2017: Mixed Messages
Although the president withdrew from the Transpacific Partnership Agreement before the deal could go into effect, he did not take action on his other trade threats, and there were many issued. They included imposing tariffs on Germany, China or Mexico, and pulling out of the U.S.-Korea Free Trade Agreement, the North America Free Trade Agreement (NAFTA), or even the World Trade Organization.
There is widespread speculation he will launch some form of retaliation this year against U.S. trading partners – perhaps as soon as an announcement in his State of the Union speech this month. Opinion divided as to which country will be his focus. China is a good bet.
2018: What’s Trending
It would be a guessing game to try to predict what the president might do specifically on trade in 2018. Whatever he decides, there are trends morphing the trading system even as the U.S. Government works to figure out its role in shaping it.
Charm Offensive with China Losing its Luster
More governments are becoming alert to the challenge China poses to their economies as well as to rule of law and the trading system generally. This is not new for the United States, and the president’s national security strategy focuses squarely on it. The new development is that others are beginning to see things the same way, particularly in Europe, which has historically lagged in its concern about China.
Multinational businesses are gradually falling out of love with the Chinese market, recognizing the long-term challenge to their competitive survival that China represents. Many are still reluctant to sacrifice their short-term profits, so their support for stronger trade measures toward China is quiet, but it is still support. This will not play out easily, as the Chinese are masterful users of both soft power and retaliation, but the battle is now joined, and China knows it.
“Retro” Trade Laws are Back
The Trump administration is ramping up its use of 1980s U.S. trade laws, particularly our antidumping and countervailing duty laws. These laws have their limitations – they are narrowly focused, time consuming and expensive for companies to pursue – but they have the advantage of being WTO consistent.
The Trump administration will use these laws to try to counteract the massive subsidies the Chinese government is planning to support its high-tech sectors identified in its “Made in China 2025” report. We expect to see more of antidumping and subsidies cases brought by companies and initiated by the administration in 2018.
A Recalibration of Global Engagement
The World Trade Organization (WTO) has been criticized for its inability to complete the Doha Round (it’s member driven so by definition, the members failed to produce agreement) and hasn’t made swift progress advancing smaller deals aside from the Trade Facilitation Agreement, which will take time to produce its full benefits.
Amidst the mounting skepticism, this administration is raising new doubts about the WTO’s procedures, particularly with respect to how the WTO settles trade disputes. Treasury Under Secretary for International Affairs David Malpass expressed the administration’s view succinctly in a November 30 speech to the Council on Foreign Relations in New York: “Our view is that multilateralism has gone substantially too far, to the point where it is hurting U.S. and global growth.”
Without a countervailing pull by the United States toward rule of law in the international marketplace, countries such as India and China could move even more aggressively into the multilateral space to use it for their own ends.
The Global Battle to Attract Investment Intensifies
Countries are in a competition for investment dollars and the jobs that come with business investments. Even as they work to attract more investment, a growing concern is the rise of Investment restrictions, particularly in the United States.
On the inbound side, legislation was introduced to update the Committee on Foreign Investment in the United States (CFIUS) to address national security concerns. The legislation has been criticized by some as not going far enough (primarily because it does not include a “net economic benefit” test in addition to a national security test) and criticized for going too far in ways that will discourage new investment.
In addition to the possibility of more restrictions on inbound investment, the administration has consistently expressed a preference for keeping American investment at home and is exploring ways to curb outbound American investments.
All of these trends indicate a more defensive posture by the administration is based on the idea that the world is taking advantage of us. However, the United States largely designed the current global trading system and has benefited enormously from it, and the United States is the most competitive nation in the world. So, the choice to shape the system with a confident posture, or fight in a defensive posture, is ours. 2018 will demonstrate which this administration chooses.
William Reinsch holds the Scholl Chair for International Business at the Center for Strategic and International Studies. He previously served as president of the National Foreign Trade Council and as the Under Secretary for Export Administration in the U.S. Department of Commerce.