Here's former U.S. trade negotiator Clyde Prestowitz writing in the FT:
As the director of President Reagan’s strike force against unfair trade, I targeted Airbus subsidies and a variety of Japanese trade barriers. Although we achieved positive results in specific cases, in a broader sense we got nowhere. Airbus still found ways to get subsidies and Japan remained largely impervious to imports.
My experience taught me that in today’s globalised world two different games are being played. One is suggested by the formal rules of the World Trade Organisation. The other is a silent mercantilism played by countries that use subsidies and domestic regulations to exploit ambiguities in the formal WTO rules – or that simply ignore them.
I have therefore been bemused by the recent filing of WTO complaints from Washington, Brussels, and Tokyo against China’s export restrictions on rare earths. Not that I think the filings unjustified. Indeed, I believe they are a step in the right direction. But they are a side show.
The WTO may well find against China. But so what? Will that actually result in a surge of unrestricted rare earth exports? I sympathise with the sentiments of complainants in this and other cases. But will they produce desired results? And it is not just China. Will Guido Mantega, Brazil’s finance minister, repent the recent manipulation of the real that most call protectionist but he calls “defensive”? I submit that the answer to these questions is “no”.
President Barack Obama keeps insisting that “everyone has to play by the same rules”. But the problem is not a matter of a few discrete instances of rule breaking. It is a much broader free-trade charade. It has long been the unspoken premise of globalisation that all the members of the WTO and other international organisations are playing the free- trade game – and that no systemic differences exist between the rules in different countries. Let’s call the game “trade rugby”, an international game played between everyone in the same way. In this view of the game, any difficulties are understood as discrete problems that can be resolved through application of the rules. But, as I know from experience and as we see in the case of China, the same problems keep returning. That means only one thing – not everyone is playing the same game.
Consider that China’s rare earth export restraints are not the action of some private monopoly. They are a policy decision that favours production of certain products in China. The recent GE deal to do avionics with China’s Avic was not the result of the invisible hand. Rather, GE understood from reading China’s Five Year Plan that if it wanted to sell avionics in China it had better produce them there.
This is a different game to trade rugby. It is a game adapted to suit particular countries, a bit like American football. Taking advantage of the rules’ ambiguity, it can be played in the shadows of the global institutions, but it cannot be disciplined by them because it is a game with its own very different rules and scoring system.
The basic argument is that "they" are playing a different trade game than "we" are, and their approach is unfair to us.
So who are "they"? He mentions the EU (Airbus subsidies), Japan (general trade barriers), Brazil (currency manipulation), and China (export restrictions).
And what about "us"? Well, we've certainly been accused of using "subsidies and domestic regulation" in ways that violate WTO rules, often to encourage production in the U.S. There are a bunch of cases going on right now against such measures. We've also been accused of currency manipulation recently; many governments believe that the U.S. applies its antidumping laws unfairly; and some argue that we support global intellectual property rules not because of any principled beliefs, but simply because we have a lot of intellectual property.
I do think it's likely that some countries are "worse" than others in terms of how protectionist they are. However, I also think that offering a precise estimate of how the varying levels of protectionism compare across countries is difficult.
(And of course, let's not forget the view that we would all be better off if we stopped playing any version of these games!)