Trump and the Global Trade Architecture, Asia Edition

The following is a guest post by Miles Kahler, senior fellow for global governance at the Council on Foreign Relations.

President Donald J. Trump’s trip to Asia will reveal the next phase in the Trump administration’s evolving stance toward the major Asian trading powers. Given Factory Asia’s central place in the world economy, Trump administration commercial policies toward Asia have global implications: will its rhetoric and actions, which have broken with past administrations, undermine the complex global trade architecture erected over the past three decades? The architecture that the United States and other major economic powers have promoted since the 1980s has narrowed the space for unilaterally imposed or bilaterally negotiated protectionist measures, promoted regional and plurilateral preferential trade agreements (PTAs), and awarded a central place to a legalized and strengthened global multilateral institution, the World Trade Organization (WTO). This rule-governed trading system accommodated new trading powers, moderated commercial disputes, and presided over a rapid expansion in world trade.

A recent Council on Foreign Relations symposium, “The United States and World Trade: Future Directions,” underscored the risks that Trump administration trade policies pose for this superstructure, erected over cross-border exchange that has become increasingly complex, as global value chains (GVCs) link trade in product components across multiple national boundaries. Robert Reich’s question—"Who Is Us"—is even more pointed today than it was in 1990. For the Trump administration, “us” is defined by a vision of the United States as a trading power that exports goods (not services) wholly produced within U.S. borders and as an economic power that is uniformly exploited by cannier allies or rivals. This new orientation has informed bilateral relations with China, the world’s largest trading power, with regional preferential trade agreements, and with the WTO.

U. S. bilateral relations with rising economic powers, particularly Asian competitors, have always been contentious. The heated rhetoric leveled by Trump the candidate against China, now the world’s largest trading power, surpassed previous China-bashing. Many predicted a trade war. So far, however, China has escaped significant trade protection and has conceded only modest trade concessions in its initial negotiations with the Trump administration. Even the Article 301 investigation into China’s intellectual property practices, announced in August 2017, remains only a threat to bilateral commercial relations, although a potent one, if realized. Neither the threats nor the actions taken by the Trump administration have dealt with the challenge that China poses to the future economic position of the United States or the world trading system: China’s industrial policies, as embodied in the Made in China 2025 program, which targets numerous technology-intensive sectors in which the United States, Europe, and Japan now enjoy a competitive advantage. Through discriminatory policies toward foreign investors, efforts to extract intellectual property from those investors, and subsidies, particularly to state-owned enterprises, many of China’s policies signal a retreat from liberalized trade and investment. To date, the Trump administration has failed to develop a broad-gauged strategic approach to China that aims to counter these measures and to build more reciprocity into China’s trade and investment relations with its economic partners.

Even if it wielded a more coherent and comprehensive negotiating stance toward China, the United States alone does not have the leverage to impose such a grand bargain. Shifting China’s neo-mercantilist course will require allies; the administration’s attacks on regional trade agreements will ensure that few will be found. One of Trump’s first actions in office was withdrawal from the Trans-Pacific Partnership (TPP), a new bundle of trade rules designed to counter China’s commercial and industrial policies. Negotiations for the Transatlantic Trade and Investment Partnership (TTIP) were moribund even before the arrival of the new administration. Existing regional trade agreements, especially the North American Free Trade Agreement (NAFTA), have been a particular target of the president’s ire. Rather than seeking to modernize the agreement and its role in ensuring competitive North American industries vis-à-vis China, the Trump administration seems intent on pressing issues that are politically impossible red lines for Mexico and Canada.

Even before the Trump administration took office, the third pillar of the international trade architecture, the WTO and its Doha round of multilateral trade negotiations, had reached a stalemate. Nevertheless, the dispute settlement mechanism at the WTO was robust and has attracted a growing number of governments. Director General Roberto Azevêdo made clear in his remarks at the CFR trade symposium that regional and plurilateral agreements were not viewed as competitors with the WTO but rather as important contributors to trade liberalization. Despite the disappointing Doha results, Azevêdo emphasized that successful trade negotiations had been completed recently at the WTO: the Trade Facilitation Agreement, the abolition of export subsidies for agricultural products, and the expansion of the Information Technology Agreement.

Previous administrations have expressed their discontent with the WTO’s Appellate Body, which has been accused of overreaching its mandate. As in the case of NAFTA, however, the Trump administration has taken its criticism of WTO dispute settlement much further, threatening to resolve disputes outside the WTO and hinting that it might not comply with WTO rulings. If the WTO’s effectiveness is impaired, bilateral negotiations between the major trading powers—the Trump administration’s clear preference—would become the default venue for resolving trade conflicts. Those conflicts, if they persist, would introduce a new element of uncertainty into global economic relations.   

A broad coalition should be opposed to the Trump administration’s undermining of the global trade architecture—those in Congress who view an open trading system as central to broader national strategy, corporations whose intricate cross-border linkages are vulnerable to disruption, importers dependent on reliable foreign supplies, and consumers wedded to inexpensive smart phones, cars, and appliances. Whether they can sustain U.S. support for the major constituents of the global trade architecture will determine whether the United States maintains its central place in the governance of trade. If they fail, we will learn soon enough whether the United States is in fact an indispensable nation for the maintenance of an open trading system. As other major economies continue their quest for twenty-first century trade agreements, the United States may find itself on the sidelines of economic diplomacy.