The Future of International Trading.

Can Trump wreck the world trading system?

New Zealand is such a small country that it is very easy to be internationally bullied. Much of our diplomatic effort aims to minimise such bullying, but fear of it lurks behind concerns about what a Trump administration might do, not only to us but the rest of the world. Could the US, big enough to be hard to bully, disrupt the world trading system? The answer is, ‘of course’, but it is unlikely.

At the heart of the international trading order is a rules-based system embedded in the World Trade Organisation. Membership of the WTO requires conforming to a set of rules and agreements that regulate international trade.

For example, in 1999 the US slapped a tariff of at least 9 percent and up to 40 percent on our (and Australian) lamb exports despite an agreement that it was bound to (could not be higher than) only a few cents per kilo. The surcharge was entirely for domestic political purposes, and it may have cost New Zealand farmers up to $45m over three years. Our redress against the bullying was to follow WTO procedures, which eventually found that the agreed bindings had not been kept. The US, accepting it was bound by international trading rules, reduced the tariffs to the bound levels.

These sorts of disputes happen all the time; on occasions the US has been the plaintiff. (Another example was when we took Australia to task over excluding our apple exports; again we won.) It seems likely that there would have been many more disputes which have been avoided because the offending country expected to lose.

So could a Trump administration refuse to observe the various bindings previous administrations have committed the US to? The short answer is ‘yes’, but it would then face the dispute resolution procedures of the WTO. Not just from New Zealand, for a host of other countries would also be litigating.

Could a Trump administration withdraw from the WTO? To do so would mean US exporters losing their preferential access to others’ markets. They would be very angry and the Trump administration would come under severe political pressures from business. Knowing this, it is unlikely to withdraw from the WTO.

I am less sure about individual trade agreements. Some the US has negotiated are for political purposes as well (as with Israel and some Latin American states) but Trump has threatened to abrogate the North American Free Trade Agreement with Canada and Mexico. It has been there for a while and many American businesses, representing powerful lobbies, would be deeply damaged. I suppose he could demand a renegotiation, but the Canadians and Mexicans are likely to want concessions in return.

Trump is not expected to go ahead with the Trans Pacific Partnership (TPP); he probably could not get it through Congress if he was keen – he is not. The TTP may proceed among the other 11 participants following renegotiation. But TPP11 would be less ‘ambitious’ and we would not get the improved access to the US market we had hoped for.

In a wider context, we seem to have reached a new phase in globalisation for exports are no longer growing faster than domestic production. This probably arises because the falling costs of distance which drove that growth seem to be exhausted (services aside).

In any case, most of the traditional opportunities in international trade deals have largely been implemented. The TPP was intended to be ‘ambitious’, a term intended to indicate a new stage of coverage. Without ambitions, all that is left is tidying up.

New Zealand is currently negotiating traditional deals with 14 Asian nations plus Australia (RCEP), the EU (probably delayed because of Brexit), the Gulf States, India (probably done as a part of RCEP) and Russia (strictly the Eurasian Economic Community), Each could be a tidy little earner, but none is ‘ambitious’.

Actually, New Zealand has a secret ambition. Tariffs on manufactures under the WTO are near zero. (Work still needs to be done on trade facilitation, eliminating administrative barriers, and on services.) But there remains severe restrictions on access for many agricultural goods, especially meat and dairy.

There is a conflict in WTO principles between free trade on industrial goods and services and protection of domestic agricultural sectors which many countries practise. Others demand freedom of access for their exports, just as for manufactures; among them New Zealand is a leader. Our strategy has been to use international forums to make explicit demands for comprehensive free trade in agricultural products while using particular trade deals, including the TPP, to nibble away at the restrictions as much as we can.

The US has been ambivalent, wanting international market access for its farm exporters but also wanting to protect its domestic-oriented farmers. Sometimes it has been helpful to New Zealand’s general case but only grudging about American market access. It may well be more battened down under a Trump administration.

We cannot expect US leadership for more ambitious deals under Trump, nor as much attention as we would like to the fight against agricultural protectionism. Meanwhile New Zealand will have to continue to put considerable efforts into maintaining a rules-based WTO. But we need not expect a disaster. I’m afraid I cannot say the same on other dimensions of international affairs.