The tariffs he promised and the retaliations that would ensue could unravel the global trading system.
Donald Trump’s picks for commerce secretary, U.S. trade representative and head of a new National Trade Council suggest that he is serious about his campaign promise to raise tariffs. His transition team says these could be as high as 10% on all imports. So how might this play out, at home and abroad?
The U.S. president is surprisingly free under U.S. law to take trade actions without Congressional approval. There may be challenges in domestic courts, but the new administration would likely win them.
The real battle would come in Geneva, in international lawsuits before the judges of the World Trade Organization. Under the WTO treaty, the U.S. is legally bound by the tariff commitments it made on thousands of traded products. These commitments can be renegotiated. But they can’t legally be ignored
An across-the-board 10% tariff would violate America’s WTO tariff commitments on many, if not most, of these traded goods. So too would the 45% duty on all Chinese imports and the 30% duty on all Mexican imports that have been threatened if those two
countries persist in their alleged “unfair” trade practices. Unknown now, of course, is the extent to which the next administration would feel bound by its WTO obligations, much less any WTO verdicts against it. Spurred by what he sees
as “unfair” trade agreements, President-elect Trump has said he might go so far as to pull the U.S. out of the WTO.
This would unleash weapons of mass economic destruction world-wide. Even if the U.S. doesn’t withdraw, a rash of unilateral and other provocative trade actions by the U.S. could trigger tit-for-tat trade responses that cause the global trading system to unravel.
The WTO could collapse beneath the burden of the ensuing disputes. Inevitably, WTO cases would be brought against the across-the-board tariffs by the affected countries. These cases could take up to three years to resolve. The U.S. would be
hard-pressed to mount any effective defenses. If the U.S. chose not to comply with rulings against it in these cases, the countries that brought the cases could be authorized by the WTO to withdraw previously granted trade concessions to the U.S. on a whole host of products. The U.S. could lose billions of dollars in trade annually.
Instead of, or in addition to, imposing sweeping additional tariffs on all imports, or on all imports from a few targeted countries, the U.S. could bring a string of new trade-remedy cases against supposed trade offenders. Some will have merit. Others may not. There are many issues that need to be addressed with China, for instance, including its share of the
global overcapacity in steel.
But will these new trade cases and other trade actions be pursued within the legal framework of the WTO? Or will they be pursued unilaterally, arguably within the bounds of U.S. law but outside the bounds of WTO law? Pursuing trade actions outside the WTO would invite a winning case against the U.S. at the WTO.
Domestically, the U.S. could impose antidumping duties. To be lawful internationally, such actions must be consistent with the WTO rules to which the U.S. agreed when it joined the organization.
To counter governmental subsidies of imported products, the U.S. could either seek the withdrawal of those subsidies through a WTO case or take domestic action by applying “countervailing” duties on the subsidized products. Such domestic actions, too, must be consistent with WTO rules.
One early U.S. action may be a tightening of the domestic rules on antidumping and countervailing duties to justify restricting more imports. The first use of these tightened rules may be in steel. No doubt these revised rules would also be challenged in the WTO and could be found in violation of its rules.
However they may be pursued, the main target of any U.S. trade actions would surely be China. In 2015, the U.S. recorded a deficit of $366 billion in its trade with China. An onslaught of trade actions by the U.S. could well tempt China to retaliate.
The U.S. might target steel, aluminum, mobile phones, computers and toys. In turn, China might target autos, airplanes, soybeans and poultry. China might also employ its antitrust laws and ignore its intellectual-property laws to punish American companies.
Whether the U.S. acts inside or outside the WTO, all of its trade actions, as well as any unilateral actions taken in retaliation by other countries, will likely lead to highly contentious WTO disputes. Designed to depoliticize trade disputes, can WTO dispute settlement continue to function when disputes are manufactured in large numbers mainly for domestic political reasons?
The WTO is already overloaded with cases. Now my successors on the WTO Appellate Body—the WTO court of final appeal—will be confronted with a slew of new and politically explosive trade disputes. Their independent and impartial judicial role will be
more crucial than ever in upholding the international rule of law in trade so carefully crafted over the past seven decades.
Mr. Bacchus is a former chairman of the Appellate Body of the World Trade Organization, a former member of Congress and a former U.S. trade negotiator. He chairs the global practice of the Greenberg Traurig law firm.
Compliments of Greenberg Traurig – a member of the EACCNY