“There is nothing US trade partners can do to prevent tariffs of 10 or 15 percent”

The current US trade policy is dominated by three developments: the negotiations of deals and the change from deals to agreements, the government’s use of legal regulations, and the trade conflict with Canada. This was the main message that Peter Harrell, Visiting Scholar at Georgetown Law School’s Institute of International Economic Law, conveyed in the latest edition of Atlantik-Brücke’s webinar series “Better Be Prepared”. “First of all, deal negotiations as with Mexico and Canada compromise 80 to 90 percent of the US trade policy,” Harrell pointed out in conversation with the moderator, Atlantik-Brücke’s CEO Julia Friedlander. With more than ten countries, for example Malaysia, the United States has changed such a deal into agreements of 50 to 60 pages, the renowned trade law expert continued. He called this transition “one of USTR Jamieson Greer’s overarching priorities.”

The second main development regarding the US trade policy is that the government wants to use legal regulations based on different acts. “Now the administration uses section 301 tariffs based on forced labor as unfair trade practice to justify this step”, Harrell said. Importers of European Union (EU) goods, for example, pay tariffs of 10 percent. In his view, this measure is consistent with the Turnberry agreement between the EU and the United States, which caps tariffs on European products at 15 percent. Elaborating on forced labor as pretext, Harell stressed: “President Trump has lawyers who work very hard to come up with theories how to implement a baseline tariff of 10 or 15 percent”. According to the former Senior Director for International Economics and Competitiveness at the White House, there is nothing US trade partners can do to prevent tariffs of 10 or 15 percent. At the same time, USTR is conducting an investigation into trading partners’ industrial overcapacity that could also lead to section 301 tariffs.

Thirdly, the United States’ trade conflict with Canada is getting a lot of attention by the US government. Harrell calls this a “trade war against Canada” in which President Trump had announced tariffs of 50 percent that are in force now. Canada’s Prime Minister Mark Carney then announced retaliatory tariffs. Over the past couple of months, the US has tried to renegotiate its free trade agreement with Mexico and Canada (USMCA). “Trump is much happier with how the negotiations are going with Mexico,” Harrell said. “In contrast, he has felt that the negotiations are not going well with Canada”. Despite long-standing issues with Canada over dairy products and aircraft he is “reasonably optimistic” that Canada and the US will manage to get through this conflict and renegotiate the USMCA.

For Harrell, the disadvantages of the trade policy in President Trump’s second term are clear. “The overwhelming majority of economists say the US consumers are paying for the tariffs. Moreover, the tariffs have not contributed to an increasing manufacturing base,” he said. Looking at the sectors which are most affected by the US tariffs, Harrell highlighted steel, aluminum, and cars. Especially the automotive industry is highly important for the United States and its trade partners. “The US, the EU, Japan, and South Korea should agree on effectively zero tariffs for cars,” Harrell recommended. The policy solution for American industries should involve partners and allies. He worried that the US, while protecting its markets in sectors such as semiconductors, drones, and robots and trying to de-risk from China, is falling behind on the quality and speed of innovation: “Look at how fast China is gaining market shares in cars. We have to move at Chinese speed”.

Here you can watch the full webinar.