Fallout from U.S.’ new trade policy

Why in news?

The Trump administration recently released a document – The President’s 2017 Trade Policy Agenda.

What are the implications?

• The most important is that the US would not be bound by WTO rules and rulings by WTO courts if these run counter to US interests.
• Thus, if implemented, it would hit at the foundation of a rule-based multilateral trading system and may potentially unleash a trade war between nations if other countries also follow suit.
• Items on the agenda include renegotiating/revising existing trade agreements like NAFTA and the US-Korea Free Trade Agreement apart from the Trans-Pacific Partnership (TPP).
• Henceforth, US would prefer to negotiate bilateral trade deals, instead of multilateral or plurilateral ones.

What is the logic behind this changed US position?

The document emphasises unfair trade practices such as

• Currency manipulation (China and Germany have been running huge trade surpluses against the US that the Trump administration believes are largely the result of undervalued yen and euro);
• Non-transparent legal and regulatory regimes (China);
• Prevalence of ‘dumping’ (China, Japan, South Korea and India);
• Hidden subsidies (explicit export subsidies are banned by WTO rules); and
• Rampant violation of patents and copyrights (China).
• In addition, it points out that liberalised trade with Mexico and Canada (under NAFTA), China (after its entry into WTO), and Korea (US-Korea FTA) has caused huge job losses, especially in the manufacturing sector.

What would be the consequences?

• Most analysts agree that it is not possible to bring back manufacturing jobs to the US to any significant extent by renegotiating trade agreements.
• In most cases, it would not be cost effective.
• Imposing high tariffs on imports would not be WTO-compatible, and would raise the cost to American consumers.
• The other option is to automate; this would cost jobs.
• A trade war with other countries would also mean loss of exports and jobs.
• Abandoning of TPP and imposing tariffs on Chinese goods may push China to forge a mega trading bloc with Japan, South Korea, Asean, India and Australia, excluding the US.
• China will project itself as the champion of free trade and the US as protectionist.
• The mutual benefits of globalisation, though being increasingly questioned in the US and Europe, have not yet been lost in Asia and Australia.

Source: Business Line