It is already well known that the Trump administration’s trade policies are bold and provocative to say the least. History will tell if this approach accomplished much more than a disruption. It has had its successes, including a NAFTA 2.0 — the United States / Mexico / Canada Agreement (USMCA). The China Phase One deal could eventually pay off, but clearly at a high cost. And the United States’ departure from the Trans-Pacific Partnership was shortsighted and political – the movement lacked a strategic vision of how a regional deal can strengthen relations and counter the economic challenges posed by China’s rise. Tariffs on steel and aluminum products as part of a national security rationale have alienated almost all of the United States’ trading partners, many of whom have been close allies to the United States. over the years.
The Trump administration’s policy on the World Trade Organization (WTO) is a work in progress. Just a few years ago, it emerged that the WTO might be turning a corner after years of drift and failure in the long-drawn Doha Round negotiations. A very important new multilateral agreement – the Trade Facilitation Agreement (TFA) – was concluded, and many WTO Members finally recognized that the Doha Round had run its course and that the time was right. come to adopt new approaches, such as “plurilateral negotiations between subsets of Members ready to move faster on specific priorities, without prejudice to the interests of others. The ongoing negotiations on electronic commerce are a good example.
The Trump administration took office after candidate Trump widely criticized the WTO as being unfair to American interests. Much of the past three years has been devoted to his concerns about the WTO Appellate Body, which the Trump administration, and frankly the Obama administration before it, saw as operating well beyond its tenure. to make final decisions on the WTO consistency of a contested decision by a Member. measures. The administration’s views on broader WTO reform have been less clear. The administration has been a leader in the negotiations on electronic commerce and fisheries subsidies and has drawn attention to the failing system of transparency and treatment of developing countries. But he also embarked on a deliberate effort to sabotage a central institutional pillar – the Appellate Body – which needed reform but not eliminated; accused the WTO of failing to frame China’s behavior and continued the US unilateral approaches in response; and sometimes raised the question of whether the world would be better off without the WTO.
Today, the WTO may be facing a real existential threat brought on by the Trump administration, even at a time when COVID-19 has severely restricted its activities and its “boss”, Director General Roberto Azevedo, has announced his departure a year before the end of his term. The new threat comes in the form of an announcement by US Trade Representative (USTR) Ambassador Robert Lighthizer that the administration plans to “reset” its tariffs, which have been bound at an average rate of about 3.4% as a result of decades of give-and-take trade negotiations. As Bryce Baschuk wrote for Bloomberg, it could be the most significant change in US trade policy in more than a quarter of a century.
It looks like this new drama could start to unfold in the coming weeks with the submission of an “Article XXVIII” notification, which grants the unilateral power to permanently increase tariffs as a result. consultations with the suppliers concerned. If there is no agreement on compensation, these affected providers can retaliate by increasing their rates in response. The layout has been used sparingly in limited circumstances in the past and is most familiar to a small group of WTO trade nerds. So far, speculation suggests that the Trump administration could use Article XXVIII on a large scale for the general purpose of raising U.S. tariffs to levels the U.S. sees as reciprocal to the high tariffs of major trading partners. .
The Trump administration is correct in noting that average US tariffs are among the lowest in the world, although most economists argue that this has helped maintain remarkable economic growth since the establishment of the multilateral trading system in 1947. Tariffs much higher averages in many large developing economies, such as India and Brazil. These countries, along with China, which has lower though higher average tariffs than the United States, have refused to engage seriously in the Doha Round tariff negotiations, generally obscuring their interest in maintaining tariffs. raised with calls to rescind existing WTO trade obligations, which was a failure for the United States and many other WTO Members.
However, an action by the United States administration to now invoke Article XXVIII in much of its tariff, from grapes to motorcycles and telecommunications network equipment, would amount to an ultimatum that the United States would apply all tariffs that they consider reciprocal as a price for keeping the WTO. in place. In fact, it suggests a world trading system that generally prevailed between the two world wars almost a century ago, and which hardly resembles that which was painstakingly developed in the aftermath of the last world war.
It might be easy to overstate this argument. The WTO needs repairs and some might rightly argue that it needs a blow to adapt it to current realities, including a bottom-up superpower that has effectively triggered its state-run economy in a way that made losers in other countries. Even a forced rewrite of tariff schedules in the name of greater reciprocity would still leave an elaborate system of trade rules that could be built upon to meet the challenges of the present and the future, including industrial subsidies and transfer. forced technology. WTO processes rarely change quickly, and a US effort to renegotiate tariffs would likely run until 2021 and possibly beyond, assuming there is a second Trump administration.
Even if the concerns turned out to be exaggerated, it would be an unprecedented effort to rebalance the levels of rights and obligations in a large part of the WTO membership. In December 2012 to the WTO General Council, following Ukraine’s notification under Article XXVIII on a much smaller scale, then U.S. Ambassador to the WTO Michael Punke noted that:
“Over the past ninety days, the United States, along with others speaking today, has urged Ukraine to abandon its proposed action under article XXVIII. As my Minister has made clear, Ukraine’s continuation of this action will have serious multilateral and bilateral consequences. We regret that despite the protests expressed by Members in Geneva – which I did not see during my stay in Geneva – Ukraine has not yet withdrawn its Article XXVIII notification. We still hope they will.
At the very least, the current storyline deserves more than a sketchy announcement, which then kicks off what could be a juggernaut process that leaves most of the world in shock as they consider how to respond. A period of consultation and reflection, including members of Congress, a wide range of stakeholders and key countries that have been traditional allies, would seem warranted. The multilateral trading system has produced results for many years and deserves a Community approach to questions concerning its future.
Mark Linscott is a senior researcher at the South Asia Center of the Atlantic Council. He served as the United States Deputy Trade Representative for WTO and Multilateral Affairs from 2012 to 2016 with responsibility for coordinating United States trade policies at the WTO, and as Deputy Trade Representative of the States United (USTR) for South and Central Asian affairs from December 2016 to December 2018..