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Critical conditions in which the present global trade system is (dis)functioning, are affecting various countries around the world and the EU member states as well. As soon as the international trade must serve people and the planet, besides its “profitable component”, a “uniting” front of farmers, producers, businesses, as well as citizens is needed to advocate the fair-trade rules. The “common good” will result in putting human-like “trade justice” at the heart of peoples’ pursuit for well-being, sustainability, environmental quality and climate mitigation.
Background
Modern US industrial development policy is being based entirely on punitive, unilateral tariffs; the concept that was expected to promote sustainable growth. However, as experts argue, by raising tariffs and prices without addressing the underlying drivers of trade imbalances, such actions might just undermine the political incentives for recovering global trading system.
The basic WTO’s requirement of consensus in multilateral trade decisions coped with the failures in the dispute-resolution mechanisms have rendered the organization unable to effectively guide global trade. Hence the need for a new world-wide system based on the so-called “common customs union”.
Corporate sector’ accommodation
Corporate tax havens have actively accommodated to recent decades’ complexities in trade distortions that already damaged numerous states’ competitiveness positions (including the great powers) by encouraging companies to move manufacturing and (mainly) high-value intellectual property away from the nation-based industrial development. It, actually, also happened with the United States (the country that invented intellectual property concept) where several companies moved the production to low-tax jurisdictions and favorable employment conditions.
As a result, Ireland (the EU member states) has become presently the third-largest exporter of digital services in the world; the Apple company’s operations reveal one of the biggest problems in present global trade: the company innovates and designs its high-technology products/services in the United States, then manufacture and assemble them in China, and finally reaps the profits in Ireland. The International Monetary Fund calculated already in 2018, that one-quarter of Irish GDP growth was attributed to global iPhone sales, thanks to royalties paid to Apple’s Irish subsidiaries, which own the relevant intellectual property.
While shareholders in companies that move manufacturing to China and intellectual property to Ireland reap the rewards, other states in the world industrial and tax bases lose out, including that of the United States.
China’s syndrome
China’s anti-competitive behavior is based on massive state aid and support for such national industrial policy’s “components” as the workforce, manufacturing capacity, as well as the restructuring of production/services’ sectors.
The EU-27, the G-7 member states and other countries are sharing the US’s concerns about China’s industrial policies and economic distortions in trade in goods, including electric vehicles and steel production; the latter, by the way, is both generating vast amounts of carbon pollution, and allows for operating with lower labor standards than other advanced industrial economies in Europe and the United States.
As recent US tariffs started hampering China’s export potentials for the US, the China’s excessive manufactured goods export was reoriented to other regions in the world, such as European states and those in Southeast Asia, Africa and Latin America with a detrimental effect for the global markets and national economies.
“The only effective way to prevent China from gaming the global trading system is to work with like-minded countries to put in place tariff and non-tariff barriers to address China’s trade distortions”, argue the US prominent magazine.
Source: “Foreign Affairs”, September-October issue (2025), in: https://www.foreignaffairs.com/united-states/world-economy-was-already-broken-adeyemo-zoffer?s=EDZZZ005ZX
Dollar’s advantage
The dollar’s unique role has been for decades vital for a stable international trade and for the US economy: the country has gained from the “dollar’s outsized role” in the global economy. Presently, the dollar backs nearly 90 percent of foreign exchange transactions and more than half of all global payments sent via SWIFT, the “financial messaging platform” used for a great share of the world’s trade.
Through the dollars’ dominance, the US companies and citizens enjoy greater purchasing power and a higher standard of living, due to advantages that the currency’s value-system can both generate the demand for US dollars and the US companies can benefit because they can import goods and services at a lower cost.
“The dollar’s ubiquity gives the United States an arsenal of financial weapons that no other country can match: i.e. in part, companies across the globe abide by the US sanctions because they have no other choice in a world in which the dollar is so central to international commerce, adds the Foreign Affairs magazine.
