2. How we got here
The monetary system: the enduring dominance of the dollar
Surviving the collapse of Bretton Woods
The US’s role in monetary and exchange rate affairs has been somewhat different to its position as a leader of the world trading system. Unlike with trade, the US was given a formal function as the anchor of the Bretton Woods fixed exchange rate system when that regime was created in 1945. The American retreat from this multilateralist role also happened much earlier and in more dramatic fashion, with the collapse of the system in 1971. But nearly five decades later, through the widespread use of the dollar, the US continues to play a powerful facilitating function. The US dollar’s pre-eminence has been underpinned by the size of the underlying economy, the depth and efficiency of US financial markets and payments systems, and the availability of a large and liquid pool of safe assets for investors.
The US dollar’s pre-eminence has been underpinned by the size of the underlying economy, the depth and efficiency of US financial markets and payments systems, and the availability of a large and liquid pool of safe assets for investors.
In the first few decades of the post-Bretton Woods era, there were periods when other currencies, notably the Deutsche Mark and the yen, were suggested as rivals to the dollar for use in foreign exchange reserves and international trade.3 But the authorities in charge of those currencies were either unwilling or unable to do very much to promote that goal. In the 1970s, the German authorities actively discouraged the wider international use of the Deutsche Mark for several reasons. For one, the country was still wary of playing a dominant foreign policy role. For another, Germany’s manufacturing sector feared that internationalizing the currency would cause a ‘Dutch disease’ effect, in which an inflow of money would push up the exchange rate and make its exports uncompetitive. The Bundesbank’s focus was instinctively domestic: although the Deutsche Mark became the de facto anchor for the European Monetary System of quasi-fixed exchange rates, the central bank’s focus was always on its money supply targets.
Japan initially had similar concerns to those of the German authorities – that wider use of the yen would threaten its export-oriented growth strategy. In the 1970s and 1980s, Japan was slow to liberalize capital flows and deregulate its financial sector, both prerequisites for spreading the use of the currency. By the time Japan grasped the potential for internationalization in the 1990s and began promoting the yen abroad, it was too late. The Japanese financial market and housing crash of the 1990s, and the painfully slow recovery in the decade following, meant that the yen’s international usage stalled, and in fact went into reverse.
The continuing disproportionate use of the dollar relative to the size of the US economy is striking. The currency’s share in invoicing and settling – which gives an advantage to companies that operate in dollars and thus do not need to hedge – is 4.7 times higher than the share of US goods in global imports.4 The equivalent ratio for the euro is roughly one-to-one. Non-US companies borrowing from banks and the bond market often do so in dollars, creating a currency mismatch that will hurt their earnings if the US currency appreciates.
The de facto links between the trading and monetary systems are obvious, not just in requiring a widely used and trusted invoicing and trading currency for goods and services, but also in facilitating the flows on the capital account that are a central feature of modern globalization. There is, however, a marked institutional division between the governance of the two, especially since the collapse of the Bretton Woods system in the 1970s. There are far fewer rules governing monetary affairs and currencies than there are for trade, and governments can aggressively pursue policies in one area while neglecting the other. Indeed, the US’s central role in the monetary system, which encourages it to run current-account deficits to satisfy the demand for dollars, stands at odds with its position in the mercantilist trade policy framework, which holds that exports are intrinsically ‘good’.
Part of the US’s increasing disconnection from trade policy during the 2000s, for example, can be attributed to its obsession with its trade deficit with China, and in particular to its pressing of Beijing to stop intervening to hold down the renminbi. The administration of George W. Bush – as did its successor, Barack Obama’s – focused its diplomatic resources on currencies rather than on subsidies and tariffs. (This, at least, made some economic sense: not the least of Trump’s follies is attempting to solve a current-account problem through an instrument – trade policy – that at most affects the composition rather than the level of deficits.)
A similar approach, to some extent, to that adopted by the Bush and Obama administrations had worked before. In the Plaza Accord of 1985 the US, running twin fiscal and current-account deficits, corralled the world’s five big advanced economies – itself, Japan, France, Germany and the UK – into a coordinated effort to weaken the dollar to improve the US’s trade balance. At that point, global economic governance was dominated by a small number of largely like-minded countries on the same side in the Cold War, with the non-US players in this arrangement relying on American strategic and military backing. Geopolitical hegemony may not map directly to economic dominance, but in this case the US found it relatively easy to assemble and cajole a group of countries into a shift in global macroeconomic management through exchange rates.
