Trade Wars are Better With Friends
By: Michelle Klieger
Tags: World, Trade, Trump, European Union, Economics

Trade Wars are Better With Friends

Instead of bickering with the EU, the United States should enlist their help in fighting China- the real trade cheaters

Photo by Helena Lopes on Unsplash

In an increasingly interconnected and interdependent world, countries need rules and laws to govern their interactions. The fastest and most straightforward way to create new laws is through international agreements, specifically in the form of treaties or international conventions. These agreements can either be bilateral (between two parties) or multilateral (between three or more parties). Bilateral agreements might be easier finalize because there are fewer parties needed to reach a consensus, but often a united front from multiple sides is required to effect real change on challenging issues.

Previously, the United States, the European Union, and Japan worked together to put pressure on China to open its economy and level the playing field for international companies. Initially, China opened its economy a little when joining the WTO in 2001. Since then little progress has been made. By creating a trade war with China, Trump decided to press for change alone, instead of with allies. As the trade war sputters, Trump has shifted and started attacking the EU instead of restarting the coalition to invoke change in China.

Everyone Breaks the Rules Sometimes

When countries break the international rules that they have agreed to, legal cases can be brought to the WTO. The United States and the European Union have repeatedly brought cases to the WTO against each other over unfair government support for Airbus and Boeing. In early October, the WTO ruled that the EU broke the rules and provided unfair assistance to Airbus. The United States is allowed to punish the EU with tariffs. The EU will not respond with counter-tariffs until next month when the WTO rules on the EU’s case against the United States and its unfair aid to Boeing.

Working Together

The United States, the European Union, and the WTO all agree that with regards to aircraft companies, both sides have cheated. But for the most part, the two regions generally follow the international rules created over the last seven decades. These two regions tend to be models for other countries. These grievances are minor compared to the long list of corporate subsidies that China provides for domestic companies, especially the large and powerful State-Owned Enterprises (SOEs). However, this skirmish about airlines is fracturing the united front needed to apply enough pressure on China to change these policies. The short-term win of imposing $7.5 billion in tariffs on the European Union is to the detriment of a possible long-term win against China.

Coordinated Efforts Make Multilateral Agreements More Powerful

Through multilateral agreements, trading partners can coordinate to exert more pressure on a country like China than any one country can achieve by itself. The United States is the largest economy in the world and a major Chinese trading partner, but alone the United States is struggling to affect real change in China. Even though the EU is not in a trade war with China, they see the benefits of Chinese economic reform. If the United States, the EU, and Japan can form a united front, the odds of success are higher.

The United States started imposing tariffs on China in January 2018. Over twenty months later the two sides are discussing a mini-deal. This deal will not contain the meaningful economic reforms that President Trump is seeking. Nor will it contain the necessary labor, environmental, or human rights reforms that Democrats in the United States want. If the mini-deal is signed then President Xi might not have to negotiate another international treaty for years to come.

Ongoing trade bickering from supposed allies is undermining individual efforts. To maintain the strongest front possible, the EU proposed trade talks to resolve the Boeing-Airbus saga in July. The United States did not engage. Then in mid-October the EU again suggested talks to resolve their aircraft differences. There is no sign from the Trump Administration that they are open to EU talks.

The aircraft fight is taking time, resources, and media attention away from more serious trade issues. Being able to impose tariffs on Airbus and other European products is a tiny win, possibly at the expense of the greater trade war. The research and development subsidies offered by the United States and European governments are minor compared to the uneven playing field that international companies struggle with every day in China.