But China’s strategy of large-scale subsidies to businesses, massive industrial overcapacity and demand repression is blocking this economic path for many developing countries. With China’s export machine flooding numerous national markets with goods such as electric cars and telecom equipment, domestic alternatives are crushed before they have a chance to grow, note the Foreign Affairs.
The role of manufacturing sector and services
The new Trump administration has installed the rights policy focusing on an increase nation-based manufacturing structures; however, current US-wide debates over the enormous trade deficit overlooks a key services sector’s role in the US economy.
The world-wide importance of such services as Mastercard or Visa credit cards, as well as using various digital technologies and AI models like ChatGPT and/or Claude, underline stable US leadership in the global service economy: e.g. the US trade surplus in services totaled nearly $300 billion in 2024; the latter means that cutting the trade deficit does not rely solely on transitions in the manufacturing sector.
However, expanding manufacturing sector and digital services are mutually reinforcing: through rapidly advancing digital and other vital technologies, the two sectors (and additionally, the financial one) are able to advance the US growth. As the Foreign Affairs suggests, “it is both an economic and a national security priority to continue creating high-quality service jobs and promoting services built on U.S. digital infrastructure”. Besides, the digital service providers can on average earn $30 an hour, whereas the US manufacturers earn about $16-19 an hour.
It is also known that much of China’s formidable manufacturing advantage stems from robotics, automation and an early adoption of AI models: i.e. all other countries and the EU states have to emulate China’s example and activate both highly automated and advanced manufacturing industries in such sectors as semiconductors, electric vehicles, pharmacy and medical devices.
The WTO’s failure
Initially, the WTO’s system was based on “belief” that the major players in the global economy would be market-oriented and that the spread of free trade would go hand in hand with the expansion of fair competition rules.
For example, the WTO’s “rules of origin”, i.e. determining the “economic nationality” or country of origin of a good for trade purposes, such as tariffs and quotas; it requires that these rules be applied impartially, transparently, and consistently, and they must not distort or restrict trade. While the WTO agreement aims to harmonize these rules for non-preferential trade, such as for anti-dumping duties and trade statistics, there is a distinction between non-preferential and preferential rules.
More in: https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
However, the system to improve predictability and stability in global trade has proved inefficient: while combating negative sides of deindustrialization, job losses and value-chain supply dependencies, most countries have been increasingly turning away from free trade in favor of aggressive national industrial policies.
Hence, the WTO-system could not hold China accountable for its anti-competitive policies and preventing its excessive world-wide exports capacity: the WTO’s requirement of consensus to make decisions and the failure of its dispute-resolution mechanism made the existing system ineffective in guiding the global trade.
But China’s anti-competitive approach, becoming the largest global trading partner for about120 states, the country is successfully establishing the anti-competitive global trade norms.
It is apparent that present WTO’s universal consensus mechanism does not work properly enough and a more flexible system is needed following modern evolution in the global political economy. Establishing new global trade regulations would, probably, provide the richest and biggest world economies with more voting powers; but these countries would still have to cooperate with other states in implementing more adequate global trade rules.
Fair-trade global “customs union”
Newly emerging global trade regulations have to take into consideration those states that carefully implement present sustainability’s goals and strict global climate and environmental standards, while at the same time refraining from anticompetitive, labor-intensive and other violating rules in contrast to a suggested fair-trade customs union by the authors in the Foreign Affairs (“The World Economy Was Already Broken. But There Is a Better Way to Fix It”. By
Wally Adeyemo and Joshua P. Zoffer).
Such “union” should be built, ague the authors, “around a set of high standards needed to maintain fair competition”; only states with trade policies adequate to universally accepted labor standards and environmental quality rules, as well as the rule of law and market-oriented regulations would be eligible for full membership in such a “customs union”.