In the 2000s and 2010s, the US found China much less amenable to such persuasion. It largely failed to get China to sign up to specific commitments on exchange rate liberalization or current-account deficits, either bilaterally or multilaterally – for example, in the latter case, by rounding up a posse of currency warriors in the G20 or turning the International Monetary Fund (IMF) into an enforcement agency for dealing with policy misalignments. Ironically, though the US policies may not have prevented Chinese competitive devaluation, China’s currency interventions and consequent piling up of vast foreign exchange reserves were testament to the continued role of the dollar as by far the world’s pre-eminent internationalized currency.
The dollar and the global financial crisis
On top of the accumulated credibility of many decades, the dominance of dollar-based financial systems more recently owes a great deal to the US Federal Reserve – more, in fact, than it does to the White House and Congress. Whatever role the dominance of the dollar and the resulting capital inflows played in creating a financial and housing bubble in the US, events during the global financial crisis showed that the Fed was by far the most competent actor in diagnosing and treating the problem.
The dollar liabilities of non-US banks are about the same as those of US banks: the Bank for International Settlements estimates that 62 per cent of the foreign-currency local liabilities of banks are denominated in dollars.
As the crisis hit in 2008 and 2009, most public attention focused on the often chaotic attempts by governments to rescue their banking systems with bailouts and to counter the sudden stop in private demand with fiscal expansion. The back-and-forth in Congress with the Troubled Asset Relief Program (TARP) rescue package was a case in point. Yet perhaps the most important work to save the international banking system and even the global economy was being undertaken by the Federal Reserve, in particular via the swap lines that it extended to other central banks.5
The dollar is extensively used as a funding currency outside the US. The dollar liabilities of non-US banks are about the same as those of US banks: the Bank for International Settlements estimates that 62 per cent of the foreign-currency local liabilities of banks are denominated in dollars.6
The reliance on dollar funding by non-US banks created liabilities that central banks could not have met on their own. The willingness of the Federal Reserve to create a large-scale swap system was of pivotal importance in maintaining global financial stability. Having international banks dependent on a particular foreign currency for funding is not ideal. However, it is hard to imagine that, for example, the European Central Bank – which recklessly tightened monetary policy in 2011 while the aftershocks of the crisis were still acute – would have reacted as quickly or as decisively.
The politicization of the dollar
The political threats within the US to the dominance of the dollar are obvious, particularly in terms of the provision of safe assets and the quality of policymaking generally. Even before Trump’s election, the repeated stand-offs over the US ‘debt ceiling’ between Congress and the White House, with the former threatening to push the US into default on Treasuries, could have been taken as a signal that the US was no longer a serious country and that its government bonds were now unsafe. But following Adam Smith’s principle that there is ‘a great deal of ruin in a nation’, including in relation to its reputation for fiscal competence, the episodes seem to have had almost no impact on the credibility of the dollar as a safe haven.
More recently, another potential hazard has arisen: the Trump administration’s increasingly explicit use of the dollar-based international system as a targeted instrument of foreign policy. The US has long been able to use its influence over the international payments architecture, including the network of US-based correspondent banks and the SWIFT payments system, to enforce financial sanctions on countries such as Iran. In 2014, well before Trump’s election, the French bank BNP Paribas had its access to dollar clearing restricted for breaching sanctions against Iran.7
Trump, who has brought this issue into sharper relief by pulling out of the nuclear deal with Iran, has gone further. His willingness, in effect, to weaponize the payments system has been underlined by the arrest of Huawei’s chief financial officer for allegedly breaching sanctions on Iran.
The case for multipolarity
The role of the dollar as a dominant currency has hitherto been reasonably safe, but the question still arises as to whether having a single pre-eminent monetary authority is a good thing at all. Certainly, there are arguments for a multipolar world in which several major currencies are more or less equally widely used. But these arguments are frequently overstated, and good reasons also exist to think that the dominance of a single currency in the international monetary system is a natural, or at least logical, state of affairs.
The term frequently employed for a widely used unit is ‘reserve currency’ – something of a throwback to the days of fixed exchange rates when capital flows were much more closely related to underlying trade. The share of dollar-denominated assets in official foreign exchange reserves is frequently taken as a measure of the dollar’s importance. This share has been drifting down, though not dramatically.
