Economists warn Trump's tariffs on imported steel will cost more jobs in the steel-consuming industries than they save in US steel producers. Political pressure on American producers to dismantle their global supply chains to boost higher-cost domestic production also threatens to undermine their competitiveness.
Moreover, tariffs imposed by the US risk damaging America’s export markets.
But perhaps the most important risk is that rising US trade barriers will increase political pressure for higher tariffs and non-tariff trade barriers in other countries – partly in retaliation against the US but more generally because the US actions lend political legitimacy to protectionist arguments everywhere. There is never any shortage of demand for protection against competition.
The spread of protectionist policies would cut global trade and economic growth, especially if the impact of the tariffs were magnified by global production chains.
To turn this new wave of protectionism around, Biden would need a mechanism for winning the support of the American public. Australia’s trade reform process, based on transparency and a sophisticated understanding of the role of trade in raising living standards, offers a successful model for both the US and the WTO.
Even before the collapse of the Doha trade negotiations there was increasing recognition of the dominant role of domestic politics in driving trade negotiations and policies. If voters wanted protection against imports politicians would find a way to provide it, regardless of their international agreements and the WTO’s surveillance.
Trade reform is politically hard but it is made harder by the way the WTO and governments go about it. Governments perpetuate the myth that exports are good and imports are bad. They demand that their trade negotiators win increased market access for their exporters while resisting demands to open their own markets to imports that might endanger their uncompetitive industries.
It’s a poor bargain: a country is better off if uncompetitive industries are allowed to contract and their workers are re-employed by competitive industries. The key is for governments to help the affected workers and regions to adjust.
Back in business
Which brings us back to Biden and the WTO. If Biden and the new Congress were prepared to spend the money needed to upskill, relocate and re-employ America’s victims of import-competition, they could open the way for the stronger long-term growth that Trump’s protectionist policies promise but cannot deliver.
If the WTO could persuade its member states to subject their own trade barriers to rigorous and transparent analysis, it is likely that their domestic politics would embrace reform, as happened in Australia.
There would be more trade, countries would specialise more, and their incomes would rise, the global economy would expand, and the WTO would be back in business.
Alan Mitchell is a bluenotes columnist and former economics editor of the Australian Financial Review