Trump vs. International Law: Trade Unilateralism in Pursuit of What?

Trump vs. International Law: Trade Unilateralism in Pursuit of What?

[Mark Wu is the Henry L. Stimson Professor at Harvard Law School.] 

A trade war rages between the U.S. and China. Trade conflagrations upend once-dependable trade relationships between the U.S. and its allies. On the surface, it may appear that faith in the utility of transnational legal process has collapsed in the domain of international trade. But if one examines beyond the headlines, it is not at all apparent that this is the case. Indeed, the influence of transnational legal process is still very much at work, even as the world experiences its worst trade tensions since the Great Depression.

For starters, consider China, one of the two epicenters of today’s trade tensions (the other being the U.S.). The fruits of transnational legal process are apparent on the streets of any major Chinese metropolis. One only has to consider the juxtaposition between today and forty years ago to understand just how vital a role interactions through international economic law and Chinese domestic law has been in ushering China’s epic economic transformation.   Through an arduous negotiating process beginning in 1986 and stretching over fifteen years, a generation of Chinese officials acquired knowledge about the rules necessary for their country to reengage with the global trade regime. They, in turn, disseminated this knowledge widely internally. Through transnational legal process, thousands of Chinese laws and regulations were rewritten in preparation of China’s accession to the World Trade Organization (WTO).   This laid the groundwork for China’s modern economy and its rapid export-led economic growth since the turn of the millennium.

But as Professor Koh knows all too well, the success experienced in the international trade regime did not replicate itself in other domains of international law. Through his years of service in the State Department, Professor Koh has been a veritable champion of utilizing a similar process to champion transformation in other facets of Chinese society. But when it comes to human rights and other domains, the powerful machinery of the Chinese Party-state pushed back. Ultimately, having secured the legal certainty and economic benefits of most-favored-nation treatment through WTO accession, the Chinese Party-state embarked on a mission to ensure that the economic transformation would not upend its political control.   As I have argued, the resulting structure is unique to China.   It is one that embraces the benefits of market competition without relinquishing political oversight over capital and other key economic elements. It is also one that gives rise to persistent complaints of an uneven playing field disadvantaging foreign firms.

In addressing these problems, transnational legal process has proven not entirely successful, at least through multilateral institutions. True, WTO rules have curbed excess protectionism.   But the WTO’s incomplete remedies means that international law is not effective at dislodging the ill-gotten gains achieved through unfair trade practices. The Doha Round negotiations, designed to update trade rules, have stalled. Efforts to deal with the negative global impact of lingering steel overcapacity through the G20 have also proven frustratingly slow and ineffective. Bilateral dialogues between the U.S. and China, and the EU and China, have yielded limited understandings but not much in the way of meaningful change.   Meanwhile, more jobs are lost and inequality worsens as technological forces upend production patterns in advanced economies.

In response, the Bush and Obama Administrations turned to assembling coalitions of like-minded allies to rewrite trade rules through regional trade agreements, such as the Trans-Pacific Partnership (TPP). The hope was that the TPP and other similar agreements would establish a new set of strong norms. Once completed, proponents believed that it would entice China and other outlier economic regimes to transform once more, if only to retain linkages to critical export markets in advanced economies. One can debate whether this strategy would have worked; some of my own research questions it. Nevertheless, the TPP served a tremendously useful purpose of engendering a process to spark new thinking across nations on how to update trade rules for the 21st Century.

The Trump Administration tore up this playbook. It exited from the TPP. It imposed unilateral tariffs on steel and aluminum from a wide range of countries, including stalwart U.S. allies, through Section 232 investigations. It threatened to do the same for cars and auto parts.   To date, it has imposed unilateral tariffs on $250 billion worth of Chinese imports. It has threatened to both the raise tariff levels from 10% to 25% and to increase the scope of goods subject to tariffs in 2019, if progress is not forthcoming. And it has not hesitated to use the threat of exit to renegotiate a series of trade agreements, including most notably NAFTA last week.

