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Politics & Law Series: Expert Comment

Why Trump’s America First policy won’t threaten the Special Relationship

Professor David Collins, Professor of International Economic Law in the City Law School, assesses the US President-elect’s trade negotiation proposals.
by City Press Office (General enquiries)

US flag and English bank note. UK US trade.By Professor David Collins

Donald Trump’s bellicose stance on trade during his presidential campaign focused on putting America first at all costs. He hinted at the unilateral imposition of tariffs on goods, imposing a border tax on imports and even leaving the World Trade Organisation (WTO).

David CollinsWhether he will actually do any of these things following his inauguration later this month is uncertain – there is a long tradition of US Presidents-elect making ominous statements before taking office only to relent later. Still, the appointment of the protectionist-leaning Robert Lighthizer as his chief trade negotiator along with Peter Navarro, an outspoken critic of China, to lead the new National Trade Council, suggests that Trump intends to take his “America First” trade policy seriously. This is not necessarily a bad thing, nor are these policies which should worry the UK.

Use of the WTO settlement system

It must be remembered that the focus of much of Trump’s invective has been on China. In many respects fighting back against China, the country with which the US has its largest trade deficit (almost $400bn in 2016) more so even than the misdeeds of Hillary Clinton, was the centrepiece of his election platform. According to Trump (and many would agree), China is a currency manipulator, illegally subsidises its exports and harms the US economy through dumped goods.

But there is every indication that the US is going to use the WTO’s dispute settlement system aggressively to address these issues rather than doing so unilaterally, notwithstanding Lighthizer’s well-documented criticism of the WTO courts.

Donald Trump. UK US tradeIf Trump is right about China’s illegal trade practices, then Chinese goods deserve higher tariffs. If he is wrong, then we must hope that the US will adhere to WTO rules and let the chips fall where they may. Economists tell us that breaking WTO rules is self-defeating and Trump’s team will learn this quickly if they put up trade barriers which are undeserved. China is well equipped to retaliate if the US takes action against it illegally. While an era of US led trade wars seems imminent, we should have faith that, under the WTO system, unfair trade will be punished and the good guys will win.

UK treated as a priority

A US departure from the WTO is much less likely. Pulling out of the Trans Pacific Partnership is feasible because the agreement has not been ratified, but the US has been one of the WTO’s main supporters since the 1940s. WTO rules are enacted into US domestic laws and this cannot be unravelled overnight. It would be years before the US could effectively disentangle itself from its WTO obligations.

With China (and to a lesser extent Mexico) as the main targets of the new US administration’s trade policy, the UK has little to fear and every reason to be cautiously optimistic. The UK is not a currency manipulator, nor have there been any allegations that it engages in unfair trade practices like dumping or subsidisation. As a WTO member in its own right (once free from the EU), the UK will have access to the concessions the US has made to the rest of the world, as well as the protection of the WTO’s dispute settlement system in the event that Trump’s trade team gets trigger happy.

Trump, the pragmatic deal-maker

Encouragingly, Trump has indicated that the UK will be among his top priorities when signing new trade agreements and we know that Prime Minister Theresa May has been invited to meet with him in Washington “very soon”.

As its seventh largest trading partner, the US exports more than $50bn worth of goods to the UK per year and Trump is not likely to jeopardise this relationship any time soon, particularly now that the need for anti-globalisation posturing has abated following his election victory.

It is not 2016 anymore. While Trump has shown himself to be a master of anti-trade rhetoric on the campaign trail, at heart he is a pragmatic deal-maker. We can expect that he will pursue trade negotiations which are of mutual benefit to the US and the UK when it departs from the EU in the second half of his first term.

Trade Protectionism

Protectionism refers to government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition. Typical methods of protectionism are tariffs and quotas on imports and subsidies or tax cuts granted to local businesses. The primary objective of protectionism is to make local businesses or industries more competitive by increasing the price or restricting the quantity of imports entering the country.

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