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Abu Dhabi, UAEMonday 19 November 2018

More than seven decades after Bretton Woods, its core message should be reaffirmed

Global trade is not a zero-sum game, because peace and prosperity are inextricably linked

Signing Of Bretton Woods Agreements in July 1944. Keystone-France / Gamma-Keystone / Getty
Signing Of Bretton Woods Agreements in July 1944. Keystone-France / Gamma-Keystone / Getty

As the Second World War was reaching its final throes in Europe in 1944, delegates from 44 nations descended on the Mount Washington Hotel in Bretton Woods, New Hampshire, in a three-week conference culminating on July 22.

The agreement they produced 74 years ago established a global monetary order and an open system of trade; one that has led the world for decades and now finds itself under threat. Some of the agreement’s measures, such as pegging global currencies to the price of gold, have not endured.

But at the heart of the Bretton Woods pact was a commitment to massively expand trade between nations – an ideology that has been a significant force for good in the world. Last week, Chinese President Xi Jinping completed a fruitful state visit to Abu Dhabi, where the virtues of economic co-operation were discussed at length.

And yet today, a defence of global trade seems alarmingly necessary.

US President Donald Trump, committed to furthering his “America First” agenda at the expense of international norms, has sought to impose unilateral tariffs on allies and rivals alike.

After he did so on imported steel and aluminium and referred to the EU as a “foe” when it came to trade, French finance minister Bruno Le Maire confirmed yesterday that a global trade war had begun. Mr Trump has also threatened to impose tariffs on Chinese goods worth $500 billion. It should be noted that China and the EU, with whom the US has large trade deficits, have responded in kind, with worrying implications for US manufacturers and workers. But Mr Trump’s headline-grabbing trade policies – based on his insistence that the US has been exploited for years – miss a crucial point: global trade has, since the signing of the Bretton Woods agreement, made us all safer and more prosperous.

Contrary to Mr Trump’s assertions, trade is not a zero-sum game. It is the basis of international co-operation and stability, because peace and prosperity are inextricably linked.

The legacy of Bretton Woods lives on in the International Monetary Fund. The organisation might have attracted criticism, not least in Argentina, where G20 ministers met yesterday, for its heavy lending in Latin America in the 1980s and for its steadfast commitment to austerity.

But the IMF is an invaluable remedy for economies under strain. In this region, Egypt and Jordan have relied heavily on its loan packages, bringing urgent stimulus to economies buckling under the weight of unemployment and inflation. Both Egypt and Jordan are esteemed allies of the US, which counts a peaceful and prosperous Middle East as a core tenet of its foreign policy.

But by embarking on a trade war with China and the EU, Mr Trump is turning his back on the 1944 international economic order. To say that is shortsighted is an profound understatement.