Now that U.S. President Donald Trump has agreed to global trade talks – after refuting that very idea only days ago – the question is whether all these countries will be more inclined to speak up about the U.S.’s own behaviour.Reuters
United States President Donald Trump loves to talk about making a deal, yet when Vietnam called to negotiate the 46-per-cent tariff he slapped on the Southeast Asian nation last week, no offer seemed good enough.
Unlike China, which retaliated against the U.S. with tariffs of its own, Vietnam offered to drop its tariffs to zero. Initially, the news gave investors hope that a global trade war could be skirted, but only days later that optimism faded after Peter Navarro, one of Mr. Trump’s tariff pit bulls, publicly scoffed at the proposal.
Dropping its tariffs was just table stakes for Vietnam, he said on CNBC. “It’s the non-tariff cheating that matters.” The examples he cited include Vietnam’s alleged intellectual property theft and its domestic value-added tax.
Mr. Navarro’s anger exemplified how some key White House advisers, and likely even the President, view trade negotiations. To their minds, the U.S. has been hurt by friends, and because the U.S. economy is so powerful, they want to call the shots when rebalancing global trade.
What’s missing from this narrative is that the U.S. also cheats on trade. A lot.
Over decades, the U.S. has erected barriers to protect domestic industries such as sugar, corn and, funny enough, dairy – the very thing it calls out Canada for. Lately, the U.S has grown even more protectionist through subsidies and domestic contracts that support homegrown industries. These non-tariff barriers, as they are known in the trade world, could feature prominently in the negotiations Mr. Trump announced Wednesday when pausing many of his so-called reciprocal tariffs for 90 days.
Two of president Joe Biden’s signature achievements, the Inflation Reduction Act and the CHIPS Act, were laced with tax credits for consumers to purchase electric vehicles (EVs) and make their homes more environmentally friendly, as well as credits for utility companies to invest in cleaner energy sources such as wind and solar. Mr. Biden also offered hundreds of billions of dollars’ worth of subsidies for semiconductor manufacturing and research, infrastructure spending and other initiatives.
By 2023 the U.S. had unleashed so many subsidies that trade experts Jennifer Hillman and Inu Manak called for a global rethink on these protectionist measures. In a report for the Council on Foreign Relations, they fretted about a global race to the bottom because so many countries were shedding previous fears about the overuse of domestic subsidies – and they warned the “United States is leading the shift through the enactment of large subsidy programs.”
The irony here is that the U.S. used to be the country calling out such non-tariff barriers. After the Second World War, global commerce was governed by the General Agreement on Tariffs and Trade (GATT), a predecessor to the World Trade Organization, but by the 1970s its promise of freer trade was fading away because global subsidies were getting out of hand. To counter them, the U.S. lobbied for restraints in the form of countervailing measures, which are more or less taxes or tariffs that a country can impose on imported goods to offset the subsidies.
The U.S. got its way – so much so that other countries fought back. “The Agreement on Subsidies and Countervailing Measures was among the hardest-fought compromises in the negotiations that led to the creation of the WTO in 1995,” Ms. Hillman and Ms. Manak wrote.
Yet for all the complaints the U.S. made – including against Canadian lumber, which it felt was unfairly subsidized – the Americans continued to subsidize major industries.
For decades, they have restricted the amount of raw and refined sugar that American companies can import before they incur steep tariffs. The goal is to protect U.S. farmers from imports of cheap sugar produced elsewhere.
The U.S. has also long protected farmers of crops such as corn and soybeans, compensating them during years of bad weather. And the White House has imposed measures such as ethanol mandates, which dictate how much ethanol must be blended into the country’s gas supply. Using ethanol makes gas better for the environment, but it is also made from corn, and it consumes more than 40 per cent of U.S. corn supply.
Other non-tariff barriers used by the U.S. include hygiene standards for foreign manufacturing plants that are imposed by the Food and Drug Administration, as well as electrical safety standards on foreign goods.
Is it fair to say the U.S. is a hypocrite? “It’s absolutely fair,” said Raj Bhala, a professor at the University of Kansas and an expert on international trade.
Why, then, haven’t other countries pushed back? Mr. Bhala said it’s usually because other nations are “vulnerable in some way.” Often, this vulnerability is a dependency on U.S. consumers to keep buying their goods or depending on U.S military protection or deterrence.
Now that Mr. Trump has agreed to global trade talks – after refuting that very idea only days ago – the question is whether all these countries will be more inclined to speak up about the U.S.’s own behaviour. Mr. Trump has already upended so much of the world order that things like military protection aren’t as guaranteed any more – and if this keeps up, America’s trading partners have much less to lose.