Richard North, 02/03/2017  

President Trump's joint address to Congress seems to have whipped something of a storm, and especially his comments on trade.

"We've lost more than one-fourth of our manufacturing jobs since NAFTA was approved", he said, "and we've lost 60,000 factories since China joined the World Trade Organization in 2001. Our trade deficit in goods with the world last year was nearly $800 billion dollars".

Speaking of Abraham Lincoln and his warning that the "abandonment of the protective policy by the American government… will produce want and ruin among our people", Trump went on to announce a $1 trillion "national rebuilding", an effort guided by two core principles: "buy American and hire American".

This, according to the Financial Times could herald a shake up in US trade policy, where the administration is preparing to ignore any rulings by the WTO that it sees as an affront to US sovereignty.

Specifically, Trump's administration is examining alternatives to using the WTO's dispute settlement system, and is prepared to ignore its rulings. And first in the frame is the expected finding on China's "market economy status", which will have a significant effect on the way "dumping" allegations are treated.

In an as yet unpublished report to Congress, there are suggestions that the US will take unilateral action under domestic law to impose punitive tariffs against countries engaged in unfair competition with the US, rather than referring disputes to the WTO and awaiting its rulings.

The results of the multilateral system have not lived up to expectations, the report says, asserting that, while it has been great for China, a giant economy that does not act on the basis of market principles, the United States (and many other countries) that practise market-based capitalism have struggled over the last 16 years.

Moves to by-pass the WTO, especially by the US which has hitherto been a champion of the multilateral system, could seriously damage the organisation, triggering a chain reaction as other countries lose faith in its ability to resolve disputes.

At this early stage, though, it is not possible to tell whether this is merely tub-thumping by a new administration, to strengthen US leverage in trade negotiations, but if it is serious about weakening the WYO, this could not come at a worse time for Mrs May's Brexit strategy.

She has strongly indicated that she is prepared to use a "walk away" option as her own leverage – a means of ensuring that EU negotiators are prepared to offer her a trade deal that would be agreeable to her party diehards.

But walking away would mean that the UK is then reliant entirely on the writ of the WTO and its rule-based system – which in any event would create massive problems for UK businesses, and possibly trigger an economic crisis.

Mrs May, however, appears to believe that her threat to adopt the "WTO option" has enough credibility for the "colleagues" to take it seriously. But even if this is currently the case, moves by the Trump administration to weaken the WTO could completely destroy any residual credibility – enough to condition to EU's response.

The overall effect of that, perversely, could be to make Mrs May's adoption of the "WTO option" even more likely. The UK Government's narrative seems to rest on the belief that the EU will cave in under pressure, and is thus giving every sign that it is prepared to push negotiations to the wire.

If, on the other hand, the "colleagues" are determined not to budge, especially as, with their own White Paper on "The Future of Europe" triggering internal discussions unrelated to Brexit, they are not necessarily fully focused on the "British problem".

As a result, we could end up with an "accidental Brexit", where the UK negotiators overplay their hand, ending up in the UK leaving without an agreement, forcing it to rely on WTO rules.

Most likely, it will take very little to convince the "colleagues" that Mrs May is bluffing – as the effect of the WTO option is likely to be disastrous for the UK economy. We could thus have each side misreading each other, making the accidental Brexit all the more likely.

A newly re-elected World Trade Organisation chief, Roberto Azevedo, is certainly worried about the prospect of a trade war, especially in the light of statements by Robert Lighthizer, Trump's nominee for US Trade Representative.

Furthermore, if Trump means what he says about "America first" – and he did after all make this a central feature of his campaign – then it could set off a new wave of global protectionism which would auger ill for the UK's attempts to build a network of global free trade agreements, to compensate for the loss of EU trade that will inevitably accompany Brexit.

The UK's best scenario, therefore, is for a strengthened multilateral system, easing pressure on the tendency for disparate nations to protect their own narrow interests. In this context, as Pete points out, we are far more reliant on the global system than many people realise.

Of one thing I have no doubt – the emerging system of global governance is extremely complex, messy, and difficult to understand. It is slow acting, grossly inefficient and extraordinarily disjointed, with multiple organisations, some of them seeming expend more energy competing with each other than on getting the job done.

And there are good reasons for wanting it to stay that way. The idea of a single, efficient organisation, run by a man in a penthouse suite with a cat on his lap, is the stuff of nightmares – even, or especially if Mr Nuttall is lead candidate for the job. We can tolerate global governance, but not a global government.

But the essential issue for the moment is that we need Mr Trump putting a spanner in the works as much as we need a hole in the head. And, confronted with a complex, poorly-understood system, it is easy to cause unwitting damage.

The only consolation is that response from the US State Department, with Secretary Tillerson's commitment to continued cooperation with partners and allies. But since State is most supportive of the UK's continued membership of the EU, this could be very small compensation indeed.

comments powered by Disqus

Brexit - the first year - New e-book by Richard North
Brexit - the first year - New e-book by Richard North
Buy Now

Log in

Sign THA
Think Defence

The Many, Not the Few