopolies with their centralized services controlled all the data and mechanisms of business like the largest financial services entities, auction houses, and social media. Instead marketplaces and services will be dis-intermediated, allowing purchasers and vendors to conduct business directly – a true peer-to-peer network. Indigenous peoples, women’s cooperatives and community-based trade associations will be able to participate in the benefits of the global economy equally with the titans of industry, as transactions costs come down, currency challenges reduced, and paperwork curtailed.
Blockchain technology will do what trade wars cannot: bring together the trading countries of the world and all the traders within it – big and small – to enjoy economies of scale and the benefits of comparative advantage. All countries have a stake in the successfully implementation of global trade rules. Trade wars do not help anyone – they only raise revenues in the short-term for the governments that are imposing tariffs.
There will be plenty of more trade disputes, but at least the Trump and Xi administrations have found a way to negotiate back from the brink of a trade war. Blockchain technology should have an opportunity to demonstrate its advantages under the auspices of global trade rules and within the current multilateral framework that allow for the reduction of barriers to trade, not kowtow to the protectionist sentiments that lead to economic decline.
James Cooper is Professor of Law at California Western School of Law. A former contractor for the U.S. Department of Justice and U.S. Department of State, he is an advisor to TrueChain, a leading global blockchain company that provides an open source platform for decentralized applications, with technology teams in China, India and the United States.