CHARLES A. KUPCHAN AND EDWARD ALDEN. Trump Is Poised to Do Irreparable Harm to World Trade (Foreign Affairs 24.07.18)

During his trip to Europe this month, U.S. President Donald Trump derided his NATO counterparts over defense spending, undermined British Prime Minister Theresa May by second-guessing her approach to Brexit, and then groveled before Russian President Vladimir Putin. A firestorm of controversy has ensued. But at least the trans-Atlantic security alliance emerged intact from Trump’s trip. That we breathe a sigh of relief at NATO’s mere survival reveals just how low the bar has sunk during the Trump era.

With NATO now set to live another day, the most urgent threat to trans-Atlantic relations is the building trade war that Trump has initiated. Canada, Mexico, and Europe have all retaliated against U.S. tariffs on steel and aluminum, and China and the United States embarked on their own more extensive round of tariffs and counterpunches on July 6. Trump is readying his next steps, which may involve new tariffs on auto imports from the European Union and on $200 billion in imports from China. Amid mounting trans-Atlantic tensions over both security and commerce, Jean-Claude Juncker, the president of the European Commission, is rushing to Washington to meet with Trump on Wednesday to talk trade.

While markets continue to hope for piecemeal deals to avert the imposition of further tariffs, stopping this destructive trade war will require more far-reaching and urgent steps. Specifically, the EU, Canada, Japan, and other countries that have been passive advocates of a rules-based trading system must now become its activist champions and use the existing multilateral order to rectify the inequities in global trade that Trump has legitimately identified.

Trump is right that the pacts governing international commerce need updating and that some countries—China, in particular—have reaped unfair advantages. But Trump’s cure is worse than the disease.

By resorting to unilateral tariffs rather than working with like-minded states to address imbalances, he is rallying countries against the United States, disrupting markets and raising prices for consumers, and threatening a rules-based trading order. Rectifying global imbalances through the very system that Trump is undermining offers the best hope of saving the president from himself, preventing new rounds of protectionism, and preserving a stable trade order.

The tariff war that Trump has launched is poised not only to depress trade and growth but also to do irreparable harm to the rules-based trading system that has anchored the expansion of international commerce since World War II. Indeed, his administration is reportedly looking at ways the United States could effectively abandon the centerpiece of this system: the World Trade Organization (WTO). For the past seven decades, an institutionalized trading order has facilitated the progressive reduction of tariffs and the fastest growth of trade in human history. That record stands in stark contrast to what came before. During the interwar period, tit-for-tat protectionism fueled the economic nationalism that helped ignite World War II.

Make no mistake about the risks. The toxic mix of populism and protectionism that has become Trump’s trademark has put the West on a dangerous path. And tensions over trade are, at least for now, far more worrisome than tensions over security. At the NATO summit in Brussels this month, Trump hectored allies about insufficient levels of defense expenditure, but he assented to NATO’s final communiqué and left Brussels relatively upbeat about the alliance. U.S. troops are staying put in Europe, and U.S. spending on European defense is on the rise.

In contrast, a dangerous and pernicious dynamic is setting in on the trade front. At the G-7 summit in Canada in June, Trump refused to the sign the communiqué, and the meeting ended in stalemate and mutual recrimination. Trump’s piqué is mounting as the countries hit by U.S. tariffs retaliate rather than bend to his will, prompting him to ready escalatory measures. The targets of his ire have little choice but to respond in kind as their electorates demand they stand up to his bullying. Indeed, they are targeting products made in red states that are Trump’s political base, no doubt intensifying his piqué. This is a classic spiral right out of the 1930s playbook.

