Should the Republican candidate Donald Trump become the next US president, he would face significant obstacles back home in fulfilling his pledge to pull his country out of the WTO, analysts say. For the EU, whether Trump or Hillary Clinton becomes president, talking trade and TTIP with the US won’t get any easier.
Few believed that the populist Donald Trump would ultimately win the nomination to become the US’ Republican party’s official candidate to succeed President Obama. But he did. Now it is Hillary Clinton from the Democrats vs Donald Trump for the Republicans in the coming November elections.
Some US polls are giving Trump a lead in this contest. So, to avoid making the mistake many did with the Brexit referendum, where few on either side of the argument believed there would actually be a majority of Britons for leaving the EU: let’s start getting prepared, at least mentally, for a potential Trump win. It’s time to recognise that the populist revolt in the West is for real.
Trump has turned upside down the Republican’s traditional support for free trade and open markets. He has attacked open trade, and sworn to tear apart flagship US trade agreements such as NAFTA and the TPP, which is still awaiting ratification. During his nomination speech in July, Trump also said he would pull out of the World Trade Organization. Yes, the World Trade Organization. So: what’s up? Can he do it? And what does it mean for the EU?
The WTO statement made during Trump’s nomination speech “was part of a rant”, Claude Barfield, Senior Fellow at the American Enterprise Institute, a free market think tank close to the Republicans. “It came up randomly”.
The CATO Institute’s Dan Ikenson chimes in: “The substance of everything he has said as a candidate so far is uncertain, fluid, questionable, ephemeral… He has a 50-50 chance of becoming president, yet the country – and world – has no real idea of the policies he’d implement.”
To pull the US out of the WTO would put the US in a vulnerable position, experts believe. Barfield says it would mean “back to 1944 in terms of tariffs and regulations. We would be victims of arbitrary actions by any country”, mentioning China, and even the EU as possible candidates. Of course the US itself could retaliate: “we could become a kind of marauder”, Barfield reckons.
The systemic implications of leaving the WTO would be tremendous. The Peterson Insitute’s Gary Hufbauer says “US withdrawal from the WTO would hand leadership of the world trading system to China.”
How much power does a US president actually have to take such a dramatic step as pulling the country out of the WTO?
In the short term, a president can wreak a lot of havoc: he invoke the 1977 International Emergency Economic Powers Act to pass difficult measures. But to make any measure permanent, the President will need to go back to Congress and this can become difficult for Trump. So far the majority of Republicans are pro free trade and pro WTO. Two thirds of Republicans voted for Obama’s Trade Promotion Authority in 2015. TPA would have been impossible without the Republican vote.
“I rather doubt that he’d seek to withdraw the US from the WTO”, Ikenson says. “There were two votes in the House in previous years (2005, 2010) to withdraw the US from the WTO, which garnered 56 and 86 affirmative votes, respectively, and were both soundly defeated. I doubt he’d have enough support in Congress if he tried to withdraw. But I doubt even more that he’d try”, Dan Ikensons reckons.
Whether the coming general US election will bring in more trade-sceptic republicans into Congress is yet unknown. In any case, the President would also need to reckon with the Democrats, who won’t likely let Trump get his way – likely even on trade.
What are the implications of Trump for the EU and the trading system?
Clearly, a WTO dominated by China would not necessarily be good for the EU. Not having the US, which traditionally shares similar interests than the EU vis-à-vis China in the WTO, would put it in a weaker position to defend its commercial interests. For example, the fact that both the US and the EU have pursued China in the WTO dispute settlement body over its treatment of raw materials exports gives the issue greater weight than if it were only the EU.
Be it Hillary Clinton or Donald Trump as president: TTIP won’t move forward at all in 2017, as trade, trade deals, let alone TTIP (which is much less a priority than the TPP) won’t be on the priority list. The climate for trade policy has significantly changed in US politics. Cato’s Ikenson says: “With respect to TTIP, it’s in bad shape with or without Trump”.
A US running wild on trade policy would target emerging markets like Mexico, China, Vietnam, more than the EU. But who knows: higher tariffs on cars, even more restrictive public procurement practices, controls on foreign investments, more local content requirements for investments – everything becomes possible. This could be damaging for the EU.
Finally, in a Trump world, protectionist trade policy might be the lesser problem anyway.
This is an updated version of an article first published on 27 July 2016.
