Bilateral pacts have long been the administration’s preferred trade policy, but not any longer
The weekly trade report with L.C.
Bilateral pacts have been the Trump administration’s preferred policy from day one of its tenure. Bilateral pacts, by comparison with multilateral pacts, tend to promote protectionism – my nation and yours vs. the outsiders — which is precisely why the protectionist Trump administration seized upon the pacts as its preferred trade vehicle. Thus, the president pulled out of the eleven-nation Trans-Pacific Partnership (TPP) and declared that he would shun multi-country pacts to focus on bilateral trade agreements. These, he claimed, were much more advantageous to the US.
US Trade Representative Robert Lighthizer, the public face of Trump administration trade policy, has been publishing a succession of op eds in the country’s most prestigious press outlets, including Foreign Affairs, the New York Times, and the Wall Street Journal. His latest, published in the August 20th Wall Street Journal, must have astonished readers with its headline that “Bilateral pacts promote protectionism.”
Lighthizer’s latest op-ed calls for market access concessions granted between WTO members to be extended to all members. This is the principle known as “most favored nation” (MFN). While the World Trade Organization (WTO) encourages that principle, its rules allow countries to make bilateral and regional pacts as long as they liberalize “substantially all trade” between them. Doing away with that exception to MFN that Lighthizer calls for would require a re-write of WTO rules.
The flip-flop
So why is Lighthizer suddenly advocating a 180 degree turn from previous administration trade policy? The answer isn’t far to seek. The White House has spectacularly failed to forge meaningful new trade agreements and is being shut out of markets previously open to it. Meanwhile its trading partners are entering ever more such bilateral and regional pacts. The US finds itself outside, wistfully looking in. America First is becoming America Last. So now the losers want to change the rules.
The one bright side of these sad developments is that the administration may now realize that it is in its interest to revive and strengthen the WTO rather than, as it has done in recent years, paralyze or scuttle it.
A narrow but symbolic US-EU trade deal
The US and EU announced agreement on a very limited trade deal, but one that has symbolic importance for signaling that the two sides are looking to smooth over trade tensions and continuing to consult over how to do so.
Brussels agreed to remove its duties on US live and frozen lobsters, which range as high as 30%, and Washington agreed to cut in half its duties on EU exports of certain prepared meals, certain crystal glassware, surface preparations, propellant powders, cigarette lighters and lighter parts.
These duty cuts, which will be retroactive to August 1st, will apply to all WTO members, as required by the WTO’s MFN principle. However, the products were chosen in part because both sides mainly import them from the other, so there won’t be much “leakage” to other exporting countries. The cuts are for five years, but the two sides say they’ll work to make them permanent. The total value of the affected trade is tiny, only about $198 million, so the economic value is not the point.
Phase One steady but China tensions high
The US is likely to push China to step up its imports but also to give a positive evaluation of Beijing’s effort to abide by the deal, given recent indications that China is preparing major increases in purchases of corn, soybeans, meat, and petroleum. This is possible because of the recovery of the Chinese economy. China may also wish to placate the White House for now.
The betting at this point is that Phase One will remain in effect through the elections, if for no other reason than to keep farmers happy. But if the president determines at any point that he is better off politically by turning to a much rougher anti-China stand, he might scuttle the agreement.
China meanwhile is reportedly having food shortages. The US, however, is not the only trading partner China could turn to for food imports.
Biden campaign weighs in
The Biden campaign has not let the Trump administration’s trade difficulties go unnoticed. A campaign statement said:
“President Trump’s hollow trade deal with China, and the disastrous tariff war before it, helped drive manufacturing into recession… and it did nothing to address [China’s] unfair trade practices. The Chinese government has outmaneuvered President Trump at every turn…. President Trump’s weakness with the Chinese government is sadly nothing new: he gladly parroted President Xi’s efforts to downplay the coronavirus…. President Trump has condoned China’s human rights violations in Hong Kong and Xinjiang, and he even asked for the Chinese Communist Party’s help in his re-election campaign. From his first day in office, President Trump’s policies have strengthened China’s hand and weakened America’s by denigrating our alliances, pulling America back from the world, abandoning our values and tarnishing our democracy.”
The statement makes clear that China will be a major topic in the presidential campaign, with possible fallout for Phase One. The president will use his re-shoring push to expand the contrast with Biden, though the former VP has also called for a major re-shoring effort. Trump once again this week raised the possibility of rewarding companies that bring jobs back from China and elsewhere and punishing those that don’t.
Huawei death sentence?
The US tightened the screws on Huawei a bit more this week as the Commerce Department announced on August 17th that it has “further restricted access by Huawei Technologies and its non-US affiliates on the Entity List to items produced domestically and abroad from US technology and software.” These actions, effective immediately, will thwart “Huawei’s attempts to circumvent US export controls to obtain electronic components developed or produced using US technology.”
This is expected to be a heavy blow to already-reeling Huawei, but US semiconductor and equipment makers will also be hit. The Semiconductor Industry Association said, “These broad restrictions on commercial chip sales will bring significant disruption to the US semiconductor industry. We are surprised and concerned by the administration’s sudden shift from its prior support of a more narrow approach intended to achieve stated national security goals while limiting harm to US companies.” Also: “We reiterate our view that sales of non-sensitive, commercial products to China drive semiconductor research and innovation here in the US.”
Biden a wartime president?
Regarding the convergence of Biden, China, and Huawei, historian Niall Ferguson has a greater worry:
“Successful Democratic candidates for the presidency of the United States invariably campaign with promises of domestic largesse and moral uplift. They nearly always end up taking their country to war…
“The common feature of all but one Democratic acceptance speeches since 1912 is the tiny proportion devoted to foreign policy….To listen to Biden’s speech, you would not know that the United States is already up to its neck in Cold War II…
“It wasn’t Donald Trump who started Cold War II; it was Xi Jinping….
“The central issue at stake between the United States and China is not Trumps’ tariffs…The central issue is Taiwan and it is due to blow up in a few weeks’ time, when new U.S. regulations come into force that will cut off Huawei from all imported semiconductors made with either American technology or software…. [T]his really is the ‘nuclear option,’ because it ‘threatens to kill the company, which invites retaliation from Beijing.’
“Ever wondered why it was that Japan attacked Pearl Harbor in December 1941? … [I]t was because of intolerable economic sanctions imposed by the United States. Yes, that’s right: under the Democratic President Joe Biden most wants to be associated with.”
L.C. reports on trade matters for business as well as Founders Broadsheet.
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