New trade negotiations are needed, but Trump’s bullying won’t work

The Trump government has said that it wants to reduce foreign tariffs and trade barriers – a worthy goal, because even if average tariffs are generally low, they are quite high for certain products like apparel and clothing.

Unfortunately, the government’s approach of threatening US tariffs against foreign countries unless they change their trade practices – such as the recent announcement that the United States will level tariffs on $50 billion worth of Chinese imports – is unlikely to work as a pressuring tool (on Monday, the Chinese government retaliated against Washington by increasing tariffs by up to 25 per cent on 128 US-made products).

A better approach – one that might appeal to Mr Trump’s ego – would be a new round of global trade negotiations.

If successful, they would go down in history as the “Trump Round” of trade talks.

Besides the tariffs on China, Mr Trump’s decision to impose new tariffs on steel and aluminium shocked US allies, who were uncertain about whether they would be exempted. While the government has argued that these tariffs are for national security reasons, it is likely that they are partly being used as leverage to pressure other countries to lower their own barriers.

This approach to attacking foreign trade barriers will not work. Other countries are unlikely to give in to bullying, as they are focused on their own domestic politics.

Instead, via a new “Trump Round”, the government can achieve its goals through a reciprocal reduction in tariffs and other trade barriers.

Early in his term, Mr Trump made clear that negotiating “a lot of trade deals” would be an important part of his government’s trade policy, and emphasised his preference for bilateral negotiations. One year in, however, and the White House has not initiated any negotiations on new bilateral deals. It is renegotiating two existing deals: Nafta, which Mr Trump has threatened to terminate, and Korus, the US-South Korea trade pact that both parties agreed to revise and that last week Mr Trump threatened to delay until after the US reaches a denuclearisation deal with North Korea.

While the Trump government may prefer to negotiate trade deals bilaterally, this is an inefficient approach to securing concessions.

That’s where multilateral discussions come in. From Mr Trump’s perspective, the benefits of these talks should be clear. The Dillon Round, named after former US treasury secretary Douglas Dillon, and the Kennedy Round, named after John F Kennedy, established the General Agreement on Tariffs and Trade as a successful forum for trade negotiations, and helped lay the foundation for the World Trade Organisation.

The Trump Round could join them in the history books.

Concluding a multilateral trade negotiation would not only solidify Mr Trump’s legacy, but also bring the US back as a leader in international trade liberalisation.

Mr Trump would be credited with lowering the tariffs of all members, and making trade more free (or “fair”, if he prefers that word).

The question then becomes, if the US is going to negotiate, what should it negotiate about? Mr Trump seems particularly focused on high tariffs – a good place to start.

One of the reasons foreign tariffs are sometimes higher than US ones is that in past trade negotiations, US negotiators pushed for regulations on intellectual property and other issues rather than for lower tariffs. The Trump government can put tariffs back on the table.

Since 1947, world leaders have concluded eight multilateral trade negotiation rounds.

The last successful effort, the 123-country Uruguay Round, ended in 1994, and led to the creation of the WTO. The Uruguay Round is considered to be “the largest negotiation of any kind in history”. It brought down tariffs on a broad range of products, as well as establishing rules around anti-dumping, subsidies and other non-tariff barriers.

Today the WTO has 164 members, including China, which joined in 2001. Chinese tariffs and other barriers are much higher. This is partly because China was relatively poor when it was negotiating its entrance to the WTO.

Now that China has become wealthier, other countries have a right to ask Beijing to reduce those barriers further. The Trump government could use multilateral negotiations as a way to encourage Beijing to further lower its barriers and accept stricter multilateral trade obligations.

A multilateral trade round would be beneficial for other reasons as well. The failed Doha Round, which began in 2001, took on a very broad agenda. If the Trump Round is to succeed, it should have a narrow and targeted focus.

The Doha Round proposed a reduction in non-agricultural market tariffs to a peak of 8 per cent for developed countries, with higher rates for developing ones.

The Trump government can take a bolder step and ask for a much lower peak rate across the board, with exceptions for least-developed countries.

This would help address Mr Trump’s calls for a fairer trading system.

The Trump government is right to pursue avenues for reducing foreign trade barriers. The problem is that, so far, the government has gone down roads that lead nowhere or threaten to spark a trade war. But a multilateral negotiation could succeed, if it were taken seriously by the government.

It’s a daunting task, and would require a determined negotiating effort.

But the person who pulls it off would leave a permanent and enduring mark on the international trading system.