President Trump needed a win on trade, and that’s what he got. Against expectations and under threat of escalating tariffs, the president of the EU blinked and, as he said, “made a deal” with the U.S.
Investors and business planners breathed a sigh of relief.
Trump met with European Commission President Jean-Claude Juncker and notched an agreement for the U.S. and EU to work togethertoward “zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.”
They specifically agreed to increase U.S. exports of liquified natural gas, soy beans and other agricultural products to Europe and reduce barriers to sales of pharmaceuticals and medical devices.
Just as important, the leaders agreed in their joint statement to “work closely together with like-minded partners to reform the WTO and to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.”
They’re talking about you, China.
The timing was excellent. As casualties from the trade skirmish were beginning to pile up, critics on the left and the right were pressing Trump to back down. Farmers, in particular, were bemoaning their potential losses as our trade partners strategically targeted products like soy beans that are important to Republican states.
Their vulnerability and the possible political fallout led the White House to offer a $12-billion relief package, a proposal that was widely panned. Democrats leapt to the defense of farmers, sensing vulnerability and hoping that finally they might begin to chip away at the president’s extraordinary standing within his own party.
The president’s supporters, meanwhile, were anxious that the looming trade war might dim the enormous surge in business optimism that greeted Trump’s election and the economic acceleration now underway.
While the business community remains convinced that the White House is right to confront China’s unfair trade practices, many Americans failed to see how slapping tariffs on allies like the EU helped reach that goal. The contest become too opaque and too muddled.
But not, interestingly, for the Chinese. A recent article in the Financial Times by Mark Leonard stated that Beijing officials and intellectuals whom he has encountered believe that President Trump is engaging in “creative destruction” aimed at “renegotiating the world order on terms more favorable to Washington.”
Leonard claimed the Chinese see Trump as the “first U.S. president for more than 40 years to bash China on three fronts simultaneously: trade, military and ideology.” They describe him as a “master tactician.” That’s high praise from a people accustomed to planning 100 years in the future.
Wednesday’s meeting with the EU representatives might cement that view, as it lays out Trump’s strategy, which starts and ends with the World Trade Organization (WTO).
Though the president has expressed hostility to international organizations and alliances like the North Atlantic Treaty Organization (NATO), the U.N. and especially to the WTO, he knows he cannot rewrite trade norms by himself.
U.S. success depends on a more muscular rulemaker. But, the WTO has some serious flaws, which have allowed China to bend the rules and prosper at the expense of other nations. Those need to be fixed.
The WTO’s shortcomings are no secret; After Beijing gained membership in 2001, members of the organization began discussions aimed at updating global trade rules, but those talks were abandoned 10 years ago. More recently, numerous U.S. allies have tried to reboot the drive for reforms.
The WTO’s great flaw is that its definitions and rules were not written with China in mind. Beijing joined the trade group in 2001 long before it had the financial wherewithal to pursue many of its current objectives and before its state-owned companies had the capacity to wreak havoc on markets.
As a recent editorial in The Economist explained, “China’s state-owned firms and its vast and opaque subsidies have distorted markets and caused gluts in supply for commodities such as steel… But holding China to account is hard with the existing rule book.”
However, getting an institution with 164 members to act is difficult. Some think that is why the White House has been so belligerent toward the WTO in the past year.
For instance, the Trump team has refused to approve judges to sit on its appellate panels, thereby handcuffing the WTO’s enforcement practice. The theory is that only by threatening the organization’s very existence will the White House get the members moving forward with reforms.
While some have claimed that Trump intends to destroy the WTO, his administration has acted otherwise. The White House has lodged a significant number of complaints with the WTO in the past year and a half. If they didn’t think it would help iron out some of our trade disagreements, they wouldn’t have bothered.
Just recently, in response to complaints leveled against the steel and aluminum tariffs imposed by the U.S., the White House filed claims against China, the EU, our North American Free Trade Agreement (NAFTA) partners and Turkey.
The Economist credits Trade Representative Robert Lighthizer with wanting to “remake the WTO, not abandon it entirely.” He has been behind the scenes in discussions with the EU and Japan about pushing through the necessary reforms. The recent agreement with the EU included that resolve. Nothing could be more consequential in the years ahead.
President Trump has often said he wants to “level the playing field” for U.S. companies. Lowering tariffs with the EU is an excellent step in that direction. In addition, Secretary Mnuchin has just recently suggested that a NAFTA rewrite is close.
As we head into the midterm elections, Republicans will celebrate the surging economy and strong jobs market; they may also be able to tout winning the biggest trade war in a generation.
Published on The Hill