Hopes that US trade strategies will result in a reduction in worldwide tariffs may be unfounded. The WTO’s situation under the Trump administration reflects a broader problem for international cooperation. Nations may find it difficult to reduce tariff rates due to WTO MFN obligations. Free Trade Agreement discussions and enactment can be lengthy, prolonging the period of instability, according to Standard Chartered economists Madhur Jha and Philippe Dauba-Pantanacce.
From Many to Few
“We are increasingly asked by clients if US trade policies could actually improve global commerce by substantially reducing tariff levels across the board. We believe such optimism is unwarranted; instead, there is a risk of a prolonged period of instability that is harmful to the global economy. The trade conflict initiated by the US administration has been justified with various reasons and goals, but it is part of a larger trend that underlies Trump’s approach to trade and international relations: he and his administration are deeply doubtful of, if not completely against, the idea of multilateralism. They have characterized the multilateral system as taking excessive concessions from the US, supporting unjust practices, and violating US sovereignty. The US has suspended its payments to the WTO after weakening its Appellate Body for several years.”
“The wish to avoid harsh US tariffs will likely cause partner countries to attempt to lower tariff levels for the US. However, WTO membership means that these lower tariffs should also be offered to other WTO trade partners on a Most-Favored-Nation (MFN) basis. This is unlikely to be acceptable to most economies for a number of reasons. The alternative is for these economies to attempt to negotiate free trade agreements (FTAs) with the US. The Trump administration has stated that over 130 countries have expressed a desire to negotiate FTAs. However, previous trade negotiations suggest that this can be a drawn-out process. It has taken the US an average of 18 months to sign an FTA and 45 months to put any agreement into effect. In the meantime, uncertainty is likely to significantly hinder growth.”
