Global Trading System: Case for a Two-Tier Tariff Regime
Why in the news
A commentary argued that the trading system has hurt the US and other deficit countries because surplus economies such as China, Germany and Vietnam shape policy to keep running large surpluses.
About the global trading system
Also called the international trading system, it is the web of rules and agreements governing cross-border trade in goods and services.
Key facts from the argument
- The claim: the system fails not because free trade is flawed, but because it never truly existed.
- China’s tools: subsidies, market-access limits, currency manipulation and predatory industrial policy; surplus of $1 trillion in 2024.
- Wealth transfer: about $20 trillion of US wealth moving overseas over 20 years.
- Technology: China leads in 57 of 64 critical technologies (ASPI); the US lags in semiconductors, shipbuilding, solar panels and PCs.
- Human cost: lost jobs, flat real wages for two decades, top 1% holding more than the middle 60%, and graduates outliving non-graduates by 8 years.
Proposed two-tier tariff system
| Tier | Who |
|---|---|
| Higher tariffs | Non-democratic, chronic-surplus or free-riding nations such as China |
| Lower tariffs | Participating democratic economies that keep trade balanced |
- Core principle: reciprocal trade.
- Reviewed on a rolling three-year basis.
- Tariffs favoured as legal, flexible and enforceable.
Exam angle
- Terms: trade surplus, deficit, reciprocity, tariff. Think tank: Australian Strategic Policy Institute.