Missed Opportunities

Stimson Spotlight

Missed Opportunities

By William Reinsch

I had planned to make some further comments on the NAFTA negotiations this week, but since it is so close to the date the administration must send Congress its detailed negotiating objectives, I decided to wait for that to occur before saying any more. Instead, this week, I want to comment on the missed opportunities the administration’s trade policy is creating.

Some of them are obvious because they are direct. Pulling out of TPP, for example, has cost us the increased agriculture exports we would have been able to send to Japan in the wake of their concessions. It also cost us better market access for our manufactures, better rules on state-owned enterprises, and better IP protection. Likewise, renegotiating NAFTA and KORUS could have similar effects if our partners end up imposing new barriers (or reimposing old ones) in response to our intemperate actions.

But there are at least two other categories of missed opportunities as well. One is the retaliation that will result if we take trade-limiting actions, as may happen on steel. The Chinese will certainly respond, and there are published reports the EU is already drawing up its list, which won’t take them very long, since they have done it before on several occasions without having to actually employ it. If you look at past EU lists, they include a lot of things besides steel – orange juice, distilled spirits, potatoes, and tomatoes are mentioned in one report. In these cases, not only are we foregoing opportunities to grow our exports in those categories, but we will face actual reductions in our market share.

The other category will be the most important in the long run – the consequences for us of the other trade agreements being negotiated. This is a bank shot. The U.S. will not be a party to these agreements, such as RCEP, or the just-announced EU-Japan agreement, or the 11-member TPP if it takes flight, so the obvious question is why do we care? The answer is missed opportunities. The EU and Japan appear to have made significant concessions to each other that will boost Japanese auto exports to Europe and EU agricultural exports to Japan, both of them at our expense. For example, the increased pork the EU will be selling the Japanese directly supplants the increased pork we were going to be selling the Japanese if the president had not pulled out of TPP. The Trump Administration will say that doesn’t matter because we are going to negotiate a bilateral agreement with Japan that will get the pork back. Even if we do that, which is highly uncertain, both with respect to that particular concession and even having the negotiation at all, it will be at best a year or more before agreement is reached, more than enough time for the EU to solidify its position in the Japanese marketplace.

Even worse is the long-term impact on the nature and design of the trading system. It appears, for example, that Japan has agreed to recognize 205 EU geographical indications (GIs), primarily in agriculture. That will mean that U.S. dairy producers will no longer be able to export their Gouda and Roquefort cheeses under those names. Overuse of GIs by the EU is something we have been fighting for a long time in multiple fora, most recently in TTIP. This Japanese concession, coupled with a more modest one by Canada means we are increasingly surrounded by trade practices that disadvantage us. Promises in the EU-Japan agreement for further discussions on regulatory issues suggest another major success in the EU’s ongoing effort to make its standards and norms the world’s standards and norms. In practical terms, that means European standards like the precautionary principle and their restrictions on GMOs and their prescriptive approach to manufacturing regulation are becoming normalized globally. That affects us because as we seek to increase exports to those third markets, we will find ourselves increasingly having to conform to EU standards rather than our own. In the case of RCEP, we face the same threat, although there it is China playing the EU’s role.

The administration seems to have the idea that the rest of the world is just waiting for us to act and will follow our lead. They’re sadly mistaken. The rest of the world is quickly demonstrating its determination to move on and leave us in the dust. The president has single-handedly reversed the anti-trade sentiment in the EU, pushed them in the direction of deals with everybody else, and persuaded the Japanese, and probably now the Koreans, not to put all their economic eggs in the American basket and to more aggressively seek other markets. Closer to home, that is already exactly what the Mexicans are doing because of the uncertainty the president has created about NAFTA. This is not an America First strategy. It is one that will put us firmly behind our global competitors, and our companies and workers will shortly see that as the missed opportunities pile up.

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William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.

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