But commercial as well as official decisions determine the dominance of a currency. Indeed, the causation probably runs from the private sector to the public sector rather than the other way around. As Gita Gopinath, now chief economist at the IMF, and Jeremy Stein at Harvard University have pointed out, the use of a currency for trade invoicing in private transactions complements its role as a safe store of value, both in the private sector and in official reserves.8 Network effects mean that trade and global banking can cluster around the use of one currency even though a rival may be backed by an economy with equally strong fundamentals. For example, it took several decades for the US dollar to replace sterling as the pre-eminent international currency, despite the US economy and its financial markets having overtaken their UK counterparts long before.9
The theoretical arguments for multipolarity rest largely on the contention that it is inherently risky to have one supplier of a global currency. The arguments hold that such a situation creates a continual demand for currency from the issuer country, which in turn expands that country’s current-account deficit and encourages its government to borrow excessively.
Such arguments often reference the original warning about the instability of a world with a single reserve currency made by Robert Triffin, a Belgian-US economist, in 1960.10 But the original ‘Triffin dilemma’ referred specifically to the fact that, under the Bretton Woods system, the dominant currency was backed by gold. Continual demand for dollars caused gold to drain out of the US. Eventually, the US’s fiscal profligacy of the late 1960s and early 1970s, accommodated by the Federal Reserve, allowed inflationary pressure to rise and exacerbated the balance-of-payments deficit, making the US’s link with gold untenable.
The analogy with a modern fiat currency system based on floating exchange rates, and focusing on the current rather than the capital account, is far from precise.11 Net indebtedness under a floating-rate fiat system is not intrinsically unstable or subject to the equivalent of a bank run, as was the gold-backed Bretton Woods system. Countries can in any case borrow dollars from non-resident entities as well as from the US.
Certainly, the US has run chronic current-account deficits since the early 1990s, and it would appear that the dollar’s status as an internationalized currency plays some role in that.12 But to some extent this situation was caused by foreign governments, particularly China, which built up dollar-denominated reserves as the by-product of intervention to hold down their own currencies and boost exports. It was not demand for precautionary reserves as such, as under the Triffin model, that increased demand for dollars from the US.
One of the great ironies of the 1990s and the 2000s was that, at the same time that economies such as China were complaining of the dominance of the US currency, they were helping to entrench its position by accumulating vast reserves of dollar-denominated assets for reasons unrelated to financial stability. A global economy with a single dominant internationalized currency may not be optimal, but nor is it necessarily a path to a crisis such as that which ended the Bretton Woods system.
In fact, one of the strongest arguments for a multipolar currency world is strategic rather than economic – that is, the potential for the political abuse of the dollar payments system, using the techniques seen with the Iran sanctions and particularly the Trump administration’s pursuit of Huawei. China and the EU have long had economic reasons to resent the widespread use of the dollar; they now have a foreign policy and security imperative as well. Thus far the US’s explicit use of the payments system for political ends is limited. It may grow as time goes on.
Trade: A rusting US anchor goes adrift
Post-war beginnings
Another irony lies in the US dominance of the post-war global trading system. Initially, the US proposed an institutional structure and then abandoned it. In recent years, having subsequently created a less systematic but nonetheless effective governance framework, the US has similarly regarded the evolution of this with rising disaffection and has threatened not just to leave but also to destroy it.
As part of its remodelling of the global order after the Second World War, along with the establishment of the IMF and the World Bank, the US led the creation of a powerful International Trade Organization (ITO), designed to arrest and reverse the protectionism of the 1930s. But, not for the last time, domestic political constraints made the US an unreliable anchor. Congress refused to approve the US joining the ITO, and governments had to be content with a weaker arrangement, the General Agreement on Tariffs and Trade (GATT).
Nonetheless, the US was the driving force behind the GATT – the European customs union was not yet in existence (nor would be until 1968). The GATT brought down average tariff levels via successive negotiating rounds of liberalization. The US was also instrumental, during negotiations for the Uruguay Round in 1994, in tackling the unfinished business of the post-war settlement, and in creating the World Trade Organization (WTO) as an independently constituted formal body in 1995.
