Weaker Trade Arbiters Pave Way for Conflict
October 18 2017 - 11:58AM
Dow Jones News
By Greg Ip
Before a war begins, the antagonists remove the peacekeepers.
Trade wars start the same way.
President Donald Trump is trying to remake or withdraw from the
North American Free Trade Agreement, and his administration is also
weakening the World Trade Organization. Sidelining the peacekeepers
that enforce the rules of global trade would free up the U.S. to
impose tariffs without fear of an arbiter contradicting its
decision. The administration's punitive 299% preliminary tariff
against aircraft built by Canada's Bombardier Inc. might be an
early glimpse of this.
This may deliver short-term victories to Mr. Trump, but at what
cost? Roberto Azevedo, the WTO's chief, told a Council on Foreign
Relations conference this week that a world without multilateral
arbitration is one "ruled by unilateral actions, which is basically
a euphemism for trade wars, and...we'd all be, without exception,
worse off than we are now."
The U.S. has long been an enthusiastic trade warrior. Since
1995, it has brought nearly 900 antidumping cases (against firms
selling in the U.S. below cost or what they charge at home),
countervailing cases (for illegal government subsidies) or
safeguard cases (to protect against surges of imports), according
to the WTO, more than any other country.
One of Nafta's primary appeals to Canada and Mexico was
protection from some of these U.S. enforcement actions, and the
ability to ask a binational panel to rule if they were in
accordance with U.S. law. "It's the dispute resolution process, not
low tariffs, that is the jewel in the Nafta crown," said CIBC, a
Canadian bank, in a recent report. Elimination of that process is a
key U.S. demand.
When the WTO replaced the General Agreement on Tariffs and Trade
in 1995, it brought into force a dispute-settlement mechanism under
which member countries could appeal another's trade action to a
panel, and if necessary appeal that panel's findings to a
seven-member appellate body. The Trump administration is now
blocking appointments to fill several vacancies on that appellate
body, imperiling its work, over how it interprets U.S. antidumping
authority. Yet the administration's complaints go deeper: It thinks
the mechanism infringes on American sovereignty.
While the panels haven't prevented trade disputes, they have
kept them from spiraling out of control, and their mere existence
may also have discouraged more dubious cases.
That may no longer be true. Wilbur Ross, Mr. Trump's commerce
secretary, has made increased enforcement a priority. Antidumping
and countervail investigations are up 48% from a year ago. Mr. Ross
has dusted off long-disused trade remedies to impose tariffs on
Chinese solar panels and Korean washing machines and explore
curbing steel imports for national-security reasons.
The White House's newly aggressive stance is encouraging
companies to file complaints, and to expect more favorable
treatment of those complaints. In theory, officials at both the
Commerce Department, which decides whether dumping or subsidies
exist, and the United States International Trade Commission, which
determines if duty is justified, follow objective, legal criteria.
In practice, they are influenced by the political winds and the
president who appoints them.
Bombardier decried its 299% tariff as "egregious overreach."
Canadian Foreign Minister Chrystia Freeland called it "baseless and
absurdly high." Nonetheless, faced with heavy debt, sluggish orders
and potentially years of litigation to overturn the tariff,
Bombardier said it would partner with Airbus SE and that the two
would build some jets in Mobile, Ala., putting high-paying
manufacturing jobs in the U.S.
This looks like a short-term win for Mr. Trump's trade
unilateralism. But is it a long-run win? Mr. Trump's trade policy
is based on two questionable premises. One is that deficits show
the U.S. has been a loser on trade. Almost no economist agrees,
arguing trade deficits reflect a more fundamental imbalance between
national saving and investment. If U.S. protectionism hurts Mexico,
its economy and currency will weaken, reducing demand for U.S.
exports and undercutting any narrowing in the trade deficit.
The second premise is that the U.S. has all the leverage because
other countries prize access to its markets. Yet both Mexico and
Canada have indicated they would sooner let Nafta die than accept
some of Mr. Trump's conditions. In part, they believe the three
economies are so integrated that many trade relationships would
persist even without the pact. And in part it's because accepting
an inferior deal could exact a steep economic and political price,
especially in Mexico, which holds a presidential election near
year. "It is better to have no Nafta than a Frankenstein Nafta,"
says Guillermo Ortiz, who was Mexico's finance minister as Nafta
took effect in the 1990s.
For similar reasons, America's partners may feel compelled to
retaliate against U.S. protectionism if Nafta or the WTO aren't
available as relief valves -- the trade wars Mr. Azevedo warns of.
That need not be the end of the world: It wasn't in the 1980s. The
difference is that Ronald Reagan was president then. He indulged
protectionist pressures while remaining at heart a free trader and
laying the groundwork for a remarkable liberalization of trade over
the next two decades. Mr. Trump has a different path in mind.
Write to Greg Ip at greg.ip@wsj.com
(END) Dow Jones Newswires
October 18, 2017 11:43 ET (15:43 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Bombardier (TSX:BBD.A)
Historical Stock Chart
From Apr 2024 to May 2024
Bombardier (TSX:BBD.A)
Historical Stock Chart
From May 2023 to May 2024