Will Trump era trade policy run amok?
Robust democracy and strong institutions with proper checks and balances will prevent the Trump presidency from drastically altering the landscape of global trade
Since Donald Trump emerged as the President-elect of the United States of America (US), many analysts have raised concerns about the potential impact of US foreign policy on the rest of the world. Clearly, Trump's first presidency was dramatic on several fronts, but the potential impact of a second Trump presidency on global trade will, at best, be modest.
In several ways, Trump's first term as the President of the US saw some remarkable changes. During his term, the World Trade Organisation's (WTO's) Appellate Body (AB) effectively died. However, though the AB became inoperative during the Trump presidency, Trump was not the first US president to block appointments to the WTO AB; his predecessor in office started this trend.
As the US lost some high-profile cases in the AB, some in the US started to vent their displeasure about foreign unelected powers exercising too much authority in assessing US trade laws. Trump withdrew from the Trans-Pacific Partnership—a pact that would have covered around 40% of the total global output. Trump also renegotiated the North American Free Trade Agreement (NAFTA), and the United States-Mexico-Canada Agreement (USMCA) replaced NAFTA.
Not only the legal or political challenges but also economic impulses may drastically curb protectionist trade measures. The global supply chain is now more integrated than ever before. Few countries produce industrial products solely relying on inputs originating in that country.
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The USMCA is a limited-term Free Trade Agreement (FTA) that will be reviewed periodically. If one of the USMCA parties even negotiates an FTA with a non-market economy (read China), that state party will have to notify the other parties and share the negotiating details. Before signing any FTA with a non-market economy, a USMCA state party would have to share the full text of such an FTA with the other parties, and the other parties may opt to terminate the USMCA.
The parallel to these provisions in the global trade regime is virtually unknown. Arguably, they are reincarnating the Monroe Doctrine on economic fronts. It is conceded that the Monroe Doctrine was about political intervention in the Western Hemisphere by outsiders. However, the USMCA is, to an extent, a manifestation of reservations held by the US about its neighbouring states being involved in trade diplomacy with a non-market economy (China).
However, the powers of the US president on the trade front are not unlimited; rather, the US Congress and the International Trade Commission (ITC) may often dent the powers of the president. They have often intervened to rein in aggressive trade policies touted by Trump.
Trump wanted to impose around a 300% tariff on Bombardier's C Series Jet subsidies to help Boeing. However, the ITC blocked that idea. He invoked national security to raise auto tariffs, among other things, on Mexico and Canada, but then backtracked through exemptions and waivers. The WTO panel ruled that his blanket tariff on imported steel and aluminium products imposed on national security grounds flouted WTO rules. In essence, the WTO panels found that the evidence submitted by the parties showed that the measures taken by the US were "taken in time of war or other emergency in international relations."
Not only the legal or political challenges but also economic impulses may drastically curb protectionist trade measures. The global supply chain is now more integrated than ever before. Few countries produce industrial products solely relying on inputs originating in that country.
Thus, often raising tariffs on imports may not only raise prices for consumers but may also hurt national producers who rely on imported inputs. And in any case, one should not forget that Trump is the president of the US; he is not the US itself. Tariff may be the "most beautiful word" in Trump's dictionary, but American trade policy would likely have a much broader vision. Not only do the meanings of words evolve in the dictionary, but the words of politicians often change depending on the time.
The robust democracy and strong institutions that the US has would be unlikely to yield to any drastic stance of the Trump presidency on global trade. Hence, the second term of the Trump presidency is unlikely to pose any dramatic challenges to the existing trade rules. The real threats to global trade today are the many bloody wars ravaging innumerable lives and various national security measures encroaching on the free movement of goods.
Md. Rizwanul Islam is a Professor of Law and the Dean of the School of Humanities and Social Sciences at North South University.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
