US Action Plan on Trade

Bullets upfront and condensed

By Roger Scher

When I re-read my post this morning, I thought I may lose readers with the intro on the irony of China applying to join a U.S. trade deal. I like that section, but thought that you the readers might lose interest. However, the “US Action Plan on Trade” is important, so find it below, condensed (a little).

The U.S. should:

• Deploy muscular multilateralism like Obama did, in place of the aggressive bilateralism of Trump. Obama initiated 25 complaints with the WTO’s Dispute Settlement Mechanism (DSM), more than any other country during his administration, 16 of which were against China. Obama also rejected judges for the DSM’s Appellate Body which reviews decisions on trade disputes. He did so because of judicial overreach, sending a message about U.S. concerns, which the EU has since said has merit. But, his administration ultimately allowed the Body to be fully staffed, rather than dismantling it like Trump did. The Obama approach is what I call “muscular multilateralism”. The U.S. should return to this. The U.S. must engage energetically with the world’s largest trading nations, especially its allies, on the issues important to it. The EU, and other likeminded nations, need to back up the U.S. more in its muscular multilateralism for this to work. See the PIIE chart at the end which shows how little other countries have backed the U.S. in its complaints against China. C’mon, EU partners!
• Accept the EU’s invitation to agree on a program for WTO reform. The EU took advantage of the change of government in the U.S. in 2021 to reach out for a transatlantic agreement on global trade rules. The EU for the first time conveyed its agreement with key U.S. grievances like overreach by adjudicators and the need for flexibility on trade remedies. An opening was likewise created by the June U.S.-EU agreement to drop the nearly 2-decades long Boeing-Airbus civilian aircraft dispute. Engage Japan too. Japan was part of Trump’s trilateral effort and has a free trade deal with the EU, so should be pulled in as soon as the U.S. and EU reach agreement, as should Canada. This would reprise what was once called the “Quad”. This was the U.S.-EU-Japan-Canada group that led to the creation of the WTO. Japan can be a key lever for muscular multilateralism in Asia.
• Pound out the outlines of an agreement before the big WTO meeting in late November. There are over two months before the 12th WTO Ministerial Conference (MC-12) beginning Nov. 30, when 164 trade ministers descend on Geneva. There, present WTO members with a united Quad position on trade.
• Agree to strengthen all three WTO functions — legislative, executive and judicial — per Amb. Wolff’s remarks at American University this summer (and others): find mechanisms for plurilateral agreements (agreements of fewer than the full WTO membership of 164 nations) either inside or outside the WTO — i.e., end single member veto; empower the DG (executive) to propose rules changes, intervene to resolve disputes short of the DSM, and oversee active reporting on trade practices globally; tighten DSM rules to avoid legislating from the bench; and, rebalance access to trade remedies (e.g. countervailing duties and other protections against surging imports) to provide greater flexibility for members. More power given to smaller groups of members to legislate changes (rather than just done unanimously), and to the DG to resolve conflicts, would relieve pressure on the DSM to legislate from the bench.
• Roll out a Quad view on key issues (U.S.-EU-Japan-Canada): on climate aspects of trade (including use of carbon border adjustments); liberalization of services trade; IP protections; e-commerce; trade aspects of the pandemic; and state involvement (through subsidies, government procurement, regulation, anti-trust).
• Build agreement on the Quad program with WTO members step-by-step. Once the Quad agrees on reforms, move next to: Australia, Singapore, NZ, Switzerland, Colombia and Uruguay. These countries agree with Joint Statement Initiatives (JSI), which allow plurilateral agreements of <164 members. Some members oppose plurilateral agreements (e.g. India and South Africa), arguing that they violate WTO rules. Such objections hamstring action and could ultimately cause the WTO to fail.
• Consult on the Quad’s program with an increasing number of leading “emerging market” countries, including Mexico, Brazil, Russia, India, South Africa, Indonesia, Nigeria and China, tweaking rules when possible. Buy in from EM countries is indispensable, so discussion and give and take are essential. A critical and diverse mass of countries is ultimately required to reform the WTO.
• Engage bilaterally with China; at a minimum, to resist further protectionism; potentially, to walk back tariffs in place; and hopefully, to engage in market-opening measures. Bilateral progress on U.S.-China relations could provide impetus to a broader agreement within the WTO. Recent deterioration in U.S. rhetoric toward China on trade should be reversed, which in no way suggests that the USG refrain from calling on the Chinese government to end practices such as the persecution of the Uyghur people.
• The U.S. should rejoin regional trade deals. Rejoin the deals that the U.S. helped create under Obama: in Asia (TPP) and with the EU (TTIP). Use these mega-regional deals as a platform to engage with the China-led trade group, RCEP, as well as with other large EM countries like India. While avoiding a “spaghetti bowl” of trade agreements, mega-regional deals with U.S.-style rules can ultimately pressure other WTO members to follow the rules. They won’t want to be left out, with limited access for their exporters to foreign markets. If the strategy of building consensus through plurilateral groups within the WTO fails, then the U.S. should work with likeminded allies outside the WTO. Excessive use of bilateral FTAs should be avoided, so that the spaghetti doesn’t boil over the pot!

The U.S. still has the largest economy in the world, folks, and can use this heft, and the lure of its markets, to deploy “muscular multilateralism” in its best interests. Let’s do this!*

From PIIE March 2020, p. 20.

Source: Maddison Project. Sharp decline in real pc GDP growth was due to the Great Depression.

*At market exchange rates, the U.S. economy is still the largest economy, at $22.7 trillion forecast by the IMF in 2021, vs. the second largest China, with $16.6 trillion. However, economists do an adjustment for Purchasing Power Parity (PPP), to equate the purchasing power across countries. When the PPP adjustment is done, China’s economy is larger at $26.7 trillion. PPP adjustment equates prices of goods across countries. Think of it this way: China already produces more stuff than the U.S., even though this stuff costs less. See IMF WEO, April 2021.