Since President Trump’s election in 2016 there has been a concerted effort from other countries to save the WTO from the US moving against the fundamentals of the global trading system. As 2022 ends it is clear that these efforts have been only partially successful – to say the least. The EU and others must now try to navigate as best they can a US committed to protectionism.
A once very senior British trade official, who also spent time in Brussels, said in 2017 that the WTO would not survive two terms of US president Donald Trump.
America-first unilateralism and disdain for traditional international relations were two of the fundamental reasons for this judgement. While the second has changed to a degree under president Joe Biden, the first has not.
Notwithstanding suggestions of popular support for free trade, US politics seem to suggest that it’s the country’s turn towards more unilateralism and protectionism is here to stay for some years as it has now become an issue of rare bipartisan agreement.
Declaring the WTO system of global rules completely dead may be premature, but the US has now clearly stated that it doesn’t consider itself bound by these.
In a statement responding to a WTO panel on steel and aluminium, Assistant US Trade Representative Adam Hodge said “The United States will not cede decision-making over its essential security to WTO panels. The Biden Administration is committed to preserving US national security by ensuring the long-term viability of our steel and aluminum industries”
On such a basis, any industry could be stated to be a national security issue, ergo the US is stating it isn’t bound by WTO rules.
There is much that can be discussed about the case, including the original imposition of the tariffs, the extent to which China has not been living up to commitments made on entry to the WTO, what reforms could have changed that, and about national security exemptions to trade rules. Doubtless over time this discussion will happen.
More pressing, however, is how the EU and other supporters of a rules-based international trading system should respond to US unilateralism.
There are no easy solutions. To follow a traditional ally and partner means further undermining the WTO with likely costs to the EU economy. But to refuse following the US will be seen by the US and various vocal campaign groups as at least in part siding with China.
The best option for the EU in this configuration will be to try to find a middle path, protecting the principles of the world trading system as best it can along with the EU economy and preserving transatlantic relations.
How distant this episode seems from the uplifting stories of recovery of the WTO after June’s 12th ministerial conference. (LINK)
US disdains global rules, assumes friends will follow
US government concerns over a perceived threat from China, and the need to show US voters particularly in Rust Belt states that it is ‘bringing back’ manufacturing, now seem impossibly entangled. Both motivations are visible in a trade policy that has not seen WTO rules as important, but has equally shown no interest in bilateral free trade agreements.
When French president Emmanuel Macron raised concerns about the subsidies unfairly benefitting US production in the Inflation Reduction Act with President Joe Biden during his recent visit to Washington it was notable that the resulting suggestion from the US was that there would be tweaks to satisfy allies. Other US officials seemed to even suggest the EU embrace equally protectionist policies. Neither approach would of course be consistent with WTO rules.
US ideas about a ‘carbon club’ for certain manufacturing sectors would similarly seem to be completely contrary to the foundational WTO non-discrimination principle, as was of course the country-specific settlement of disputes over the original steel and aluminium tariffs.
Meanwhile dramatic export controls have been imposed on high-tech exports to China, with the expectation that the EU will apply the same ones, falling into line with US exigencies, in the same way as the US has expected allies to restrict use of Huawei products.
Unsurprisingly, against the backdrop of such actions, no progress has been made in addressing US concerns in WTO reform. The US appears to expect to be setting the rules to suit itself and excluding China – but these are not realistic outcomes.
The US pattern of unilateral action now seems clear, even if sometimes with a nod towards talking to allies.
EU has autonomy and bilateral deals, still needs a global trade system
Many European politicians are evidently tempted to follow the US attitude to multilateral rules. Collectively, autonomous or unilateral trade or regulatory measures seek to set de facto rules for others such as on deforestation, supply chains, or carbon pricing. While the European Commission has always wished to emphasise the WTO-compatibility of its move, discussions in the European Parliament often feature MEPs wanting to make demands that break these rules.
Most EU member states have also traditionally been more circumspect about breaking the WTO rulebook. This is sensible in particular given the major difference between them and the US, that trade is just much more important to Europe than to the United States.
Should global respect for WTO rules crumble, some degree of protection for trade is provided by the EU’s extensive network of free trade agreements. These however rest on acceptance of global rules in key areas such as those addressing phytosanitary rules and technical barriers to trade.
Given also that China is the most important trading partner for so many EU member states, there is a major risk in asking them to choose. And despite the many issues marring EU China bilateral trade and investment protections and the rising difficulties for European firms in doing business there, China and the EU are also major trade partners operating broadly on the basis of WTO rules.
The EU must navigate a careful path with the US
Abandoning the traditional EU alliance with the US is not a realistic option.
Defence and security ties remain essential, trade and investment links thick, and the ultimate route to rebuilding a multilateral system will require US involvement.
Uncomfortable though it will clearly be, there seems no realistic alternative to trying to find a middle way between continuing to work with the US while still seeking to maintain a multilateral rules-based system. Bureaucratic and political ties thickened through the Trade and Technology Council should help.
That will similarly be the challenge of many other countries such as Korea, Japan, and the UK.
Finding ways to cooperate with these other affected countries is going to be important. But it will also not be easy given likely mutual suspicions.
As 2022 ends, the multilateral system’s sheer survival seems the best hope for the next few years of trade policy. The successful June 12th ministerial meeting of the WTO may have been just the latest of many challenges ahead that need navigating to achieve this.
Fortunately, we have seen in the past that the US can in time change course. That offers a final compelling reason to keep the global trade system alive as best we can.
David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.
