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FINANCIAL TIMES
A reasoned response to Donald Trump’s irrational tariffs
Trading partners should prioritise bypassing, not confronting,
the US
The world’s big steel and aluminium-exporting
countries are grappling with one of the more intractable puzzles in
trade policy: how do you deal with a fundamentally illogical hegemon?
Donald Trump’s announcement of emergency tariffs on steel and aluminium
has put the likes of the EU, Japan, Canada, Mexico and Brazil into a
quandary. The duties will come in next week, and in the meantime the EU
and others are formulating their reaction.
Their responses so far have largely been drawn from the traditional
playbook: attempt to negotiate exclusions from the tariffs
(successfully, so far, for Canada, Mexico and Australia) or hit back
with tariffs of their own in politically sensitive areas (the EU’s
current plans). But the risks of these moves going legally astray or
setting off a major trade war are much higher than in earlier decades.
Affected countries should be planning (as well or instead) to keep the
trading system open and functioning between themselves.
The standard answer to a provocation like Mr Trump’s would be to take a
case to the World Trade Organization and in the meantime contemplate
countermeasures. But Mr Trump’s decision to invoke the rarely used
national security exemption in WTO rules has complicated this.
The irrationality and inconsistency is plain to see. The US’s main
national security adversary, China, is barely affected by the tariffs.
Mr Trump himself frequently departs from the script by arguing that the
tariffs are actually intended to correct unfair trade.
But the obvious nonsense of the justification does not necessarily
ensure trading partners will win a WTO case — or indeed permit the EU,
as Brussels has threatened, to classify the tariffs as “safeguards”
designed to cope with surges in imports and impose countermeasures
unilaterally. WTO rules give wide discretion to governments to invoke
national security exemptions.
It is quite possible that, assuming the cases can wend their way through
a clogged-up WTO dispute settlement system, the US would win and the EU
lose. This would hand Mr Trump a propaganda victory.
In addition to retaliation or as an alternative option, the global
economy’s big powers need to consider how they can keep the system going
without the US. Cutting tariffs or otherwise easing trade between
themselves as much as possible within WTO rules would be a way of
showing the US that its exports could be disadvantaged by its actions.
The commendable efforts of the other 11 economies in the Trans-Pacific
Partnership to resurrect the talks after Mr Trump had pulled out of the
deal shows the way. More broadly, with regard to the health of the
multilateral trading system, other countries have been pondering the
possibility of setting up their own dispute settlement system under the
aegis of WTO rules.
None of this is easy, not least because any effective effort to isolate
the US in the system will need to include China, which has been shifting
away from an open, rules-based approach to trade. But trying to bargain
for exemptions from a notoriously fickle negotiator, or tackling the US
head-on with potentially illegal sanctions, are fraught with more than
the usual danger.
The EU and other big economies need to err on the side of caution. The
US steel tariffs, after all, will affect only about 2 per cent of EU
steel production: not negligible, but not dramatic. The slow,
painstaking business of pursuing legal avenues and building a system
that bypasses the US is much lesssatisfying than slapping tariffs
onbourbon. But it may well pay longer-term dividends in the face of such
a mercurial US administration
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