The new trade approach, set to be sent to Congress on Wednesday, could be widespread, impacting both businesses and consumers around the world. It suggested the U.S. could unilaterally impose tariffs against countries it feels have unfair trade practices, paving the way for a more adversarial relationship with China and other trading partners.
Although the 13-page document did not name China, many of the alleged abuses it outlined in the report are things President Trump has accused China of doing in the past, including manipulating its currency to gain a trade advantage over the U.S.
Among the administration’s key objectives the document lists “resisting efforts by other countries – or international bodies like the World Trade Organization – to weaken the right and benefits of, or increase the obligations under, the various trade agreements to which the United States is a party.”
If the U.S. signaled it will not comply with WTO decisions, other countries could impose tariffs against U.S. imports in retribution, ushering an era of economic protectionism worldwide.
“If the Trump administration follows through on the proposals in this document, it would be a body blow to the multinational trade system that the U.S. has helped to build up,” said Eswar Prasad, a senior professor of trade policy at Cornell University. “The WTO will lose effectiveness and credibility in trade resolutions if the U.S. decides to walk away.”
One of President Donald Trump’s top economic promises is to impose penalties against U.S. companies that move operations to Mexico or China and then try to sell products back into the U.S. Administration officials are considering different penalties, such as a tax or tariff, to penalize these companies, and other countries could challenge these moves by filing a case with the WTO. The Trump administration’s new trade agenda signals that it could simply ignore those decisions.
The Trump administration has nominated Robert Lighthizer to serve as its U.S. Trade Representative, but he has not yet been confirmed by the Senate. Trump has tasked Commerce Secretary Wilbur Ross to play a lead role in negotiating trade deals, but Lighthizer is also expected to play a central role, and he has been a longtime critic of China’s trade practices.
The White House is required to send an annual trade agenda report to Congress on March 1. The report stipulated that a more comprehensive agenda will be sent to Congress following Lighthizer’s Senate confirmation.
The White House referred calls to the U.S. Trade Representative, which did not respond to a request for comment.
The WTO provides a forum for countries to settle trade-related disputes, and the Trump administration has said this hamstrings the ability of the U.S. and others to respond to unfair trade practices in ways that are allowed under WTO rules. Disputes can come from many different countries.
For example, the WTO sided with the U.S. in 2014 about duties China had imposed against U.S. automobiles imported into China. China had accused the U.S. of “dumping” automobiles at unfairly low prices in China, but the WTO panel had found China’s dumping accusations had been calculated improperly. In another example, India has filed a case against the U.S. requesting “consultations” about renewable energy rules and subsidies established by a number of U.S. states, including Washington, Montana and California. That dispute is still pending.
The U.S. has been a member of the WTO since 1995, though presidents from both parties have objected to certain WTO rulings regarding U.S. trade practices.
But none have gone as far as the Trump administration threatened to in its opening trade agenda document.
“It is time for a more aggressive approach. The Trump Administration will use all possible leverage – including, if necessary, applying the principle of reciprocity to countries that refuse to open their markets – to encourage other countries to give U.S. producers fair access to their markets,” the document said.
Trump has said the November elections represented a rejection of past U.S. trade policy. He wants to move away from large, multi-country trade deals that he believes disadvantage the U.S. and pursue bilateral trade deals that the U.S. can negotiate directly with other countries. He is expected to soon begin the process of renegotiating – or ultimately, scrapping – the North American Free Trade Agreement.
The new trade agenda document argues that that not enough has been done to defend against unfair trade practices, like dumping, in which companies sell goods abroad at a lower price than their fair value. WTO laws are based on the presupposition that countries are free market economies. Yet many countries around the world unfairly subsidize their products, steal intellectual property, manipulate their currency, and carry out other unfair trade practices, the document said.
The trade agenda also reiterates the administration’s support for bilateral trade agreements – made between just two countries — rather than multilateral deals that involve more than two parties, as well as for reexamining existing trade deals where they believe the country’s goals aren’t being met.
The administration’s criticism of WTO rules could create a more lawless global system, said Chad Bown, a senior fellow at the Peterson Institute for International Economics. “The difficulty is, once we step away from that and say the WTO rules imply a lot more flexibility in what we’re allowed to do, we can be 100 % certain other countries will start to do the same. That’s what will ultimately undermine the U.S. system, and there will be big repercussions for U.S. exporters.”
Stan Veuger, a resident scholar at the American Enterprise Institute, said he fears the administration’s argument that it will continually reevaluate existing trade relationships could end up disrupting American business.
“All those things together create a system where the US government may intervene in arbitrary and unpredictable ways in trade relationships, and I don’t think that kind of framework is very helpful for the creation of lasting, worthwhile relationships between firms in the US and firms abroad,” he said. “It just makes the business environment more uncertain.”