Donald Trump’s plan for tariffs is a wrecking ball for the WTO
Would-be president’s proposals threaten economic harm and the unravelling of a rules-based order
Donald Trump as president took the United States in a clear protectionist direction. Imposing new tariffs on friends and foes, his mercantilist “America First” doctrine manifested in a laborious renegotiation of the North American Free Trade Agreement with Mexico and Canada, new tariffs on steel and aluminium and a trade war entailing tariffs on over $250 billion of Chinese goods.
Regrettably, Joe Biden largely maintained Trump’s policies, judging them popular. Yet that’s merely fuelled Trump’s desire to up the protectionist ante. Should he defeat Biden and become president again in November, Trump now threatens 60 per cent tariffs or higher on all Chinese imports and a minimum 10 per cent universal tariff worldwide. This combination doesn’t just threaten economic chaos; it’s a wrecking ball aimed at the pillars of the World Trade Organisation.
The quintupling of the average tariff on China is most striking, particularly given the failures of the first foray. Economic research finds the present China tariffs were borne overwhelmingly by American consumers, not Chinese exporters. David Autor, the prominent economist, and his co-authors recently showed, too, that the tariffs didn’t create jobs in protected sectors but sacrificed them in American agriculture after Chinese retaliation.
While modest goods tariffs have a limited aggregate impact on a services-led economy, a 60 per cent rate is huge. Companies adjusted to Trump’s (and Biden’s) tariffs by assembling goods with critical Chinese parts in third countries such as Vietnam, but a costly 60 per cent tariff makes intolerable the risk of Trump introducing “rules of origin” regulations to thwart this workaround. That uncertainty could compel industries to completely sever China’s critical role in supply chains, triggering a substantial, costly global supply shock.
That’s before the retaliatory fallout. “This policy would be a violation of a basic rule of the WTO, the most favoured nation rule of non-discrimination, which prohibits discrimination between and among products imported from other WTO members,” James Bacchus, a former US trade representative, told me. The 60 per cent rate also clearly exceeds many of America’s pledged WTO tariff ceilings. The United States thus would become legally susceptible to China slashing trade concessions for American exporters, costing billions more in trade disruption.
Mitigating this havoc by removing trade barriers with other allies — so-called friendshoring — isn’t on Trump’s radar, either. He plans to scrap even Biden’s largely symbolic “Indo-Pacific Economic Framework”, mockingly branding it “TPP 2.0,” a throwback to the Trans-Pacific Partnership from which America withdrew while Trump was in office.
Meanwhile, his blanket 10 per cent global tariff idea, far above the existing 2.2 per cent US average, shatters any myth that he’s merely responding to “unfair” foreign practices or defending “national security”. Instead, this regressive tax will both unpick existing US free trade agreements and breach tariff maximums to which America has committed.
The inevitable consequence not only would be increased input costs for American manufacturers and consumers, but also lengthy disputes and appeals, involving years of WTO consultations and rulings. US stonewalling of jurist appointments for the WTO Appellate Body from Trump onwards means that even clear violations by America will then be subject to appeals by the US until they are pushed into a legal void, with the WTO powerless to enforce lawful sanctions.
Here’s where things could really break down. While countries with US free trade agreements could file successful complaints, “many other countries value playing by the rules and would ideally like to have a ruling by an international tribunal before retaliating”, Simon Lester, of WorldTradeLaw, told me, “but they may decide not to wait for that and just retaliate immediately. If the US isn’t going to play by the rules, why should they?”
It’s a good question. Under Trump and Biden, the US has stretched and flouted international trade law. Trump’s new tariffs threaten not merely economic harm but the unravelling of a rules-based order that relies on good faith sovereign buy-in.
Ryan Bourne holds the R Evan Scharf chair for the Public Understanding of Economics at the Cato Institute
No comments:
Post a Comment