President Trump continued with his promise to put “America First” recently when he withdrew the United States from the Paris Climate Accord. This followed his week of visits in Europe where he did not reaffirm the collective defense provision of NATO (later reaffirmed). Both of these policy positions, although shocking, were in line with what the President’s past views. The foreign reaction was swift . German Chancellor Angela Merkel summed it up by saying that Europe would have to look to its own devices and could no longer depend on the “others” – clearing meaning only one – the United States.
Lost in this high-profile series of steps where America was seemingly distancing itself from its allies in dealing with issues of common economic and security concern, was a positive statement on trade policy that the U.S. and its major allies issued at the G7 Summit meeting in Italy on May 26-27. The G7 unanimously condemned protectionism – something that the Trump administration had refused to do since it came into office on January 20. In international meeting after international meeting throughout the spring, the Trump administration had made a point of refusing to make this pledge.
For American business, what was vitally important in the G7 Summit declaration was the first view of the likely shape of U.S. trade policy in the Trump administration beyond the rhetoric. True, while condemning protectionism, the statement did not opt for total and unconditional free trade. Doing so would be hypocritical. Each of the G7countries, even if much more open than most of the other 157 members of the World Trade Organization (WTO), still protect some sensitive industries and agriculture.
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What is noteworthy is that the G7 statement called for all seven nations to stand firm against unfair and trade distorting measures. It condemned dumping, forced technology transfer, subsidies, and non-tariff barriers. The Seven committed to strengthening their cooperation to address global excess capacity in “steel, aluminum and other key industrial sectors and to avoid its emergence in other areas, … viewing with concern market-distorting measures targeted at promoting key technologies.”
The Trump adminstration’s position is a change in course from past U.S. administrations. The usual condemnation of protection confuses actions taken to foster domestic industries at the expense of their foreign competitors—pure protectionism – with effective action tailored to offset foreign industrial policies that cause severe harm to U.S. communities, businesses and workers. This can occur, for example, when other countries support heavily subsidized government-controlled companies that create capacity that far exceeds anticipated market demand and then dump that excess supply in other countries markets. The G7 governments pledged to strengthen their cooperation to deal with the problems that these industrial policies create.
The Seven also re-affirmed their intent to work together to improve the functioning of the World Trade Organization (WTO). Here the G7 countries can provide real leadership. For this to occur, the indispensible country is the United States. The G7 leaders called for “a successful 11th Ministerial Conference” in December of this year. That end of the year conference is where the 164 WTO trade ministers gather to decide what the WTO will attempt to negotiate going forward. The issue most ripe for concerted action is the updating of the WTO to include new rules governing E-commerce, a vital part of world trade that hardly existed when the WTO rules were negotiated a quarter-century ago. Since this is a relatively new area for international trade, there is still time to seek to prevent government restrictions and other forms of industrial policy from distorting international trade in this area as they have in traditional industries.
Last week, the trade ministers of the 34 industrialized country trade ministers met in Paris. This was the first meeting where the newly confirmed, but highly experienced U.S. Trade Representative, Robert Lighthizer, met with all of these counterparts. The meeting ended with an unusual result. The meeting’s Chair issued one statement for most of the ministers and the United States issued its own separate statement. While the two statements are close in many respects, they differ in emphasis. Both express support for a successful WTO meeting in December. The Chair’s statement stresses the importance of open markets, and resisting “all forms of protectionism”. The U.S. statement points to the need for trade to be “free and fair”, calling for a push for “the removal of support by governments and related entities that distort markets.”
This need not be an unbreachable divide. There is no reason to believe that the Trump Administration is going to back away from pledging to use available tools to combat national measures that result in trade and investment distortions while still agreeing that there can be major benefits from expanded world commerce.
The G7 heads of state were able to find common ground. It is up to the trade ministers to see if, as they get into the details of policy, they can do so as well. Reaching consensus on the improvements needed to foster the continued growth of international commerce in a rules-based global trading system is vitally important.
Alan Wolff is Senior Counsel with Dentons. He served as a senior U.S. trade negotiator in Republican and Democratic administrations.