Donald Trump’s two-front war for ‘America First’
The US is systematically reducing the World Trade Organization into a vegetable
Is US President Donald Trump trying to unilaterally establish a Washington Trade Organization to replace the multilateral World Trade Organization (WTO) in Geneva? Perhaps, that could well be a leitmotif dictating Trump’s “America First” strategy. Otherwise, it is difficult to explain why he is pursuing “economically wrong-headed, diplomatically toxic and legally destructive negotiating position[s]” on two separate fronts.
On the first track, President Trump slapped unilateral trade measures on a range of products starting with photovoltaic cells, large washing machines, followed by steel and aluminium, and now on assorted items connected with intellectual property rights. He forced major trading nations to come and bargain with him in Washington to secure relief from his unjustifiable trade actions.
Leaders of Japan, Germany, France, Canada and several other countries paid visits to the White House to seek exemptions from the unilateral steel and aluminium duties imposed on national security considerations on 8 March. In case they refused to budge, he kept the sword of Damocles hanging on them.
“See you same time next month. After weeks of worry about whether Donald Trump would go ahead with his plans to impose steel and aluminium tariffs on trading partners, the White House pushed back the deadline until 1 June but kept the threat alive,” wrote the Financial Times in its leader on “Dealing with Trump and his self-destructive tariffs” on 1 May.
South Korea hastily agreed to onerous conditions such as quotas for exporting steel and aluminium and even tweaks to the existing bilateral US-South Korea trade deal so as to increase import of American cars and light trucks. Effectively, Trump succeeded in introducing voluntary export restraints (VERs) that violate the multilateral trade rules it had helped to craft in the Uruguay Round of negotiations. Subsequently, the World Trade Organization was established in 1995 on the basis of the Uruguay Round results.
Even countries such as Brazil, which hitherto championed the G20 developing country coalition to address the unresolved asymmetries in the global farm trade, and Australia, which leads the Cairns group of farm exporting countries that want the elimination of trade-distorting subsidies, fell in with the Trump line.
China is the only country that crossed swords with Trump. Beijing simply refused to accept either the safeguard duties on crystalline silicon photovoltaic cells and large residential washers in January, or the tariffs of 25% on steel and 10% on aluminium in March. It imposed tit-for-tat retaliatory measures of up to $3 billion on a range of American products in response to the American steel and aluminium duties.
Subsequently, the US threatened to impose trade retaliatory measures of up to $60 billion on Chinese imports for addressing the alleged theft of intellectual property by Chinese companies under Section 301.
Last week, the US further raised the bar on China by asking Beijing to cut its trade surplus by $200 billion in two years with the US from the current $337 billion. Washington wants Beijing to scrap many of its domestic economic policies. China, in return, called on the US to drop its opposition to being treated as a market economy in the WTO. A high-level Chinese delegation led by China’s vice premier Liu He will visit Washington next week for further talks.
And on the second track, the US is systematically reducing the WTO in Geneva into a vegetable. It blocked the selection process for filling vacancies at the highest adjudicating body—the Appellate Body (AB)—for global trade disputes. In all probability, the AB will become defunct by the end of next year if the vacancies for judges remain unfilled because of the extraneous positions adopted by the US.
Washington is demanding radical changes in the architecture for special and differential treatment for developing countries so to paralyse the negotiating function of the WTO. It is viscerally opposed to China, India and South Africa, among others, availing the special and differential flexibilities. President Trump has repeatedly declared that the WTO is a “catastrophe”.
In short, by launching unilateral trade measures and forcing countries to seek relief for those illegal measures, and by systematically destroying the multilateral World Trade Organization , the US President seems determined to make Washington the global trade arbiter in place of the Geneva-based WTO.
This dangerous moment in trade history can only be reversed if other trading nations remain united against the rogue elephant.