The GATT, which had 128 member countries by the time it transmuted into the WTO, was a system largely dependent on voluntary cooperation among its members. Its enforcement mechanisms were weak. Under pressure from the US, which wanted stronger enforcement, the WTO acquired a quasi-judicial state-to-state dispute settlement process, complete with an appellate body. This system had the power to authorize retaliatory trade restrictions against countries deemed in breach of WTO law. Since 1995, the WTO’s membership has expanded to 164 states and territories, covering more than 96 per cent of world trade, its numbers swelled by countries emerging from the former Soviet Union. China’s turn towards market economics during the 1980s and 1990s was rewarded by WTO membership in 2001.
Since 1995, the WTO’s membership has expanded to 164 states and territories, covering more than 96 per cent of world trade.
Yet in retrospect, even by the time of Chinese accession, the WTO was beginning to lose credibility as a policymaking body in Washington. During the 2000s, the performance of the trading system itself and the functioning of trade policymaking had become increasingly at odds. In the decade before the global financial crisis, world trade in goods grew around twice as fast as GDP.13 Yet despite this new ‘golden age’ of trade, the apparatus of policy – certainly at a multilateral level with the WTO – was ceasing to function. By the time the financial crisis hit in 2008, the WTO’s legitimacy was in serious doubt.
The system seizes up
The failure of global trade governance – and of the US’s ability to lead – was embodied in the fate of the Doha Development Agenda (the ‘Doha Round’), launched in 2001. Badged as an attempt to spread the benefits of trade to lower-income countries, it was in practice conceived and launched by the two advanced-economy giants, the US and the EU.
The Doha Round broke down seven acrimonious years later, riven by unbridgeable gaps between emerging markets, particularly India, and the US. Doha’s collapse severely damaged the WTO as an effective forum for negotiation and liberalization. Since then, and indeed since its creation in 1995, the WTO has concluded just one multilateral agreement, a largely declarative and aspirational deal to facilitate the movement of goods across borders.
The US squarely blamed India and other emerging markets (China played a largely passive role until the very end) for failing to acknowledge that they too had to offer concessions on liberalization to make the Doha Round work. Although there may be some truth in that charge, the reality was that the US failed to acknowledge that it had weakened the system by its inconsistent attachment to multilateralism and its failure to recognize its own responsibilities.
In retrospect, the era of GATT cooperation had always fallen well short of providing a broad-based system that could forge common agreement out of a large and diverse group of economies. As one academic has noted, the success of the GATT reflected ‘a relatively slim agenda, club-like decision making dominated by a handful of developed countries (especially the US and EU), and the glue of Cold War alliance politics’.14
Leading such a group was comparatively straightforward, and did not involve many sacrifices. Deals under the GATT were in effect stitched up by a small group of like-minded advanced economies known as the ‘Quad’ – the US, the EU, Japan and Canada, with the US playing a dominant role – and then pressed on to the rest of the membership. The arrangement allowed the US to aggressively pursue its own interests inside the multilateral framework. Controversially, and ultimately to the detriment of the system’s credibility, the US started to introduce its own companies’ interests – particularly around the protection of intellectual property rights – into the GATT process, even though policy in these areas had little to do with conventional trade liberalization.
Discontent about the multilateral governance of trade rose further among developing countries – and helped to provoke the emergence of a strong anti-globalization movement in the US and Europe – after the WTO was created, even before the launch of the Doha Round. This was notably expressed at the disastrous Seattle ministerial meeting in 1999. At least in part, this discontent reflected a concern that, rather than advancing consensus views, the US was using the organization to further its particular goals.
No doubt much of the collapse of Doha can be blamed on the recalcitrance of some emerging markets, particularly India. While they formed some effective lobbying groups, such as the G20 of developing nations that organized within the agriculture talks (as distinct from the global G20 of leading economies, which addresses mainly financial issues), they also demonstrated that they had no wish to take over a positive leadership role in the WTO from the US.
What also clearly emerged was that the US, which met far more resistance in this round than it expected, was ultimately not prepared to confront its own domestic constituencies sufficiently to achieve agreement. A deal focused on agriculture, an area of prime interest to developing countries, required more cuts in farm subsidies than the US was willing to make, given the disproportionate strength of the US farm lobby. More broadly, the image of trade deals was soured by a perception that the North American Free Trade Agreement (NAFTA) with Mexico and Canada, which came into force in 1994, and China’s 2001 accession to the WTO were leading to US job losses and inequality.
Countervailing forces among export-oriented American businesses were too feeble to overcome the interests more hostile to imports. US companies during the 2000s focused more on domestic tax cuts and regulation than on opening new markets. The US proved to be vulnerable to domestic forces opposed to the animating spirit of the WTO, and thus the country’s international leadership role was weakened.
