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Trump braces WTO for new era of trade war

Americas / 23-11-16 / by
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As Donald Trump begins assembling his cabinet and team of presidential advisors, the reality of a new era of trade litigation is emerging.

Experts are convinced that while President Trump may not follow through with all of his electoral promises on trade, his tough anti-trade and globalisation stance will result in far more disputes at the World Trade Organisation and lead the US into a head-on collision with China.

“We are convinced there are going to be more anti-dumping and countervailing dispute cases in the US. At least more noise about trade with China. At some point China will retaliate, either as a result of new trade measures against its exports or simply the ‘noise’ coming from Washington,” Duane Layton, head of Mayer Brown’s government and global trade group and former senior counsel to the US Department of Commerce tells GTR.

This week it emerged that Trump had named two steel industry heavyweights as his “landing team” at the Office of the United States Trade Representative (USTR). Former CEO of Nucor Steel Dan DiMicco and Robert Lighthizer, who has lobbied US Steel Corporation for 25 years, are to work with the USTR on the request of the Trump transition team.

This has struck fear into the hearts of free trade supporters, who now feel that protectionist measures and further tariffs on Chinese steel are inevitable. With their appointments comes the likelihood of further trade disputes, it is said.

“DiMicco and Lighthizer bring an enforcement and prosecution ethos to the USTR, which will send a lot of the existing staff to the exits, while ensuring that the agency’s budget is devoted primarily to bringing complaints against our trade partners, rather than negotiating new and better deals,” director of trade policy at the Cato Institute Dan Ikenson wrote in a blog post berating the appointments.

Lighthizer previously served as deputy USTR under the Reagan administration, and so it is thought unlikely that he would serve in the department as anything other than head.

However, the role of ambassador to the WTO will need to be filled, as will high-profile positions within the Department of Commerce. The initial signs are, though, that these two controversial figures will play prominent roles in Trump’s trade team.

Trump vs WTO

All through his successful election campaign, Trump railed against China’s alleged steel dumping, and repeatedly vowed to label China a currency manipulator after his election. He also pledged to slap tariffs of 45% on all Chinese imports to the US.

Less frequently, he lashed out at the WTO itself, but on occasion he vowed to reform it or to pull the US out of the organisation altogether. These threats are being treated less seriously than Trump’s vow to withdraw from the Trans-Pacific Partnership (TPP) or the North Atlantic Free Trade Area (Nafta).

Ethan Cramer-Flood, associate director at the China Centre and Asian Programmes at think-tank the Conference Centre, says: “At his most extreme, Donald Trump the candidate railed against not just the oft-criticised Nafta and TPP, but the entire WTO system. At times he even suggested that he might look into withdrawing the US from the WTO outright, or perhaps attempt to renegotiate WTO rules and practices.

“The latter option is essentially impossible, and the former is ludicrous. We hope that Trump the president would not pursue such an obviously catastrophic option as WTO withdrawal, and we suspect he would not. But his self-built reputation for volatility and temperamental impulsiveness means that almost nothing can be entirely ruled out.”

Cramer-Flood and most other trade or China wonks rate it as “very likely”, however, that China will face some sort of tariff after being labelled as a currency manipulator. This is something that would likely spark a trade war of sorts.

One senior source in Washington DC tells GTR that under previous administrations, he had dismissed talk of a trade war out of hand. Under Donald Trump’s stewardship, however, this is a reality he is now facing.

“The average guy who voted for Donald Trump is thinking: ‘Yeah man let’s go after those Chinese!’ Well, what’s good for the goose is good for the gander. The Chinese can go after our goods and services that get sent to China and they have lots of ways of doing that,” he says, wishing to remain anonymous.

Any trade war would likely be tit for tat: the US slaps a tariff on China, likely at the bequest of a company or industry sector, and China does the same. A case study on how things might unfold occurred in 2009, when President Obama sought tariffs against China for dumping tyres into the United States. These were upheld by the WTO.

Layton explains: “He was the first president to use the China special safeguard provision in US law. Within days MofCom [the Chinese Ministry of Commerce] announced retaliatory anti-dumping and countervailing duty proceedings against US poultry and automobiles.”

Retaliatory options open to China are also manifold. China could bring its own anti-dumping measures against the US as it did in 2009. It could aggressively enforce its anti-monopoly law in the Chinese market. It could impose rules on IP rights in China, which would be detrimental to US companies working there.

China’s market economy status

Anybody looking for an event that might spark a round of disputes need look no further than December 11, when China is due to be granted market economy status by the WTO.

It is widely held that even a Democratic government may have opposed this move and refused to recognise China’s market economy status, as doing so would mean that the US would have to treat China differently when it comes to posting tariffs against it. Donald Trump is certain not to recognise this, which will open the door to China to bring a case at the WTO.

Under the assumption that the US will not recognise this move, Andrés Delgado Casteleiro, senior research fellow at the Max Planck Institute in Luxembourg says: “If the US was to say they won’t abide by WTO rules as they have said from time to time, with regard to the calculation of dumping margins, they would be subject to counter measures.

“The rest of the WTO members would be allowed to raise tariffs to the US in retaliation for their behaviour. In that sense, the exports from the US would suffer because of such behaviour.”

But what avenues would be open to China? This is a question that is doing the rounds among trade lawyers right now, most of whom are bracing themselves for a barrage of work as the atmosphere turns ever more litigious.

One option China has would be to challenge the US – or indeed the EU, which is also unlikely to recognise its market economy status – at the WTO on an anti-dumping case that follows December 11. Alternatively, they could challenge a weaker nation in the hope of building a case against more powerful nations or blocs.

Layton explains: “Clearly they’ll bring a WTO challenge. They will argue in the WTO that their Protocol of Accession requires the US / EU and anyone else bringing anti-dumping measures using a non-market economy methodology in the determination of dumping to accord it market economy status.

“Do they go after one of the big dogs? The US or EU? Or do they find a weaker, legally less sophisticated country that has recently done an anti-dumping case after December and sue them in the WTO?”

Options within the WTO are more limited and will take years to play out. There are three routes available to China if it wins a case against the US for refusing to recognise its market economy status and therefore failing to adjust its tariffs regime accordingly.

  1. The US removes the tariffs on China
  2. If the US refuses to remove these measures and to reclassify the duties under China’s new market economy status, it reduces tariffs on other Chinese goods that would be equivalent to the trade value lost on the initial tariffs
  3. China is allowed to introduce retaliatory measures against the US that are pre-approved by the WTO and which are equitable to those imposed by Washington. They could, for instance, place a duty on US steel.

The caveat to all of this is that the US wields huge influence at the WTO. For the WTO to find against the US, as well as the EU, would be a landmark judgement. We are, then, facing years of disputes, which will inevitably spawn more disputes of their own.

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