If they are to arrest this spiral and prevent the unraveling of the rules-based trading order, Europe, Canada, Japan and other like-minded democracies need a strategy more sophisticated than mere retaliation. That alternative strategy should consist of three main planks:

  1. Take trade negotiations in the WTO. This is where they belong. Trump wants to conduct all talks on a bilateral basis in the hope of giving the United States, with its large market, a negotiating edge. Other countries should refuse to play along and instead commit to addressing legitimate U.S. concerns in a way that strengthens rather than undermines a rules-based order. Fixing the system means working within it, not around it. The Trump administration would resist but would surely have second thoughts should the WTO become the center of action and confront Washington with the prospect of being left in the cold.
  2. Focus on China. Yes, trade in North America and across the Atlantic can be made more equitable, but this involves tinkering at the margins. The heavy lift ahead is leveling the playing field with China, whose state-led economy dramatically distorts global trade. New rules and enforcement actions need to reduce China’s industrial subsidies, prevent coercive technology transfer, and crack down on intellectual property theft. In confronting China on these issues, the United States should be working in lock step with its democratic trading partners—yet another reason to take the negotiations to the WTO.
  3. Focus on automation and the future of work. Fair trade is not enough. Governments across the globe face the common challenge of helping their citizens prosper in a world in which technology and global competition are increasing inequality. Unless the benefits of automation and globalization can be more equitably shared, countries will seek to cordon themselves off from international competition in a classic beggar-thy-neighbor fashion—exactly what is happening in the United States today.

Since the end of World War II, the United States has been the captain at the helm of the global economy, steering it toward greater openness and prosperity. But it has now abdicated that role, at least temporarily, leaving the world economy without a guardian for the first time since the 1930s.

Others must now fill that void. French President Emmanuel Macron called in a recent speech for a “way back to the path of strong multilateralism” and urged the EU to take the lead in working with other countries to develop urgently a road map for new negotiations in the WTO.

Now is the time for such leadership, before further rounds of retaliatory tariffs leave the world trading order in shambles.

A version of this essay appeared in La Stampa and may also appear in Le Monde and Süddeutsche Zeitung.

Charles A. Kupchan, a professor at Georgetown University and senior fellow at the Council on Foreign Relations, served as special assistant to the president for national security affairs from 2014 to 2017.

Edward Alden is a senior fellow at the Council on Foreign Relations and author of Failure to Adjust: How Americans Got Left Behind in the Global Economy.

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One Response to CHARLES A. KUPCHAN AND EDWARD ALDEN. Trump Is Poised to Do Irreparable Harm to World Trade (Foreign Affairs 24.07.18)

  1. Thanks for publishing this generally excellent set of proposals.

    However there’s one thing that’s frankly outrageous, though we seem to have travelled so far towards normalising it that it seems like the acme of reason.

    Your correspondents write this:

    New rules and enforcement actions need to reduce China’s industrial subsidies, prevent coercive technology transfer, and crack down on intellectual property theft.

    Reduce its subsidies – good – and don’t forget its currency manipulation.

    I’m not entirely sure what ‘coercive technology transfer’ means in this context. But it seems to mean China using the size of its market – publicly and privately – to extract technology transfer from those that have it. I’m not sure what’s illegitimate about this. Moreover, its presumptively strongly welfare enhancing. It intensifies competition both immediately and diversity of approaches. If the Japanese hadn’t imported American production technology from their automotive industry and transferred it to themselves, the world would have been left waiting for the lean production techniques the Japanese then pioneered.

    As for ‘intellectual property theft’, most of this is presumptively welfare enhancing even outright counterfeiting. The US did precisely the same to the IP of the old world in the 18th and 19th century to their own, and ultimately the world’s benefit.

    IP is designed to solve the free rider problem. But the free rider opportunity is far larger and more important. International competition provides some moderation of the ability of vested interests to bamboozle their local communities into believing that the stronger IP regime you have the better things are for innovation – something which is obviously wrong.

    Indeed, though there’s some case for some international coordination, the global trading system has been infiltrated by the Trojan Horse of IP mercantilism with retrospective extensions of existing IP rights rammed through negotiations without the slightest regard for global economic welfare.

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