By the time the Doha Round collapsed in the summer of 2008, it was the US more than any other country that was longing for the death of the talks that it had itself started. Even before the collapse, the US had retreated into bilateralism and regionalism, including entering into negotiations for the establishment of the Trans-Pacific Partnership (TPP) of 12 Asia-Pacific nations. The US, in other words, was already retreating from leadership in the very multilateralist institutions that it had created. After the WTO had broadened to begin to match the expansive US rhetoric of a truly global advance of trading rules, the US itself found that it could not keep up with its growing obligations.
The same was increasingly true of the WTO’s binding dispute settlement system, which the US had been instrumental in creating.15 For more than two decades the system, in which governments could litigate against each other for breaches of WTO obligations before first a dispute panel and then an appellate body, functioned reasonably well. Indeed, it was often asserted by scholars that WTO dispute settlement was one of the very few multilateral institutions which the US allowed itself to be bound by. Even after the organization’s negotiating function seized up with the collapse of the Doha Round, the system continued to retain credibility. The US used it extensively as a complainant, including trying to hold China to the commitments the latter had made in its WTO accession agreement in 2001.
As time progressed, however, Washington was increasingly alarmed about judicial activism in the system, particularly when the appellate body repeatedly ruled against the US use of trade defence measures such as anti-dumping and countervailing duties. The absence of new negotiated rules meant that dispute settlement was increasingly used to fill the gap.
Although it continued to use the system, the US sometimes displayed a bad habit of ignoring rulings it did not like. Brazil won a ground-breaking victory against the US in 2004 over American cotton subsidies, which the panel and appellate body ruled were pushing down the international price of cotton and hurting farmers in Brazil. Given the large number of poor cotton farmers in sub-Saharan Africa, the case became a symbol of the ability of developing countries to use WTO dispute settlement to constrain trade-distorting behaviour by the rich nations.
During the 1990s and 2000s, the US model of trade leadership was not one of supporting liberalization to achieve new agreements and faithfully enforcing the laws that the multilateral rules-based system had already created. America was increasingly willing to block pacts that it did not like, and to challenge the legitimacy of courts whose rulings it disagreed with.
But successive US administrations stalled on implementing the ruling for a decade, deterred politically from confronting US cotton farmers who wielded disproportionate political power in the Senate. Finally, Washington simply bought off Brazilian growers with payments totalling $750 million,16 in effect bribing its way out of following the ruling. Brazil was satisfied, but the spirit of the WTO was violated and the cotton farmers of Africa continued to suffer.
During the 1990s and 2000s, the US model of trade leadership was not one of supporting liberalization to achieve new agreements and faithfully enforcing the laws that the multilateral rules-based system had already created. America was increasingly willing to block pacts that it did not like, and to challenge the legitimacy of courts whose rulings it disagreed with.
More recently, a new and destabilizing force has arisen to stoke further US discontent with the multilateral trading system. When China joined the WTO in 2001, the accession agreement, while more stringent than for previous WTO entrants, was essentially predicated on the country moving ever closer to becoming a market economy. In reality, although China has reduced conventional means of protectionism such as simple goods tariffs, the country has developed a whole array of more sophisticated forms of intervention. These take the form of regulations, subsidies and the use of state-owned enterprises to pursue policies such as forced technology transfer. The WTO, its rulebook last substantially updated in 1995, is ill equipped to constrain such activity. China has violated in spirit, if not always in letter, the principles of the organization.
Furthermore, Chinese industrial policy has become increasingly intertwined with the security functions of the Chinese state, blurring the lines between economics and geopolitics. Under President Xi Jinping, China’s commitment to both establishing a lead in high-tech sectors and extending the power of the security state has increased. For the US, this makes a body such as the WTO and policy that focuses purely on international trade look increasingly incomplete.
As international business has moved away from a focus on traditional cross-border trade in goods and services and into foreign direct investment (FDI), so it has entered a sphere where international rules are already much weaker and where domestic legal regimes can more easily be manipulated for political ends. Past attempts, usually backed by the US, to build rules in these areas have failed. The Multilateral Agreement on Investment proposed in the OECD, for example, was designed to agree a common approach to investor protection treaties but collapsed in 1998. Attempts to agree antitrust rules promoting competitive markets were thrown out of the Doha Round, at the behest of developing countries, after the disastrous WTO ministerial meeting in Cancún in 2003.