At the same time the states’ membership in this union would be based on presumption “to refrain from pursuing anti-competitive national policies”, such as widespread industrial subsidies, unrestricted/curtailed corporate taxation rules and dumping excess goods in foreign markets, underline the cited authors.
Most positive suggested “customs union’s” goals would be in creating a large “international common market” of countries with advantageous national trade policies and rules assuring mutual competitiveness while restricting those states that explore the breaking-rules attitude and fair competition standards.
Conclusion
There is a growing need in establishing and maintaining a new global trade system that provides certainty and predictability to its partners, as well as forcing other countries to participate and acquiring certain membership’s benefits following greater number of global economies joining the “union”.
Important is that modern developed EU member states’ economies, as well as those in the North America and around the world are taking part in the new “coalition of collective trade power” that might hold a strong position towards coercive trade policies of rival economies. Besides, tens of emerging economies would benefit from access to a new “global economic bloc” representing a sizable majority of the global economy. The suggested new global customs union would offer such emerging economies a viable alternative with a new set of trustworthy market rule, so that, e.g. numerous less-developing countries in the Far East would have a perspective option of joining the new “bloc” with adequate customs union’s rules.
Thus, countries that have committed to upholding the fair-trade regulations would immediately be more competitive than the other states; if the initiative succeeded, this economic arrangement would present a clear choice of making political economies engage in a new type of world economy base on fair trade with member states of the “customs union”.
Recent EU-US cooperative agreement
As a valuable part of the suggested “union”, the two great possible members -the EU and the US- has issued a joint statement in the bi-lateral agreement on “fair, balanced and mutually beneficial trade and investment”.
This transatlantic agreement is one of the largest economic partnerships in the world, with a clear common goal, i.e. to facilitate mutual re-industrialisation on both sides of the Atlantic and further developing a “combined economic power”. The sides notes, that it has been the first step towards improving market access and strengthen economic cooperation in the world.
The joint statement, e.g. includes 15 percent all-inclusive tariff cap for the EU’s wide range of strategic sectors and industries: i.e. cars, pharmaceuticals, semiconductors and lumber.
Unlike with other US trading partners, noted the EU Trade Commissioner Maroš Šefčovič, this 15% cap does not come on top of existing “most-favored nation’s” tariffs; instead, it means that the EU will benefit from significantly lower effective tariffs compared to other countries.
Secondly, the statement includes “unavailable natural resources”, such as cork, aircrafts and aircraft parts, generic pharmaceuticals and their ingredients, and chemical precursors.
Thirdly, tariffs on cars and car parts will drop to 15%, starting this August to assist EU’s automotive industry remaining globally competitive.
Then, the statement has recognised the EU-US “shared joint actions’ challenges and benefits”: the sides intend to “collaborate to shield” economies from overcapacity in the steel and aluminum sectors; practically, it means working together on tariff rate quota solutions to ensure security of supply in these critical industries.
From the EU’s side, the Commission will remove tariffs on all US industrial goods and expand market access for US seafood and agricultural products. In return, the EU will also strengthen its energy security by procuring US LNG, oil and nuclear energy products valued at $750 billion by 2028. Additionally, the EU will enhance its AI capabilities by securing a steady supply of AI chips from the US for European computing centers, valued at least $40 billion; basically, the EU companies foresee $600 billion in new EU investments in strategic US sectors through 2028.
Bottom-line: the statement represents a good intention towards mutual growth corporate advantages; the deal “builds confidence, brings stability and strengthens a vital transatlantic bond at a time when unity and partnership are more important than ever”.
Source and citation from: https://ec.europa.eu/commission/presscorner/detail/en/speech_25_1977
Following the signing of the agreement, the President of the European Commission said that the EU would “continue to engage with the US to agree more tariff reductions, to identify more areas of cooperation and to create more economic growth potential; at the same time, the EU would continue to diversify international EU-US trade partnerships, creating jobs and prosperity”.
Citation from: https://ec.europa.eu/commission/presscorner/detail/en/ip_25_1973