Latest news, Perspectives

Perspectives: Europe faces a US challenge whoever is re-elected President 

Europeans are increasingly concerned with the potential return of Donald Trump. His tariff raising plans stand to damage the global economy and undermine the World Trade Organization. But whoever gets elected in November, Trump’s views build on bipartisan attitudes to trade in the United States.

Victory for Donald Trump in the 2016 US presidential election was a key moment for international trade policy. Since then, Europeans have dealt with a trading partner with whom it has fundamental disagreements. 

Washington’s respect for WTO rules has diminished to the point of it becoming actively obstructive. 

There is little interest in Washington for traditional free trade agreements. 

China’s rise and threat is a US obsession not shared in Brussels. 

To a lesser degree, there are differing approaches to the net-zero transition. 

Arguably the European Union has done a reasonable job of restricting the impact of these differences. 

With president Trump there was a focus on sealing short-term deals. This included completing a mutual recognition agreement on pharmaceutical inspections, a holdover from the defunct Obama-era Transatlantic Trade and Investment Partnership negotiations. 

Under president Joe Biden, the Trade and Technology Council has provided a forum for strengthened transatlantic dialogue. There has also been a temporary lifting of trade disputes over subsidies to the companies Airbus and Boeing and steel. 

Throughout these last eight years there has been little sign of fundamental attitudes on these issues converging. This seems unlikely to change whoever is elected next November.

On national security, Europe faces a specific Trump problem. On trade, both candidates will challenge the continued functioning of a global trade system.   

Return of the Tariff Man? 

Trade plans unveiled by Trump’s team centre on raising US import tariffs to 10%. This is in character of someone who described themselves as a “tariff man”. 

There is no clarity as to the details. For example, how would it apply to FTA partners or relate to existing most-favoured nation tariffs? Former Trump US Trade Representative Robert Lighthizer has suggested that these tariffs would be an addition to the MFN rate. 

Lighthizer appears to remain a key figure for Trump. His litany of grievances against the trade policy of other countries revealed in his book, No Trade is Free, is therefore likely to be influential. 

On China, Trump has suggested he would raise tariffs. There is talk of 60% duty rates and of even phasing in over four years a ban on importing all ‘essential’ goods from China, widely defined to include for example electrical products. 

The Trump team has yet to clarify many other matters such as what it intends to do with the Section 232 tariffs on steel that continue to cause tensions with trading partners.  

Should the announced tariffs go ahead, this is likely to have a negative economic impact. This will be worsened if other countries adopt similar policies. 

What is worth remembering however is that as president, Trump wanted ‘deals’. That seems unlikely to change. 

Realistically, one can see a scenario under Trump in which tariffs are threatened unless countries do deals with the US. Never mind that this is completely contrary to WTO rules. 

In a sense this is completely the opposite to Biden’s approach of talking to trading partners without offering agreements. In terms of outcome, both approaches at the very least cause enhanced uncertainty. 

Whether turmoil under Trump or stasis under Biden, it seems likely that trade barriers will rise rather than fall.  

A question of WTO survival 

Washington’s discontent about the WTO was palpable before the Trump years. 

The Obama administration wielded the first US veto of an appellate body member. During Trump’s time in office the entire appellate body was blocked off. 

The Section 232 steel and aluminium tariffs were successfully challenged in Geneva by US trading partner. The Biden administration rejected the findings.  

There are serious arguments to suggest that Biden’s Inflation Reduction Act is inconsistent with the Subsidies and Countervailing Measures Agreement because of domestic content requirements. If a WTO dispute was raised on this matter, it is hard to see any future US administration accepting a negative outcome. 

There is now bipartisan pressure in the US to remove Most-Favoured Nation treatment from China. Quite conceivably either a second Trump or Biden administration could take this step. 

Under both Trump and Biden there has at least been some engagement with WTO reform efforts. These have however gone nowhere. 

Meanwhile Lighthizer has proposed sweeping changes including a new global baseline for all tariffs and the end of preferential treatment under FTAs. 

Should these not happen he believes the US should be able to take any unilateral measures it deems fit to enforce its rights. 

Overall, the message is clear: the US will not feel bound by the obligations of WTO membership as others may see them.  

Still some checks on the US political system? 

What is typically forgotten in the planning for a new US president is that they often don’t have the power to do everything they promise. Constitutional issues such as the control of Congress over international trade matter to a certain degree, even with Donald Trump in the White House. 

What he says now may well not happen, even with a more united team than his first term. 

There is the possibility that Republicans actually lose control of the House of Representatives while Trump gains the Presidency.  

Any assumption that the party will completely do Trump’s bidding once in power may also not prove correct.  

Although these are in decline, there are still pro-trade Republicans. Even those sharing Trump’s views will have constituency interests that could go against the overall policy.  

Deals – domestic and international – may prevent the worst from happening under Trump.  

Inactivity under Biden may increase US demands for tougher measures targeting trading partners. 

Short of a miraculous resurrection of factory jobs across the US, however, trade seems likely to remain a scapegoat in the political discourse. Though China will take much of the blame, Europe will not be exempted. 

There is no particularly good outcome of the US presidential election for Europeans and other US trading partners.

Leave a Comment

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.