The US: from blocker to wrecker
The Trump administration has taken US discontent with the multilateral trade system to new extremes, but such sentiment is not new. In at least three areas – its attacks on the WTO itself, its inclination towards preferential rather than multilateral deals, and its willingness to compromise principles of free trade for national security ends – the current White House has merely accelerated trends that were already in place.
The Trump administration – and particularly Robert Lighthizer, the US Trade Representative (USTR) – has made the alleged judicial overreach of the WTO appellate body one of its main complaints against the institution. The US is in the process of jamming up the system altogether by refusing to appoint new appellate body members when the terms of existing judges expire in December 2019.
Yet this is only a more extreme version of an existing policy, reflecting a long-standing and increasingly strident critique held by successive US administrations and lawmakers. While it did not seek to undermine dispute settlement by refusing to appoint any members at all to the appellate body, for example, the Obama administration blocked the reappointment of judges that included Jennifer Hillman, a highly respected US academic and former chief legal counsel to the USTR.
Similarly, the Obama administration was prepared to let the Doha Round die and to turn to smaller trade deals that it could more easily control, such as the TPP. Many economists regard such a move as a retrograde step. Deals dictated by the US typically contain elements that economists regard as antithetical to free trade, such as intellectual property rights protections. Under Trump, the US has taken that shift much further, regarding even some regional deals as an unacceptable dilution of its power. Trump withdrew the US from the TPP in favour of using US economic heft directly to win bilateral concessions from the pact’s member states, such as Japan.
Such bilateral bullying, backed by unilateral tariffs or the threat of them, is often more about diverting and distorting trade rather than liberalizing it. The proposed deal currently being negotiated between the US and China is one example of how a shift from the multilateral to the bilateral – and in particular a shift to the short-term fix – is a malign development. Part of China’s negotiation strategy, a larger-scale version of one already trialled by the EU, is to buy off the US by shifting procurement of commodities and other goods to American exporters. This will do nothing for the global economy except create inefficiency and move deficits from one place to another.
National security is a third area in which Trump has taken the more moderate concerns expressed by former US administrations and used them as an excuse for blatant mercantilist protectionism. US foreign policy before the Obama era was already moving towards redefining China as one of America’s principal strategic adversaries. A shift occurred in the first few months of the George W. Bush administration, masked for a long time after the 9/11 attacks by the US’s diversion of political and policy energy to the so-called ‘war on terror’.
By the end of the 2000s, the separation between pure economics and pure politics in US international affairs had increasingly been challenged, even by the more liberal Obama administration, with a clear focus on China.17 As secretary of state from 2009 to 2013, Hillary Clinton adopted the doctrine of ‘economic statecraft’ – the use of geopolitical diplomacy to further US commercial interests and vice versa.18
In addition, the fact that trade is increasingly intertwined with technology in ways that have clear national security implications – such as the Chinese record on cybertheft and surveillance – underlines the need to take a more strategic approach to international economic and regulatory governance.19 Even in the EU, which has taken a less aggressive view of Chinese intentions, there has been a serious debate about access to critical infrastructure networks with national security implications, such as 5G telecommunications. European governments have acknowledged the US arguments over the security implications of letting Huawei into those networks, and have taken a variety of more or less measured responses.
But part of Trump’s aim is to stop other countries from straddling the US–China divide in this way – not just trying to decouple the US from China, but to pull other economies with him. His vision of economic statecraft is Manichean. When the US forced Mexico and Canada to rewrite NAFTA into the US–Mexico–Canada Agreement (USMCA), one provision contained a ‘poison pill’ designed to deter either of the signatories from starting trade talks with Beijing in the future (Article 32.10).20 Similarly, Trump’s assault on Huawei has now escalated beyond a proportionate response to a specific security threat into a full-scale attempt to drive the company – and most likely Chinese producers in general – out of technology supply chains worldwide. Governments and companies in Europe and Japan, mindful of the extent to which they rely on Huawei and other Chinese companies, are hoping not to have to choose between US and Chinese spheres of technology influence.
