So, the Trump administration just announced tariffs on a swathe of European imports, and the Europeans announced they would retaliate. More Trumpian trumpety trump?
No. The WTO is working as it is supposed to work, regardless of the predilections of member governments.
A bit more detail: a WTO panel just ruled that the E.U. was illegally subsidizing Airbus and gave the U.S. the right to slap tariffs on $7.5 billion of European exports ... out of $488 billion last year. Now, as @geoffreygertz will tell you, trying to ID unfair trade practices in aerospace is a fool's errand. But that didn't stop the WTO panel, which ruled the way it ruled. So the Trump administration is acting just like any other in imposing the tariffs. (With one wrinkle and one threat, which we will get to at the end.)
But what about the European threats of retaliation? Isn't that a sign that we're in a whole new world?
Nope. The Europeans have actually threatened to retaliate WHEN and IF they win their own WTO case against the USA for illegal subsidies to (you guessed it!) aerospace. You then get two perfectly legal outcomes.
- Both sides keep the subsidies and keep the new tariffs.
- Both sides (or one) walk back both the subsidies and the tariffs. The WTO was /designed/ to make outcome (1) palatable, even if most politicos at the time expected (2) to be the common outcome.
The WTO does not prevent trade conflicts or outlaw protectionism. What the WTO does is keep trade spats within bounds. The E.U. and the U.S. punch each other. The WTO referee then decides if the blows were kosher or below-the-belt. If the latter, the WTO referee then gives the wronged party one-and-only-one chance to punch back. After that, we hope both fighters will kiss and make up, but even if they don’t, the point is that they then stop punching.
The WTO stops endless retaliation. It does not prevent one or two rounds of tit-or-tat. Right now, therefore, the system is working as designed. And it will even if the Europeans win their case and impose tariffs on the USA. Of course, this is Trump World, and who the hell knows what might happen? But as of right now, nobody should think there's anything weird about these tariffs.
But there is a wrinkle. The U.S. is thinking of imposing rotating "carousel" tariffs on an ever-changing selection of European products. That would hurt the Europeans more (and increase uncertainty) but look okay under the rules.
Kinda violates the spirit, but hey. Even there, though, the wrinkle is not the Trump Administration: it is the Trade and Development Act of 2000, which allows the USTR to periodically revise the list of products subject to retaliation when another country fails to implement a WTO dispute decision. Mexico employed them against the U.S. last year.
Of course, with all the norm breaking going on, it is possible that Europe will break the rules. The French finance minister has implied that Europe should go to the mattresses and apply sanctions now.
That said, I doubt that Europe will throw out the WTO handbook unless the U.S. does so first. The German foreign minister, Heiko Maas, stated that Europe will follow the rules and wait until it wins (it assumes) its counter-case against U.S. subsidies. And the collective nature of European decision-making makes it unlikely that the E.U. will throw caution to the wind; there is no one official to damn the torpedos.
In short, while the Trump administration has broken many many rules and trashed the world trading system, this latest kerfuffle is an example of the system working precisely as intended.
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