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The True Toll of the Trade War

Summary:
Behind the escalating global conflict over trade and technology is a larger breakdown of the postwar rules-based order, which was based on a belief that any country's growth benefits all. Now that China is threatening to compete directly with the United States, support for the system that made that possible has disappeared. CHICAGO – Another day, another attack on trade. Why is it that every dispute – whether over intellectual property (IP), immigration, environmental damage, or war reparations – now produces new threats to trade?  The Trump Narrative and the Next Recession Andrew Harnik/AFP/Getty Images Whither

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Behind the escalating global conflict over trade and technology is a larger breakdown of the postwar rules-based order, which was based on a belief that any country's growth benefits all. Now that China is threatening to compete directly with the United States, support for the system that made that possible has disappeared.

CHICAGO – Another day, another attack on trade. Why is it that every dispute – whether over intellectual property (IP), immigration, environmental damage, or war reparations – now produces new threats to trade? 

For much of the last century, the United States managed and protected the rules-based trading system it created at the end of World War II. That system required a fundamental break from the pre-war environment of mutual suspicion between competing powers. The US urged everyone to see that growth and development for one country could benefit all countries through increased trade and investment.

Under the new dispensation, rules were enacted to constrain selfish behavior and coercive threats by the economically powerful. The US served as a benevolent hegemon, administering the occasional rap on the knuckles to those acting in bad faith. Meanwhile, the system’s multilateral institutions, especially the International Monetary Fund, helped countries in dire need of funds, provided they followed the rules.

America’s power stemmed from its control over votes in multilateral institutions, both directly and through its influence over countries in the G7. It also had tremendous economic muscle of its own. Importantly, though, most countries trusted the US would not misuse its power to further its national interests, at least not...

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