Whatever the justification for applying security rationales to trade policy in high-tech sectors, Trump has taken the approach to absurd extremes, undermining its credibility. On spurious national security grounds, his administration has imposed steel and aluminium tariffs on imports from trading partners including long-standing foreign policy allies such as the EU, Japan and South Korea, and has threatened similar moves with cars. Those tariffs have also been used to force governments such as those in Canada, Mexico and the EU to the negotiating table to push for other agreements.
3 Frankel, J. (2012), ‘Internationalization of the RMB and Historical Precedents’, Journal of Economic Integration, 27(3): pp. 329–65, https://sites.hks.harvard.edu/fs/jfrankel/RMBintnztnJEI2012pg329~365.pdf (accessed 26 Jul. 2019).
4 Gopinath, G. and Stein, J. C. (2018), Banking, Trade, and the Making of a Dominant Currency, NBER Working Papers 24485, National Bureau of Economic Research, https://scholar.harvard.edu/files/gopinath/files/dominantcurrency.pdf (accessed 14 Jun. 2019).
5 Tooze, A. (2018), Crashed: How a Decade of Financial Crises Changed the World, New York: Viking, https://www.penguinrandomhouse.com/books/301357/crashed-by-adam-tooze/9780670024933/ (accessed 14 Jun. 2019).
6 Gopinath and Stein (2018), Banking, Trade, and the Making of a Dominant Currency.
7 Arnold, M., Scannell, K. and Stothard, M. (2014), ‘BNP Paribas nears $8.9bn settlement with US’, Financial Times, 27 June 2014,
https://www.ft.com/content/6dff57de-fe19-11e3-b4f1-00144feab7de (accessed 24 Jul. 2019).
8 Gopinath and Stein (2018), Banking, Trade, and the Making of a Dominant Currency.
9 Chitu, L., Eichengreen, B. and Mehl, A. (2012), ‘When Did The Dollar Overtake Sterling As The Leading International Currency?
Evidence From The Bond Markets’, Working Paper Series No. 1433, Frankfurt am Main: European Central Bank.
10 Triffin, R. (1960), Gold and the Dollar Crisis, New Haven: Yale University Press.
11 Bordo, M. D. and McCauley, R. N. (2017), Triffin: dilemma or myth?, BIS Working Papers No. 684, Basel: Bank for International Settlements, https://www.bis.org/publ/work684.pdf (accessed 14 Jun. 2019).
12 Ibid.
13 World Trade Organization (2015), ‘Trade in goods and services has fluctuated significantly over the last 20 years’, International Trade Statistics 2015, https://www.wto.org/english/res_e/statis_e/its2015_e/its15_highlights_e.pdf (accessed 14 Jun. 2019).
14 Sally, R. (2007), The Political Economy of Trade Liberalisation: What Lessons for Reforms Today?, Trade Policy Report No. 18, Johannesburg: South African Institute of International Affairs, http://www.lse.ac.uk/internationalrelations/centresandunits/itpu/docs/sallytradeliberalism.pdf (accessed 14 Jun. 2019).
15 Lawrence, R. Z. (2007), The United States and the WTO Dispute Settlement System, The Bernard and Irene Schwartz Series on American Competitiveness, CSR No. 25, New York: Council on Foreign Relations, https://www.files.ethz.ch/isn/31773/2007-03_WTO_CSR25.pdf (accessed 14 Jun. 2019).
16 Ikenson, D. J. (2014), ‘Unsettling Cotton Settlement at the WTO’, Cato Institute, 8 October 2014, https://www.cato.org/blog/cotton-tobacco-settlements-will-expedite-wtos-corrosion (accessed 14 Aug. 2019).
17 Harding, R. and Harding, J. (2017), The Weaponization of Trade: The Great Unbalancing of Politics and Economics, London Publishing Partnership, http://londonpublishingpartnership.co.uk/weaponization-of-trade/ (accessed 14 Jun. 2019).
18 Blackwill, R. D. and Harris, J. M. (2017), War by Other Means: Geoeconomics and Statecraft, Cambridge MA: Harvard University Press, http://www.hup.harvard.edu/catalog.php?isbn=9780674979796 (accessed 14 Jun. 2019).
19 Roberts, A., Choer Moraes, H. and Ferguson, V. (2018), ‘The Geoeconomic World Order’, Lawfareblog, 19 November 2018, https://www.lawfareblog.com/geoeconomic-world-order (accessed 14 Jun. 2019).
20 USMCA Article 32.10: https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/32_Exceptions_and_General_Provisions.pdf (accessed 14 Jun. 2019).