Interview with Marianne Schneider-Petsinger, Research Fellow, US and the Americas Programme, Chatham House

Marianne Schneider-Petsinger is a research fellow in the US and the Americas Programme at Chatham House, here she discusses Trump’s trade wars, what consensus there is on tackling unfair trade practices in China and whether the World Trade Organisation is fit for purpose.

There seems to have been a shift in the global, or perhaps Western, enthusiasm for globalisation and trade agreements. Would you agree and what would you say has caused this?

The US is very much at the centre of this trade earthquake, but the fissures were felt way before and run much deeper. There are winners and losers from global trade. The benefits from global trade are spread very thinly, but the losses are concentrated. Politically, it is easier to build on the concerns of those that have been hurt. Though in considering this, it is important to recognise that economists and policymakers have for a long time ignored those who have been hurt by trade and globalisation. There has been a lot of emphasis on the benefits of global trade and not enough focus on those negatively impacted.  

At the same time, trade has become a kind of bogeyman for automation and productivity gains in general, so I don’t want to overemphasise the negative side. There is a balance to be struck. A study has shown that only 13% of job losses can be explained by trade, the rest is automation and technological change, so Trump’s rhetoric doesn’t necessarily fit with the reality.

Trade barriers have come down significantly in recent years. Trade agreements are now less focused on tariffs, but instead are about rules and regulations. These issues have traditionally been left to the national governments to deal with, so this raises concerns around the ability of governments to regulate themselves. We saw these concerns in the backlash to the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).

Another issue is the effectiveness of trade governance more broadly and the effectiveness of the World Trade Organisation (WTO) in particular.

In the United States, with regard to his stance on trade agreements and tariffs, what is Trump responding to and what is he trying to achieve?

There seem to be a couple of misconceptions about trade in the Trump administration. Firstly, there is a misplaced focus on the US trade deficit. President Trump’s focus is on the trade deficit in goods, totally ignoring the US trade surplus in services. Moreover, most economists agree that overall global imbalances do matter, but bilateral trade deficits do not necessarily.

Secondly, the Trump administration links trade to security issues in a broad sense. The threat of tariffs on automobiles and the steel and aluminium tariffs are all in the name of national security. However, the extent to which steel and aluminium imports, from say Canada, are really a threat to National Security is debatable. Most pundits would say they are not. To what extent the import of BMWs from Germany are a national security threat is even more tenuous. Trump makes the connection between economic strength and national security strength. 

This has been brought to the attention of the WTO, but it puts the organisation in a difficult position. On the one hand, if it sides with the US, then any country can introduce tariffs because of national security concerns. However, if it sides against the US, there is a chance President Trump would follow through with his threat of pulling the US out of the WTO. At this stage, I don’t think the US will pull out of the WTO. To me, the bigger threat is the Trump administration undermining the WTO from within.

Trump’s approach is not working. The US trade deficit is widening and the tariffs are a tax on US consumers and producers. What we haven’t seen yet is US businesses and Republicans push back. So far, the US economy is still doing fairly well, but if there becomes a danger of a recession, perhaps these groups will react against Trump’s approach. Traditionally, it is Congress that has the authority to regulate trade. There have been some initiatives in Congress to reign in the President, but the Republican leadership has not moved this forward. The question is to what extent there could be a tipping point if the economy tanks, where more pressure would build up. So far the constituents that have been primarily taking the brunt, particularly the farmers, have seen a kind of bail-out programme. There is still this attitude among farmers that have been hurt by the US trade war with China that it is short term pain for long term gain.

What impact will the looming 2020 elections have on Trump’s approach to trade?

There is a lot of focus on whether there will be a deal between Trump and Xi Jinping, and I think there will be a short term deal that addresses the US trade deficit, but it won’t necessarily address some of the structural issues around technology. The issue of technological leadership sits beneath these discussions, and that is not going to go away. Even if there is a short term solution to the US-China trade war, I am almost certain we will see more tension because of the underlying issues.

