Trump is single-handedly trying to blow up international trade
The Trump administration has drafted and is contemplating proposing a bill that would effectively pull the US out of the World Trade Organization (WTO) and upend the global trading order.
According to Axios, which obtained a leaked draft of the bill, Trump himself ordered his administration to craft the legislation and was briefed on the draft in late May.
The draft bill, titled the “United States Fair and Reciprocal Tariff Act,” calls for the US to ignore some of the core WTO rules that govern how countries are allowed to treat exports from other countries.
Among other things, it would authorize the administration to unilaterally ignore the “Most Favored Nation” principle that says that countries have to treat all their trading partners equally (although countries are granted exceptions to the principle when they share membership in free-trade agreements like NAFTA).
If the Trump administration were to actually gain this authority and act on it, it would destabilize the way the entire world exports and imports goods from each other. The US engineered the creation of the WTO and is its biggest player today; if it chooses to shun WTO principles, trade analysts say there’s little to prevent other countries from doing the same.
The reality is that the Trump administration has virtually no chance of getting the bill passed in Congress. Currently lawmakers in both parties are already riled up by Trump’s trade agenda and distressed that he has sparked trade skirmishes with China, Europe, Canada, and Mexico in the past few months. In fact, lawmakers have looked into passing bills that would restrict Trump’s ability to issue tariffs, not expand them.
According to Axios, most of Trump’s advisers are aware of the political impossibility of getting Congress to pass this bill, with the exception of trade adviser Peter Navarro, perhaps the most combative and uncompromising economic official in the administration.
In fact, as a White House official told CNN, the leak of this draft was likely motivated by a skeptic in the administration who wanted to discredit the idea by having the press and lawmakers rake it over the coals.
But regardless of its viability, the document is a revealing one that countries all over the world are bound to take note of: Trump is seriously interested in finding a way to get the US to abandon the international trading system that it helped build.
Trump’s bill might not be serious. But the ideas behind it are.
Trade analysts are not taking Trump’s draft bill too seriously because they know that Congress won’t pass something that would give the president unprecedented power to blow up global trade.
But that doesn’t mean that the intentions behind the bill shouldn’t be taken seriously. Instead of reacting to the bill’s leak by distancing the president from it, the Trump administration has defended the bill as reasonable.
“It is no secret that POTUS has had frustrations with the unfair imbalance of tariffs that put the U.S. at a disadvantage,” White House spokeswoman Lindsay Walters told Axios. “He has asked his team to develop ideas to remedy this situation and create incentives for countries to lower their tariffs. The current system gives the US no leverage and other countries no incentive.”
When Trump was asked by the press on Monday about reports of his problems with the WTO, he also doubled down on criticizing the organization. “The WTO has treated the United States very badly, and I hope they change their ways,” Trump said. “We’re not planning anything now but if they don’t treat us properly we will be doing something.”
Let’s set aside for now that the US wields enormous influence over the WTO and wins more WTO trade disputes than the average country does. The point is that Trump dislikes the WTO and is inclined to do something about it.
Even without this bill, he has a number of options. His administration has been vetoing all judicial appointments to the WTO’s appeals chamber. That in turn is paralyzing the ability of the WTO to resolve trade disputes between nations across the world. He can continue to do that and continue to interfere with the WTO’s ability to manage one of its most crucial functions.
Trump is also damaging the WTO’s credibility pursuing a legally questionable protectionist agenda with the powers he already has.
For example, he’s generated enormous controversy by arguing that the US is allowed to impose sweeping tariffs on foreign steel and aluminum using a little-known provision in the Trade Expansion Act of 1962. That provision allows the US to put tariffs on steel and aluminum imports ostensibly for the purposes of protecting the nation’s domestic manufacturing base and ensuring the country is ready to produce equipment needed for war.
He’s argued this despite the fact that the US imports much of its steel and aluminum from some of its closest allies, like Canada, Germany, and South Korea. Considering the sheer improbability of the US going to war with these kinds of allies at any time in the foreseeable future, the countries have reacted by taking offense and responding with counter-tariffs.
Trump is already doing damage to the global trading system with a number of his trade policies. This leaked bill shows that he’s unlikely to let up any time soon.