September 30, 2019
A lot happened last week, but most of it had little to do with trade. There were, however, three noteworthy developments: announcement of an agreement with Japan, resolution of the U.S.-initiated Universal Postal Union (UPU) rate controversy, and the president’s speech at the UN.
The agreement with Japan might best be described as TPP-minus. It has market access provisions, which will be welcomed by American farmers and Japanese manufacturers and strong digital trade language that should be welcomed by everybody, but in some areas, notably rice, it provides less than we would have gotten in the TPP. When Ambassador Lighthizer was asked about that in a recent press gaggle on the agreement, his explanation was telling:
. . . you have to look at it two ways. One, what did we pay for it? And we paid substantially less than has been paid in TPP . . . So we got—the vast majority of it, we paid much, much less than they did in that [TPP]. We didn’t, for example, include auto tariffs or auto-part tariffs.
So I would say this is really proof that the president’s approach is correct; that you can get far, far better deals if you deal on a bilateral basis, if you’re the biggest economy in the world. Right now, I would suggest that, if you weren’t, you might want another approach. But for us, clearly, bilateral approach is better.
It is a bit disconcerting to learn that this is a good agreement because we paid less for it. We also got less, which suggests that the very best outcome would be no agreement because we would be paying nothing for it. More serious are his comments about bilateral vs. multilateral deals, which reflect the president’s UN speech. Ambassador Lighthizer is saying, in effect, if you’re big you can push other countries around in one-on-one situations, and that is harder when you are part of a group.
Demonstrating pretty much the exact opposite of that was the UPU fracas. The Trump administration threatened to withdraw from the UPU unless changes were made in its terminal rate structure. Those rates, negotiated years ago, allow developing countries, including China, to pay discounted rates to send items to developed countries. The United States argues that puts U.S. manufacturers at a disadvantage because they permit countries like China to ship items to the United States for lower costs than the United States can send items to China. In some cases, the cost of shipping from China to the United States is lower than the cost of shipping between two U.S. locations. That means the current system effectively subsidizes cheap foreign shipping, costing the United States as much as $300 million per year in revenue, according to administration officials.
In the face of the U.S. threat, the UPU voted unanimously last Thursday to allow the United States to declare its own rates starting in July 2020, with countries receiving more than 75,000 tons of letter-post mail able to opt-in to independent rate setting in January 2021. Peter Navarro, who represented the United States at the talks, heralded it as “a victory for millions of American workers and businesses.” This is clearly a case where the United States threaten and bluster strategy worked, but it is noteworthy that it worked in a multilateral forum, not a bilateral negotiation, validating the strategy, at least in some cases, but undermining the bilateral vs. multilateral argument.
Meanwhile at the UN, the president said:
“Wise leaders always put the good of their own people and their own country first. The future does not belong to globalists. The future belongs to patriots. The future belongs to sovereign and independent nations who protect their citizens, respect their neighbors, and honor the differences that make their country special and unique. It is why we in the United States have embarked on an exciting program of national renewal. . . . Globalism exerted a religious pull over past leaders, causing them to ignore their own national interests. But as far as America is concerned, those days are over.”
This is both offensive and depressing. Offensive because it implies globalists are not patriots, when, in fact, globalists are as concerned about their country’s future as the president; perhaps more so since they understand the climate change threat and what it will do to us if we do not work with other countries on mitigating measures.
It is depressing because it contradicts the entire flow of human history, which has been one of aggregation and socialization. We have come a long way from the family units of primitive hunter-gatherers to tribes, to larger units based on common language and geography, to cities, to nation-states and now to the larger cooperative entities that are necessary to cope with problems that are not national but global—global warming, over-fishing, air and water pollution, transnational drug epidemics and health crises, terrorism, and migration. The president may be able to keep foreigners out of the country (though his policies are not working very well) but he can’t keep out bad weather spawned by global warming, epidemics, and other global disasters. Denying their existence or simply saying “not my problem” won’t do the job either; nor will undermining or ignoring the multilateral organizations trying to address them.
I am often asked whether Trump is a “one-off” event or whether our trade policy is changing permanently. My usual answer is “both,” but one past policy that we will inevitably return to is multilateralism because we really have no choice.
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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