WTO HEAD POOH-POOHS WORLD TRADE WAR POSSIBILITY

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29.07.10 | interview

World Trade Organization Director General Pascal Lamy says that all-out, fists-swinging trade wars don't happen anymore.

Steve Forbes: U.S.,China relationships. We've avoided a trade war so far this year. Put that in perspective. Are we doomed to have more contentious negotiations or can we get something on a level where we don't always have to worry this thing's going to blow up?

Pascal Lamy: Well, it's inevitable that the growing importance of China in the world economy and in trade creates frictions. Remember what happened in the '60s, '70s with Japan at the time.

Forbes: Or even Germany.

Lamy: Or even Germany. So there will be frictions. There are frictions. The problem is whether these frictions remain in a reasonably corralled procedure, which is what WTO is about. If U.S. and China disagree on trade, if China believes U.S. is doing too much anti-dumping or if U.S. believes China is not doing according to its commitment, we have a litigation system. We have a dispute settlement system that allows these two members to run this peacefully. So we are not in a planet where there can be trade wars anymore. And by the way, that's a great historical achievement because if you look at the economic history of humanity, we've had trade wars. We've had trades frictions that generated, degenerated in trade wars. This is not possible anymore thanks to the system.

Forbes: So you can have small wars like the chicken wars we had way back in the '60s and '70s.

Lamy: Media will call them wars because it sells better than "dispute" or "friction." But the legal reality is that these are disputes or frictions. And true, the U.S., China relationship has a sort of specific color given the huge trade deficit of U.S. and the huge China trade surplus. Now, whether the U.S. trade deficit is generated by China or whether China surplus is generated by the U.S. is a different question. The fundamental reality is that the reasons why the U.S. has a trade deficit do not have much to do with trade. It has a lot to do with the fact that the U.S. economy doesn't save a lot and consumes a lot and the other way around.

China saves a lot and doesn't consume a lot. And that's the reason why these imbalances are there. So addressing these imbalances is mostly for macroeconomic policies, for economic ministers, for finance ministers, for microeconomic policy, and very, very marginally, for trade policies.