Opinion Leaders: Burden Lies With China, EU to Fight Rising Tide of Protectionism
International economic cooperation is a positive-sum game, and we all benefit from it. Just 10 years ago, the international community came together to react to the global financial crisis. The decisions of G-20 members to stimulate their economies and refrain from protectionist measures were crucial in avoiding another Great Depression. But that consensus did not last. With the firming of the economic recovery, the sense of urgency for cooperation weakened. Also, not all players followed the rules of the game, as witnessed, for instance, by a sharp increase in protectionist measures.
The recent decision by the U.S. to impose tariffs on steel and aluminium is a major challenge to our global trading system. This is generating new tensions in the international community as witnessed at the recent G-7 summit in Canada. To avoid undermining the positive momentum in the global economy, the EU and China have to play a leading role in upholding our multilateral arrangements. China and the EU should work together to tackle the root causes of these inward-looking tendencies, starting with relaunching the G-20 as the main forum for global economic cooperation.
There is no doubt that economic integration is creating stronger interdependencies across countries. But the solution to our global problems cannot be found by “taking back control” at the national level and retreating behind protectionist barriers. Instead, we need to revamp global governance. We need to “take back multilateralism” of a new type that addresses the growing concerns of our citizens.
The starting point should be greater inclusiveness. The benefits of growth need to be shared more widely. Globalization has helped both Europe and China grow more quickly, but we did not take enough account of the dislocation and distributional impacts that occurred in parallel. In many advanced economies, median incomes have stagnated, inequalities have widened sharply, and many citizens have lost faith in global economic integration. In emerging economies, income and geographical inequalities have also risen and persist at a very high level.
One important response is to reshape domestic policies to tackle inequalities more effectively. But we also need to regain citizens’ trust in an open global economy. Tax avoidance, for example, has become much easier in a globalized world, and we need to tackle this by fully implementing our Organization for Economic Cooperation and Development commitments on base erosion and profit-shifting. In addition, in March, the European Commission put forward a proposal for the taxation of the digital economy to ensure online businesses pay their fair share of taxes. We have also recently adopted a new European Union General Data Protection Regulation with the aim to protect all EU citizens from privacy and data breaches. These are examples of how domestic policies can help mitigate the downsides of economic integration.
But perhaps most importantly, it is vital that citizens see that fair and clear rules in trade and investment apply to all. As our economies become more closely integrated, distortions to fair competition such as subsidies and other advantages granted to state-owned companies and privileged sectors generate costs that have a direct impact on citizens in terms of employment and dislocation. This is one of the root causes of protectionist tendencies. We can all win from greater openness, but only if we all play by the same rules. Without this, support for an open multilateral system is hard to maintain.
The EU and China are also important financial partners. Effective, smoothly functioning and open financial markets can contribute to growth, investments and jobs. The EU therefore welcomes the announced opening-up policy for the Chinese financial sector and hopes that it will be implemented in a nondiscriminatory manner. At the same time, a financial system that is not well-regulated can have detrimental effects on jobs and growth. Based on lessons learned, China and the EU are converging toward a vision of finance focused on stability and sustainability. They want to devise a global financial system that readies our economies for the future and make them more socially just and environmentally friendly.
The EU looks forward to continuing cooperation with China to reaffirm the commitment to a multilateral, rules-based and open system of global economic governance, which is key to attain sustainable global growth to the benefit of all citizens.
Marco Buti is the European Commission’s director-general for economic and financial affairs. Olivier Guersent is the commission’s director-general for financial stability, financial services and capital markets union.
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