August 26, 2019
When I speak publicly about the World Trade Organization (WTO), I usually remind listeners that while the organization has many rules, it does not have one against hypocrisy, which runs rampant among the member states in Geneva. If you listen to the pious statements of country ambassadors, their country is invariably a strong defender and practitioner of free trade while all other countries are cynical protectionists.
An interesting real case still playing out concerns the U.S. steel and aluminum tariffs and other nations’ response to them. The Trump administration imposed the tariffs ostensibly on the grounds of national security even though everyone knew, and the president’s own statements occasionally acknowledged, that the main reason was to help our domestic industries defend themselves against the global overcapacity situation the Chinese had created. What we said, of course, was that our action had nothing to do with protection; it was intended to preserve national security and defend rules providing for trade on a level playing field.
Other nations, particularly those of the European Union, not believing our rationale for a minute, proceeded to commit the same sin. They decided unilaterally that the U.S. actions were not national security actions but “safeguard” actions in disguise and retaliated accordingly. (A safeguard action is one taken to limit imports to give a domestic industry time to adjust to the increased competition. The actions are supposed to be time-limited, and the country taking them is obligated to offer compensation.) They decided they were safeguards because WTO rules permit rapid retaliation in such situations, absent compensation, allowing them to bypass the lengthy and cumbersome dispute settlement process. As in the case of the U.S. original action, everyone knew this was a phony excuse but understood that it was an efficient way to make a rapid response.
Of course, just as there is no rule against hypocrisy, there is also no rule against calling out somebody else’s hypocrisy, and both sides in these cases have now filed dispute settlement cases against each other. All the tariffs, meanwhile, remain in effect. The irony is that both sides will likely lose in the WTO. It will be very hard for the United States to convince the dispute settlement panelists that its action is justified under the Article XXI national security exception. (If you have doubts about that, read the panel report in the similar Russia-Ukraine case.) It will also be very hard for the European Union and others to persuade panelists that they can call it a duck even though it doesn’t walk or quack like one and even though the United States says it is not a duck. The further irony is that with the Appellate Body on the verge of disappearing, losing these cases will not force either side to abandon its tariffs, so they will continue, as always in the name of free trade.
A second example arises in our trade negotiations with China. On the one hand, the United States argues that our tariffs are justified because China’s non-market policies distort the terms of trade. On the other hand, we are asking them to ignore market realities and buy more U.S. products. In other words, non-market policies like subsidies are bad when they hurt us but perfectly fine when we want them to buy something. Our arguments on Chinese currency are similarly hypocritical. If they are propping up the value of their currency, that is apparently okay. If they stop, and the currency declines in value, then they are manipulating it, not because their policy of currency control changed but because now it hurts us whereas previously it helped. When I was young, we called this wanting to have your cake and eat it too, a phrase that may be going out of style, ironically because of overuse.
A third example is one I have discussed before—saying that China is paying the tariffs we have assessed (not true— see my column) and then deciding to postpone some of the additional tariffs in order to lessen the impact on consumers. Of course, if the Chinese were really paying, there would be no consumer impact.
These are just three examples. The trade landscape is littered with them. ( Check out the French statements about their digital services tax if you want another example.) Sometimes I think it would be nice to have more straight talk on trade, but other times I think it is the little lies and deceptions that grease the wheels of diplomacy; if everybody told the truth about what they think, we would be in even worse shape than we are. But hypocrisy is always a great source for making fun of people (or entire countries). So, don’t look for a sudden wave of truth to wash over the trade landscape but do keep an eye out for future columns lampooning the lies.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. The author would like to thank CSIS Scholl Chair intern Catherine Tassin de Montaigu for her contribution to this commentary.
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