Some in the US have grasped the importance of intellectual property theft and technology transfer issues, including US Trade Representative, Ambassador Lighthizer. They have pushed this, because they fear that the current approach is merely a short term vehicle. However, at this stage, the question is, do they really have the ear of the president, or is it easier for him, particularly in the run up to 2020 to say here is a deal.

Democrats and Republicans are not too far apart on these issues. The technology issues behind this are likely to flare up at some stage regardless of what happens in 2020.

Why does the World Trade Organisation not deal with some of these issues? Is it still fit for purpose and how is it being challenged?

There are now 164 members in the WTO.  Over time, as the membership has expanded, it has become much more difficult to find consensus, so it is not surprising that successive rounds of trade negotiation have taken longer and longer to complete. The most recent one, the Doha Round, has not been brought to a successful conclusion. What we have seen instead is a greater emphasis on bilateral or regional trade agreements – in particular led by the US and the EU.

Another pillar of the WTO is dispute resolution. There are specific concerns that have been raised by the Trump administration with regards to the WTO appellate body overreaching its mandate. With regard to the appellate body, the EU and other countries including Japan and Australia as well as Brazil, have made concrete suggestions for reform, but the US has just blocked them without coming forward with any proposals of its own.

The US has been blocking appointment of members to the appellate body. There are usually seven members, but they are now down to three, which is the minimum required for the system to function. Come December the terms of two members will expire and there will no longer be sufficient numbers to come to a ruling and the system will grind to a halt. Some of these concerns are long standing. President Obama initially blocked members of the appellate body, but it is much more aggressive now. The timing is much more critical now.

Another issue with the WTO is that countries self-declare whether they are a developing or developed country. As developing countries receive special and differential treatment, the US and others have long found this dissatisfying. Proposals have been made for a more formal classification system.

When the WTO was originally set up in 1995, the internet in its current form did not exist, ecommerce really didn’t exist, so the rules for some of the critical issues simply don’t exist. The issue of state owned enterprises is certainly much more prominent now than in 1995, and the WTO is not fit for purpose to deal with this. There are a number of initiatives currently going on to bring the WTO into the 21st century.

To what extent are there shared concerns about unfair trade practices coming from China and what can be done about them? Is the trade war between China and the US likely to achieve the desired results?

Many other WTO members share the US’ concerns that have been raised around unfair trade practices. However, the question is how to go from a shared diagnosis of the problem, to a shared idea of the solutions. On some level there is some cooperation between Japan, the US and the EU with regard to this issue. There is a trilateral working group that is particularly aimed at dealing with issues such as state owned enterprises, intellectual property theft and forced technology transfer. However, with the Trump administration waging trade wars on multiple fronts, the joint efforts to tackle shared concerns with regard to the WTO, and also shared concerns with regard to China, are potentially undermined.

Some of the actions that have been taken by the Trump administration, for example the steel and aluminium tariffs in the name of national security that primarily hit the US’s allies, are counterproductive because they don’t address the real issue of China’s overcapacity in the steel sector. There is still the threat of potential tariffs on cars and automobile imports, which from the European perspective have huge economic, but also political ramifications. A decision by President Trump has now been pushed back to November.

China is a huge issue where Europe risks being caught in the middle. There are shared concerns about China including state owned enterprises, intellectual property theft and forced technology transfer, but the EU does not really agree with the methods that the Trump administration uses to address them. The EU does not agree with the tariffs. So there are shared concerns, but no agreement on the right way to deal with them. The EU is trying to balance a number of interests when it comes to the US and China and that makes it quite tricky.

 Interview conducted by Amy Wevill

Marianne and Amy previously worked together on the Chatham House Global Trade conference in 2016. Amy conducted a series of interviews to accompany this event, including insights from the then Global Public Policy Director for eBay and a former chair of the appellate body of the World Trade Organisation. These can be accessed here.

 Photography by Vianney Le Caer.