On the surface, at least, America no longer appears to care about the need to play nicely with others.   It has not hesitated to throw its weight around. If bruised feelings and a disregard of international institutions are the price to pay to get the necessary results, then so be it. But the ultimate question remains what is the ultimate goal of this resurgent U.S. trade unilateralism.   And on this point, there are indications that transnational legal process remains very much alive.

As Professor Koh highlights nicely in his section on trade diplomacy, other countries have stepped up their own efforts to fill the leadership void. A significant first step was the efforts to the remaining eleven countries to negotiate a re-worked and re-branded Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), with the possibility that the U.S. might rejoin in the future. But these efforts extend well beyond the CPTPP. The EU has drafted a concept paper on the need to modernize WTO rules, with the intention of sparking further discussion. Canada has invited WTO members (excluding the two main protagonists, the U.S. and China) to Ottawa later this month to discuss WTO reform.   Meanwhile, Australia, Singapore, and Japan are championing efforts to develop new e-commerce trade rules at the WTO.

Rather than denounce and resist these efforts entirely, the U.S. is still very much engaged with and learning from these transnational legal processes, even if it may no longer be leading it. Indeed, USTR Robert Lighthizer himself acknowledged that in renegotiating NAFTA, his team sought to improve upon the TPP’s outcomes rather than discard its overall approach. From the new rules on state-owned enterprises and digital trade to much more elaborate rules on labor and environment, the new U.S.-Canada-Mexico Agreement (USMCA) builds upon TPP elements.

Equally important are the Trump Administration’s own actions at the WTO. Although the U.S. has highlighted several of the WTO’s inadequacies and the U.S. is blocking the appointment of members to the WTO Appellate Body, the U.S. has not disengaged from the WTO. Ambassador Dennis Shea and his team in Geneva are very much present and engaged with the everyday work that continues at the WTO. From trade policy reviews to discussions on subsidies, investment facilitation, and e-commerce, the U.S. is still very much an active participant, even as the U.S. warns of the WTO’s growing irrelevance.

Finally, when it comes to the issues of addressing subsidies and forced technology transfer, the U.S. is still working actively with its closest allies – the EU and Japan – to develop a unified approach to confront China and other developing countries that resist new rules. Even as tensions between the U.S. and its allies worsened this past spring in the wake of unilateral Section 232 tariffs, these efforts proceeded ahead. Time will tell whether they bear fruit.

All of this highlights an awareness that America cannot go at it alone. One possible reading of recent U.S. trade unilateralism is that it merely symbolizes a difference of tactics between the Trump Administration and its predecessors. The Trump team is betting that unilateral threats are the most effective tool to force our allies to stop “hedging” when it comes to confronting China and to step up to deliver more themselves in the way of reshaping trade rules. Those opposed to this tactical strategy caution that the near-term victories are shallow and not worth the long-term cost to America’s reputation or trustworthiness as an ally.   Either way, the U.S. has not given up on transnational legal process, but has merely adopted a more realist notion of its limits and efficacy in dealing with China in the Xi era.   Put differently, what we are witnessing may just be a sharper and more confrontational version of President Obama’s vow that the U.S. will not allow China to write the rules of global trade for the 21st Century.

But there is also still the possibility that this reading is wrong. After all, trade is clearly an area where President Trump has long-standing convictions. As Professor Koh has demonstrated in his new book, this President is an overall skeptic of the efficacy of transnational legal processes, even if the U.S. does not exit from the institutions formally.   It may be the case that his efforts to dismantle move toward a power-based trade regime will take longer than he imagined, but that he is nevertheless keenly determined to do so, even if some of his closest advisors are not.

Which reading is right?   We do not yet know.   Indeed, as any adherent of the transnational legal process school of international law can attest, outcomes are not preordained but depend on the process of interaction at both the international and domestic level.   In simpler English, what this means is that what we can expect in the months ahead on trade turns heavily on what happens in domestic politics in the U.S., China, Europe, Brazil, India, and elsewhere – and whether foreign governments choose to engage with the Trump Administration’s trade strategy behind-the-scenes, even as they outwardly bemoan it.

Topics
Books, Featured, Trade & Economic Law

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