The Trump administration is developing a national trade policy that would seek to diminish the influence of the World Trade Organization in the U.S. and champion American law as a way to take on trading partners it blames for unfair practices, according to a draft document reviewed by The Wall Street Journal.
In his speech to a joint session of Congress Tuesday night, Trump said he wouldn’t let American workers and businesses be taken advantage of. “I believe strongly in free trade but it also has to be fair trade,” he said.
Some business groups and republicans who back traditional trade policy have hoped the new administration would moderate its most aggressive policy proposals to protect U.S. industries.
Departure From Previous Trade Policy
However, the policy contained in a draft document due to be published any day now, represents a dramatic departure from the Obama administration, which emphasized international economic rules and the authority of the Geneva-based WTO, an international body that regulates trade and resolves disputes among its members. Armed with what it sees as a broad mandate, the administration is moving forward with rules that would favor U.S. law over the conflict resolution mechanisms of the WTO.
“The American people grew frustrated with our prior trade policy not because they have ceased to believe in free trade and open markets, but because they rejected the way in which the framework of rules governing international trade operates,” the document says.
Congress requires the president to submit the administration’s trade policy annually by March 1, according to U.S. law. The framework is a signal to lawmakers, businesses and trading partners about how the administration plans to carry out its policies. Several business leaders and congressional aides were briefed on the trade-policy blueprint and are aware of the draft document’s contents.
In the face of Republican concerns, a congressional aide said language in the draft challenging the WTO could still be toned down in a final, public version.
The policy mainly spells out a broad approach to dealing with trading partners — including China, South Korea and Mexico, where the U.S. has trade deficits — and the global trading system as a whole, via the WTO.
MES and Aluminum Case
The outcome of two important test cases at the WTO could help determine the Trump administration’s attitude toward the international trading system, trade lawyers say.
The first is a challenge China brought when the U.S. did not grant the country “market economy” status in December on the 15th anniversary of the country’s membership in the WTO and when China did not meet milestones set by the organization to achieve a market-based economy. We explored the issue in depth last year in our China vs. the World interactive package.
By not granting Beijing that status, the U.S. can continue calculating anti-dumping and countervailing duties on Chinese goods.
The second is a case the Obama administration brought that challenges China’s subsidies for aluminum production. A ruling for China in that case could lead the Trump administration to look for other measures to challenge Chinese subsidies.
“Americans are subject only to U.S. law not to WTO decisions,” the draft document reads. “The Trump administration will aggressively defend American sovereignty over matters of trade policy.”
The draft document also outlines a legal argument for rejecting WTO dispute-settlement decisions. Some economists and lawmakers fear that failure of the U.S. to abide by WTO decisions and rules or unilateral action by the U.S. not compliant with international law will trigger retaliation by other countries. The risk is that such an approach, if copied by other countries, could weaken adherence to the WTO’s rule-based system around the globe and upend seven decades of increasing U.S.-led cooperation on trade since World War II.
There is certainly a case to be made that WTO rules are not adequately written to deal with modern trade when it comes to producer-nations using third countries to circumvent duties. Or particularly with mainly non-market-based economies whose governments can manipulate currency to encourage export-based growth, but the administration needs to tread carefully and not undo the progress that has been made in rules-based trading over those seven decades. What happens next could undo a system that, for all its faults, attempts to use rules to normalize trade between nations and economies as different as, well, China and the U.S.