‘America First’ is a losing strategy on trade
Mireya Solís Tuesday, October 24, 2017
The
real driving force of the Trump administration’s trade policy is not
the rejection of multilateralism in favor of bilateralism, writes Mireya
Solís. Rather, it boils down to the pursuit of unilateralism: ensuring
that the United States enjoys wide berth in reinstating tariffs for
specific products, changing the terms of existing trade agreements, and
weakening dispute settlement mechanisms at the regional and global level
that could be used to tame U.S. protectionism. This piece was
originally published on The Mark News.
The
Trump administration’s opening salvo in launching its “America First”
trade policy was to pull out from the Trans-Pacific Partnership (TPP) —a
move that many assumed effectively killed this 12-nation trade
Philip Knight Chair in Japan Studies
In
rejecting a multilateral agreement such as the TPP, President Donald
Trump heralded the benefits of bilateralism: one-on-one deals where the
United States can leverage its overwhelming market power to win fast
results at the negotiation table. And yet, that expectation has not
panned out. The TPP project lives on and there are no prospects for a
string of U.S.-led bilateral trade agreements to materialize any time
soon.
The
real driving force of the Trump administration’s trade policy is not
the rejection of multilateralism in favor of bilateralism. Rather, it
boils down to ensuring that the United States enjoys near free reign in
reinstating tariffs for specific products, changing the terms of
existing trade agreements, and weakening dispute settlement mechanisms
at the regional and global level that could be used to tame U.S.
protectionism.
This much is clear from developments in trade policy during the first nine months of the Trump presidency.
First,
there is heightened reliance on domestic U.S. trade laws that provide
the executive branch with powers to restrict imports: stepped up
anti-dumping investigations; the revival of Section 301—where the United
States reserves the right to punish what it deems are unfair trading
practices of others; and the little-used Section 232, which uses
national security grounds to limit imports, notably steel and aluminum.
Second,
there are demands in trade renegotiations that aim to weaken legal
strictures on U.S. behavior; for example, eliminating the North America
Free Trade Agreement’s Chapter 19, which gives member countries the
ability to establish panels to review anti-dumping actions, and the idea
of making NAFTA’s investment arbitration system optional.
Third, there are actions to
weaken the World Trade Organization’s dispute settlement system by
stalling the appointment of new members of the appellate body until some
undefined reforms take place. Triggering tit-for-tat retaliation or
undermining the WTO are clear and present dangers of unilateralism.
But the United States is also going it alone in one more fundamental way: its choice of trade negotiation strategy.
The
Trump administration is following a rearview mirror approach to
negotiations, looking backward by reopening existing trade agreements.
Hence, a redo of NAFTA and amendments to the U.S.-Korea Free Trade
Agreement (KORUS). Constructive engagement with our partners to
modernize trade agreements or ensure their faithful implementation is a
worthwhile endeavor. But the Trump administration is setting up these
renegotiations to fail by doubling down on eliminating bilateral trade
deficits as the central objective of the talks—despite the fact that the
trade balances reflect larger macroeconomic forces and are not an
indicator of U.S. economic health.
This
misguided negotiation mandate has led the U.S. trade representative to
toy with NAFTA proposals that are non-starters for Canada and Mexico or
other stakeholders in Congress and the business community. For example,
the trade representative is considering a sunset clause to phase out
NAFTA in five years if all three parties do not move to renew it.
Another clause insists on a new requirement of 50 percent U.S. content
in automobiles, despite the goal of NAFTA to nurture an integrated and
competitive regional production platform that awards consumers the best
products at the lowest cost.
While
the United States is trying to change the terms of its existing trade
agreements—in ways where there is no domestic consensus or partner
buy-in—governments in Asia and elsewhere are placing their bets on a new
crop of large-scale, multiparty trade pacts: the Regional Comprehensive
Economic Partnership comprising 16 nations in East Asia including
China; the Japan-EU Economic Partnership Agreement; and a TPP 2.0.
The
remaining eleven TPP member nations are engaged in a concerted effort
to relaunch the project with the objective of securing an agreement in
principle at the Asia-Pacific Economic Cooperation economic leaders’
summit meeting in Vietnam next month. This is certainly a tall order
given the profound impact of America’s exit from the agreement. However,
the negotiators have wisely chosen a formula—temporal suspension of
some of the TPP disciplines until the U.S. returns to the agreement—that
allows them to reconcile their two most fundamental objectives: to
persuade reluctant parties to stay on despite diminished economic gains
by rebalancing concessions and to encourage the United States to come
back by keeping the option of reverting to the original agreement.
How,
when, or if ever the United States will rejoin the TPP is anyone’s
guess. But U.S. leadership has already taken a toll. Some of America’s
closest partners and allies are now moving forward in an effort to
create market opportunities that do not include America. The nation’s
losses are bound to multiply. If NAFTA unravels, American farmers and
ranchers will lose market access to some of their top clients. Factory
workers will be made redundant as well. By one estimate, just in the
auto parts sector, a U.S. pullout from NAFTA would put 50,000 jobs in jeopardy.
Unilateralism is not a recipe for American success; rather it makes Americans losers.