Inherent dangers of protectionism

U.S. President Donald Trump's tariff strategy has thrown the world trade system into significant disarray.

- MOTOSHIGE ITOH

As a result, the free trade system is said to be facing a serious crisis. What exactly is a free trade system in the first place, and what specifically does it mean when people say there is a crisis?

The world trade system was first supported by the General Agreement on Tariffs and Trade (GATT), which came into being under the post-World War II Bretton Woods system. Since 1995, it has been backed by the World Trade Organization, which replaced GATT.

The GATT regime was led by Western countries, but emerging economies and developing countries joined the WTO as active members, enabling the organization's influence to spread across many countries and regions. A particularly important turning point for the WTO was China's accession in 2001.

In the context of this article, the free trade system refers to the trading system that has developed since China joined the WTO. To be specific, it is a trading system that not only facilitates traditional trade between major countries—the selling and buying of final products and resources—it also drives global economic growth through the cross-border division of labor thanks to the supply chains stretching across the world.

This environment features a complex global division of labor, as well as cross-border trade within enterprises and diverse networks of direct investment.

U.S. journalist Thomas Friedman focused on this environment in his 2005 book "The World is Flat." Since China's accession to the WTO, the global economy has undergone a significant transformation, continuing to grow at an unprecedented speed.

Based on the anticipation that emerging economies were likely to underpin global economic growth, the term "BRICs" was coined to denote the economies of Brazil, Russia, India, and China. The world economy's fast growth stumbled temporarily in 2008 due to the Lehman shock, but the "flattening" of the world continued thereafter.