US tariffs set to spiral trade war with rest of world

After months of trade war with China, the US subjected its EU and NAFTA partners to steel and aluminum tariffs. EU leaders missed a year seeking appeasement with Trump’s protectionism. It’s time to defend the multilateral trading regime.

Unsurprisingly, the EU, Canada and Mexico have lambasted the US steel and aluminum tariffs. European Commission President Jean-Claude Juncker criticized Trump’s tariffs and pledged retaliation in due time. French President Emmanuel Macron and German government spokesman called the move unlawful. In Britain, the Brexit proponents and opposition quickly blamed each other for the tariffs. Canadian Prime Minister Justin Trudeau said the tariffs would “harm industries and workers on both sides of the Canada-US border.”

However, when US President Trump initiated steel and aluminum tariffs against China months ago, EU leaders and NAFTA partners struggled separately for temporary or permanent bilateral exemptions, leaving China alone to defend the international multilateral rules they now say have been violated.

For months, Canada and Mexico have been hedging their bets against a potential collapse of the North American Free Trade Agreement by pushing for deals with new partners, particularly with China and other Asian countries.

If the US withdraws from NAFTA, that would start a six-month legal process before official termination. While the Trump administration has seen this as a negotiating tool to force Canada and Mexico to accept its demands, the latter have used the time to complete trade talks with Brazil and the EU.

Not so long ago, optimists still saw the Transatlantic Trade and Investment Partnership (TTIP) as a “done deal.” The US-EU free trade agreement talks were announced in February 2013. The two account for nearly half of world gross domestic product and 30 percent of global trade, and have investments of more than US$3.7 trillion in each other’s economies.

The TTIP aimed to enhance market access through the elimination of barriers to trade and investment in goods, services, and agriculture. But it was also expected to serve a number of strategic and geopolitical US policy goals. Yet, potential controversial issues soon surfaced, including differing views to regulations and standards, financial services, labor and the environment, and digital trade. Moreover, differing approaches to data privacy and the diplomatic fallout from the Snowden case complicated the talks.

Last March, Trump signaled he was willing to reopen negotiations with the EU over the TTIP agreement. In exchange for the permanent exemption, Brussels offered to talk about improving reciprocal market access for the US for industrial products, cars, public procurement, and energy. But Trump wanted far more — an America-First deal.

“We will now trigger a dispute settlement case at the WTO, since these US measures clearly go against agreed international rules,” EU trade commissioner Cecilia Malmstroem said recently. However, Washington’s purposeful blocking of appointments to fill the empty seats in the WTO’s appellate body, tasked with managing disagreements between trading nations, could slow settlement talks.

Furthermore, precious time has been lost. The values and interests that once united the transatlantic partners are diverging. Consequently, efforts to simply buy time and appease trade aggression are a dead end.

What is really needed is a broad front of major advanced economies and large emerging economies against illicit tariff wars. The multilateral international trading regime was not born automatically. It was preceded by two world wars and the Great Depression.

Nor can a multilateral trading regime be sustained without decisive international cooperation.

Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (US), the Shanghai Institutes for International Studies (China), and the EU Center (Singapore). For more, see http://www.differencegroup.net/