TRADE PROTECTIONISM IS NOT THE SOLUTION

Anti-dumping, anti-subsidy and "import injury" actions are permitted under existing international trade rules, but the U.S. administration's declared intention to more robustly enforce existing trade laws has encouraged US businesses to file more such petitions, which have increased substantially this year.

The risk is that any new US restrictions would spark retaliation by the affected trade partners, which would hurt all parties. There could also be a negative demonstration effect, with other countries not party to a dispute imitating the US action. Even if any particular restrictive action is avoided, the uncertainty induced by a cascade of threatened cases could discourage business investment.

Mr. Trump and his trade officials' belief that the US' chronic trade deficit is bad for the country and reflects "unfair practices" by trade partners is simply not correct, since statistically, trade imbalances are caused by domestic savings-investment and fiscal imbalances. Put simply, high consumption in the US and high savings in China are the root cause of the US-China trade deficit, which is readily financed by foreigners' willingness to lend to and invest in the US. The deficit also expands when the US economy grows faster than that of its trade partners, and when the dollar strengthens.

Raising trade barriers could widen rather than narrow the trade deficit - by increasing the cost of imports and thus of domestic production and exports which incorporate non-substitutable imported inputs, by strengthening the dollar (if imports fall sufficiently or foreign investments pour into the country to avoid trade barriers), or by reducing foreign incomes and thus foreign demand for US exports - even if there are no retaliatory foreign trade barriers.

Note:

Since 1995, 73 of the disputes on which the WTO has issued decisions have challenged a country’s use of trade remedy measures, 42 have involved trade remedies imposed by the United States. The U.S. has been the subject of nearly five times as many trade remedy decisions as the second-most frequent respondent in such cases, the EU. This number is far out of proportion to the U.S. share of global imports and its share of trade remedy measures. From 1995 to 2015, the U.S. imported 14.17 percent of global imports and imposed 12.73 percent of all trade remedy measures imposed by WTO members. Yet, the u.S. one country of the WTO’s now 164 members was the subject of 57.5 percent of the WTO’s decisions in trade remedy disputes.