International Trade and the Current U.S. Administration

President Trump has repeatedly claimed the United States is getting “ripped off” when it comes to international trade.[1]  After making it an issue throughout the campaign and his presidency, President Trump decided to do something about his claim in 2018.[2]  He claimed it was such a simple fix, just simply raise tariffs on America’s biggest trade partners.[3]  “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump tweeted in March after imposing tariffs on foreign steel and aluminum.[4]  “Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore – we win big. It’s easy!”[5]

Despite Trump’s claims, it has not been easy, because that is fundamentally not how tariffs work.[6]  His statements regarding how apparently easy and simple it is to raise tariffs are not only materially false, but also very misleading.[7]  The President has continued to refer to these alleged tariff increases as the importing country “paying taxes to us,” however, these higher tariffs are actually paid by the importers themselves and are then usually passed onto consumers through price increases.[8]  This process thus harms the American people in the long run through higher prices at the consumption level. 

Additionally, one of Trump’s foundational points is that it is grossly unfair that the U.S. has lower tariffs on one product (e.g., cars) than Country X has on that same product.  However, what the President does not understand about international trade, and may not realize is actually contrary to U.S. interests, is that all tariff ceilings are negotiated by member countries themselves for their own benefit.  For example, it may not be very beneficial for the United States to produce one product, so they will negotiate to lower their tariff for that product in order to raise their tariff ceiling on another, more profitable product.  Referred to as comparative advantage, this negotiating process shows that countries are better off as a whole when they specialize in certain products and trade for others that they cannot produce with maximum efficiency and profitability.[9]  Moreover, comparative advantage is not about Country X finding something that they are better at making than Country Y, it is about Country X finding something it can produce efficiently for sale in the global market.[10]  The process of comparative advantage increases the income of each member state because it allows for production to take place at a lower cost, more efficiently, and increases production possibilities.  Additionally, as our global economy delves into the world of inter-industry trade, each country can trade what they are most efficient and productive in producing, allowing different countries to trade different products at different, profitable tariffs.[11]  At first glance, this might seem like a discrepancy, but trading distinct products such as cars for corn, is more profitable for the world as a whole as we liberalize trade.

Trump’s rhetoric on international trade and tariff ceilings is fundamentally misguided regarding how international trade works through the World Trade Organization (WTO).  Claiming that trade deficits and differing tariff rates between countries are problematic, the President is misguided about the “most favored nation” principle, which is essential to and at the center of the WTO.[12]  The most favored nation principle “require[s] a country to extend tariff cuts agreed with one country to everyone else,” where “[t]his principle of non-discrimination is supposed to stop countries from bullying their trading partners by threatening tariff increases, and protect them from being discriminated against.”[13] 

Additionally, imposing increased unilateral tariffs solely on countries like China, as Trump has claimed he wants to do, would not only be a violation of the most favored nation principle, it would also be engaging in protectionism, another violation of WTO commitments.[14]  Protectionism involves “trying to use restrictions such as tariffs to boost your country’s industry, and shield it from foreign competition,”[15] which is exactly what Trump is seeking to do.  Further, one country cannot unilaterally remove or raise their tariffs beyond their already negotiated tariff ceilings.[16] 

Violating these commitments will ultimately provoke the WTO nations directly affected, backed by other member states in support, to bring “a WTO-lawsuit” called dispute resolution, against the United States.  Dispute settlement will essentially force the U.S. to lower their tariffs  and prevent them from applying increased tariffs unilaterally and discriminatorily against another country.  Additionally, when a country goes against its WTO commitments, other member countries are allowed to also increase their tariffs beyond their ceiling solely against the offending country in retaliation.[17]  As of September 2018, the European Union, Mexico, and Canada have imposed retaliatory tariffs against the United States, which has already hindered the economies in China and the United States, with signs that these trade disputes will hinder the global market and global growth over the coming years.[18]

Trying to impose these increased tariffs in excess of our tariff ceiling and unilaterally on specific countries would not only result in  a lengthy dispute resolution for violations of our commitments, but it could also start exactly what the WTO was created to prevent.  Designed initially to prevent depressions, divisive tariffs, and protectionism,[19] the WTO  has ultimately also been successful in preventing another World War.[20]  However, should the current administration keep pushing this point on trade in contradiction of our commitments, while simultaneously targeting and angering our most trusted allies, it is setting us up for a potential trade war in which our long-time allies may no longer wish to support us.  Moreover, despite what Trump seems to think, trade wars are not easy to win.

Vanessa Fazzino and Samantha Ragonesi are staff members of Fordham International Law Journal Volume XLII.

This post is a student blog post and in no way represents the views of the Fordham International Law Journal.

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[1] Ryan Bort, A Brief Overview of What Trump’s Tariffs Have Wrought, Rolling Stone (Aug. 13, 2018), https://www.rollingstone.com/politics/politics-news/trump-tariff-effects-708376/.

[2] https://twitter.com/realdonaldtrump/status/1069970500535902208?lang=en.

[3]Heather Long, Winners and Losers from Trump’s Tariffs, The Washington Post, (Mar. 6, 2018), https://www.washingtonpost.com/news/wonk/wp/2018/03/06/winners-and-losers-from-trumps-tariffs/?utm_term=.9bbdbd281b77

[4] https://twitter.com/realdonaldtrump/status/969525362580484098?lang=en.

[5] https://twitter.com/realdonaldtrump/status/969525362580484098?lang=en.

[6] Aubree Eliza Weaver, Trump Makes No Sense on Tariffs, Politico (Sept. 18, 2018, 8:00 AM), https://www.politico.com/newsletters/morning-money/2018/09/18/trump-makes-no-sense-on-tariffs-344232.

[7] Id.

[8] Id.

[9] Pauwelyn, Guzman & Hillman, International Trade, (3rd ed. 2017).

[10] Id.

[11] Id.

[12] Five Things Donald Trump Thinks About Trade That Are Not True, The Economist (Mar. 10, 2018), https://www.economist.com/briefing/2018/03/10/five-things-donald-trump-thinks-about-trade-that-are-not-true.

[13] Id.

[14] Trade Wars, Trump Tariffs and Protectionism Explained, BBC (July 26, 2018), https://www.bbc.com/news/

world-43512098.

[15] Id.

[16] Is Trump’s Protectionism The Death Knell For Global Free Trade?, Investor’s Business Daily (July 3, 2018), https://www.investors.com/politics/editorials/trump-tariffs-free-trade/.

[17] US-China Trade Row: What Has Happened so Far, BBC (Sept. 18, 2018),  https://www.bbc.com/news/business-44529600

[18] Id.

[19] Nicholas Moore, Does the WTO Have the Power to Stop a Trade War?, CTGN (Apr. 6, 2018), https://news.cgtn.com/news/78417a4e326b7a6333566d54/share_p.html.

[20]The WTO can… Contribute Peace and Security, World Trade Organization, (Feb. 28, 2019), https://www.wto.org/english/thewto_e/whatis_e/10thi_e/10thi09_e.htm