After the Clean Up—Looking Ahead
January 6, 2020
Happy New Year to everyone. I spent the holidays catching up on reading—actual books with actual printed pages—mostly historical fiction from the Tudor era of Henry VIII. Even there, however, it was hard to escape reminders of the present, as the novels feature a large orange person (on his fifth wife in the current book) angrily tearing society apart by leaving the Catholic Church, dissolving the monasteries (keeping their land and money for himself), and dividing the country into “reformers” and “papists.” Sound familiar? There is one difference—many of the papists had their heads cut off, having been convicted of treason. We do not appear to have reached that point—yet.
It is customary at this time to speculate on the agenda for the new year, and I certainly don’t want to ignore custom. One journalist I spoke to recently was wondering if 2020 might be a calmer year in trade with no new tariff wars, but I told him that was unlikely. Trade remains a signature issue for the president, and at this point, he has relatively few real victories to brag about. South Korea is done and largely forgotten. Japan phase one is done and modest. China phase one is about to be done and is even more modest. The United States-Mexico-Canada Trade Agreement (USMCA) is negotiated but awaits Senate approval, which is almost certain, and which will be worth bragging about once done.
What remains undone is a longer list—Japan phase two, China phase two, a U.S.-EU deal, a U.S.-UK trade agreement, negotiations with India, other promised bilateral agreements, the increasingly difficult situation at the World Trade Organization (WTO) and its upcoming Ministerial Conference in June, and threats at whatever other countries the president sets his sights on. There is also a sleeper issue—the every-five-year opportunity for someone in Congress to introduce a resolution to withdraw the United States from the WTO, which will come up this spring.
The president set the table by telling Ambassador Lighthizer that his 2020 priorities were the United Kingdom and the European Union, so we can be confident they are on the menu. I have written about a U.S.-UK deal in the past, arguing that if an actual free trade agreement is intended, it will be a long and complicated negotiation because of the pressure on the British government to choose between the conflicting U.S. and EU regulatory approaches, most clearly exemplified by the war over chickens, a metaphor for many divisive issues. If the parties decide to stick to tariffs, negotiations will be simpler, but the rewards much smaller (and the likelihood of violating WTO rules much greater). The real gains in trade these days come from harmonization or mutual recognition of standards and regulations.
The same is true for a U.S.-EU agreement, even assuming they can get past the starting block by agreeing on whether agriculture should be discussed or ignored. (Correct answer is the former.) Even if they begin, however, other obstacles loom—the proposed auto tariffs, which will reemerge the first time the president loses patience with the slow pace of talks, the Airbus dispute, and the French digital services tax—all of which threaten to poison the well. The previous European Commission’s approach to the president was to resist being bullied, and early signs suggest that is not changing and also that the Commission’s agenda on matters like climate change, taxation, and the WTO will put them further at odds with the Trump administration. Look for fireworks here.
I believe both phase two negotiations will get off the ground, Japan in May, as promised in the phase one agreement, China likely before that. The more important question is whether either of them will finish and amount to much. In both cases, I suspect the president’s desire for a “victory” he can brag about before the election will take precedence over substance, so there is a good chance both will finish, and hollow victories will be declared. If September rolls around and it doesn’t look like either of them will pass the laugh test, he will pull the plug himself and announce a delay until after the election when he will get an even better agreement.
With respect to other countries, expect beginnings but no endings, or at best very modest endings, again if a desire for victory overtakes a desire to actually accomplish something. India is certainly in that category. Vietnam will also be targeted in light of our rapidly increasing deficit, which is partly our own fault as companies leave China to avoid the tariffs.
Finally, we could well be in for a year of reckoning on the WTO. The June Ministerial Conference in Kazakhstan will attempt to conclude an agreement on fish subsidies and to make further progress on plurilateral agreements, notably one on e-commerce. Failure to produce anything would be a significant blow to an organization that has produced only one multilateral agreement in the last 25 years—the Trade Facilitation Agreement. Failure to settle the dispute over the Appellate Body would also hurt the organization’s credibility. While workarounds are being developed by others, it remains unclear whether the U.S. goal is simply to kill it and return to the days when countries could block decisions they didn’t like, or whether the administration is prepared to say “yes” to a compromise that will give it pretty much everything it appears to want. Adding to the confusion will be the opportunity for a congressional vote on WTO withdrawal—if someone introduces a resolution. That did not happen in 2015 or 2010, and it was badly defeated in earlier years, but if the Trump administration were to encourage it, the vote could well be closer, though I think still against withdrawing.
So, that’s a pretty full plate, which will keep people like me writing and all of you, I hope, still reading.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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