Trump Moves Aggressively to Recast US Trade Relations

Following two victories on trade — the U.S.-Mexico-Canada Agreement and the Phase One deal with China — President Donald Trump is moving aggressively to recast U.S. trade relations with other nations. 

In an appearance at the World Economic Forum this week, he swept aside the consensus plan to focus on climate change, instead bringing his own agenda to Davos that included a surprise conversation with the head of the World Trade Organization. 

The WTO’s policymaking apparatus has been paralyzed in recent years by internal disagreements, and earlier this year the Trump administration crippled its enforcement arm as well by blocking the appointment of new judges to the panel that rules on trade disputes. 

Meeting with Azevedo

On Wednesday, though, Trump summoned WTO Director-General Roberto Azevedo to an unscheduled meeting in Davos, and then convened a news conference in which he announced that they had discussed unspecified changes to the organization that the president described as “very dramatic.” 

The president added, “We’re talking about a whole new structure for the deal or we’ll have to do something.” 

Speaking to reporters, Azevedo offered no details about what Trump was proposing, but also did not shut the door on substantial reforms. “If we are serious about changing and updating the WTO to make it more responsive to the changes of the 21st century, we need to be ready to do things that are unusual, that are important, that are maybe even dramatic,” he said. 

The meeting came after Trump spoke to the assembled political and business leaders in Davos, contending that his two most recent deals “represent a new model of trade for the 21st century — agreements that are fair, reciprocal, and that prioritize the needs of workers and families.” 

What those two deals also are, though, is limited in scope. The China agreement is strictly bilateral, and USMCA is trilateral. This jibes with Trump’s stated preference for making specific deals with individual countries rather than signing on to large regional or global agreements, such as the Trans-Pacific Partnership, from which he withdrew the U.S. in his first days as president. 

Who will be partners?

However, moving forward, Trump may find it difficult to find willing partners for bilateral talks, especially among the major European economies, on which many experts believe he is likely to focus over the next year.  

“My guess is that 2020 will be the year of Europe in terms of Trump's trade policy,” said economist Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. 

But negotiating trade deals in Europe is a vastly different process than negotiating them with some countries where Trump has found some success in the past, like Japan and China. Most trade in Europe is regulated not on a country-by-country basis but by the European Union as a whole.  

“There's no one in Europe who has the power of, let's say, Prime Minister [Shinzo] Abe of Japan or, obviously, President Xi [Jinping] of China,” Hufbauer said. “The way the European process works is that the countries have to agree as to any mandate to negotiate a trade agreement before the trade agreement can be negotiated, and that's a very laborious process.” 

For example, Trump has complained for years about the tariffs on American cars that are sold in Europe. However, nearly all the largest EU member economies have substantial automobile manufacturing sectors, and any one of them could block a change in trade policy. 

Complicating matters is that Trump’s favorite tool in trade agreements, punitive tariffs, could be very damaging to the European and U.S. economies at a time when the U.S. is still laboring under the economic drag of continuing tariffs on China. 

Tax delay by France

To be sure, Trump may still choose to wield tariffs, especially given his recent success in getting French President Emmanuel Macron to delay the implementation of a tax on digital services that would have hit U.S. technology firms especially hard. Macron faced the threat of U.S. tariffs on specific French exports. 

While Trump may have to resign himself to negotiating with large blocs when it comes to the WTO and Europe, he will have a clear opportunity to begin negotiations on another major bilateral deal. When Britain formally separates from the EU next week, a top agenda item in both Washington and London will be setting new terms for their trading relationship. 

Both Trump and British Prime Minister Boris Johnson have spoken warmly about the prospect of negotiating such a deal, but there will be many sticking points, particularly in agriculture. The U.S. will have to decide how hard to press Britain to accept imports of certain U.S. products, such as chicken disinfected with chlorinated water, that are blocked by the EU. 

In all, getting such a deal done before the 2020 elections would be a major challenge, said Hufbauer.  

“The U.K. is a big economy and the U.S. is obviously a giant economy, and there are just a lot of issues which would have to be raised,” he said. “And then there's the important point that an agreement with the U.K., in my view, would have to go to Congress for ratification. … That makes a U.S.-U.K. deal being concluded in the year 2020 a really remote prospect.”