“…believe me, we’re going to have a lot of trade deals. But they’ll be one-on-one. There won’t be a whole big mash pot.” – President Trump, January 2017.
At the outset of his Administration, President Trump withdrew from the Trans-Pacific Partnership (TPP) and stated his preference for bilateral trade deals, not multilateral agreements. In three and a half years, the Trump Administration has negotiated:
- A market access agreement with Japan, signed in 2019, on “certain agriculture and industrial goods, as well as on digital trade”.
- Phase One of an agreement with China, signed in 2020. China is implementing some of the provisions of the Agreement but its purchases of U.S. products have fallen short of the agreed targets. Geo-political issues now threaten the full implementation of Phase One’s goals.
- A revision in 2019 of the Free Trade Agreement (FTA) with the Republic of Korea that included restrictions on Korean steel exports, an extension of protection for U.S. truck manufacturers, a Korean commitment to double its imports of U.S. cars that meet U.S. safety standards, and other measures.
- A market access agreement on U.S. exports of poultry meat and products to Morocco, a country with which the U.S. already has a FTA.
- A market access agreement with Tunisia on U.S. beef, poultry, and egg exports.
The U.S. Trade Representative (USTR) also commenced bilateral trade negotiations with the UK and the EU, and announced its intention to negotiate an FTA with Kenya. U.S. and UK negotiators have made some progress, but completing the negotiation and securing Congressional approval of a U.S.-UK FTA before the end of this year appears unlikely. The negotiations with the EU have stalled. A negotiation on a bilateral agreement with Kenya is just getting underway.
The Administration did update the NAFTA in a trilateral negotiation with Canada and Mexico. The USMCA added significant provisions on e-commerce, SMEs, labor, and the environment, drawing on the text of the TPP to cover trade issues that had arisen since the negotiation of the NAFTA in the 1990s. It also weakened dispute settlement mechanisms and added provisions intended to manage trade in the automotive sector. The USMCA entered into force on July 1, 2020.
Recourse to protectionism has been another hallmark of the Trump Administration’s trade policy. In January 2018, Trump imposed tariffs on solar panels (30%) and washing machines (50%). In March 2018, he imposed tariffs on steel (25%) and aluminum (10%) from most U.S. trading partners. Months later, the Administration extended the steel and aluminum tariffs to the EU, Canada, and Mexico. However, the Administration did agree to exemptions for Canada and Mexico in May 2019.
The most important protectionist measures were those directed toward China. The escalation of tensions with China began in July 2018, with a 25% import tariff levied on $34 billion of Chinese products. By the beginning of 2020, before the Phase One deal was signed, tit-for-tat tariffs had resulted in over $360 billion of Chinese products facing higher tariffs, about two-thirds of the total value of U.S. imports from China. China had placed retaliatory tariffs on a combined $110 billion of imports from the United States. Until now, the United States has unilaterally imposed trade and investment restrictions on China and will, in all likelihood, continue to do so. However, in late June, Secretary of State Pompeo did indicate a willingness to join a joint EU-U.S. dialogue with China.
Retaliation by the EU, China, and other countries targeted by U.S. trade restrictions has already posed serious barriers to some U.S. exports. Undeterred, the Administration is now considering another round of tariff increases directed at the EU and has threatened to break Phase One commitments by imposing further tariffs on China in response to what Trump views as mismanagement of the coronavirus outbreak. It is unlikely that the two countries will be able to reach this year a Phase Two agreement that would include state owned enterprises and intellectual property.
The tariffs placed on China in addition to the others imposed by the Trump Administration have resulted in U.S. importers paying $147.7 billion in customs duties to the U.S. Treasury since January 2018, in effect, a tax on U.S. consumption. To offset the declines in U.S. exports resulting from retaliation, the Trump Administration paid over $22 billion to farmers in 2019, the highest farm subsidy total in 14 years. Driving these payments were trade-related subsidies, which accounted for $14 billion of the total. The Administration has recently shown its willingness to expand aid by the Department of Agriculture to additional U.S. producers. Last month, for example, the Administration laid out its plan to help lobster producers offset damages related to trade tensions with China.
The Trump Administration’s pursuit of limited bilateral agreement is at odds with the worldwide growth of FTAs since 2000. We highlighted increases in the number of FTAs in our 2018 post in WITA’s “America’s Trade Policy.” In that analysis of FTA trends, we found that the six most important U.S. trading partners had negotiated and signed 95 FTAs through 2017. Those countries have continued to negotiate new trade agreements. Since the beginning of 2018, Australia, Canada, Mexico, and Japan have each signed two FTAs, China has signed four, and the EU has signed three. As the updated chart below shows, the total number of FTAs signed by those six nations now stands at 101. Meanwhile, the U.S. has only signed one FTA since 2017, the USMCA, a revision of the NAFTA. The U.S. has not negotiated a new FTA since 2007.Chart_2020_0710
It is important to note that FTAs cover substantially all mutual trade of the signatories under GATT Article XXIV. The FTAs signed by the EU and the other five countries shown in the chart meet the GATT Article XXIV standard. In contrast, the Trump Administration’s market access agreements do not, as they cover only specific industries or products.
Ambassador Lighthizer has defended the Trump Administration’s emphasis on bilateral agreements despite the paucity of results to date. He has also complained about the acceleration of the EU’s FTA negotiations. In his critique of EU trade policy, Ambassador Lighthizer claimed that the EU now has 77 different free trade agreements that offer tariff rates lower than those that result from the “most favored nation” rules of the World Trade Organization. The EU does indeed have a variety of trade agreements, but many of them do not meet the GATT Article XXIV standard. The EU has signed 39 FTAs that do meet that standard. For the most part, the other “Partnership and Cooperation” agreements are limited in scope but they do provide a general framework for trade.
Many countries bear the responsibility for the failure over the past twenty years to conclude multilateral trade negotiations within the framework of the WTO. That absence of multilateral trade negotiations opened the door to the proliferation of FTAs, which have the potential to divert trade from third countries to producers in the FTA member nations. The Trump Administration’s rejection of multilateral agreements, its imposition of protective trade barriers, and its concentration on bilateral agreements did nothing to forestall the negotiation by other nations of FTAs that will hamper U.S. exports to those markets.
Guy Erb is a former U.S. trade policy official and investment banker, with experience in financial and trade advisory services and international organizations.
Scott Sommers is a Consultant with Berkeley Research Group and an incoming PhD student in Economics at the University of Minnesota.
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 “Bad News for U.S.-EU Talks: What Lighthizer Has to Say,” https://www.politico.com/newsletters/morning-trade/2020/06/10/oecd-global-economy-on-tightrope-walk-to-recovery-788393. Accessed June 6, 2020.
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