Vital Interests: The current administration's international economic policy has been centered on trade wars. From your perspective, which trade disputes are this administration focusing on and is this an economic policy or is just a political tactic?

Joel Trachtman: There are a number of components of this administration's trade wars policy. I think the first thing to recognize is that President Trump is very concerned about manufacturing jobs and he's also very concerned about bilateral deficits. He has focused his attention on those things with China but also Japan, Mexico, Europe as targets, Korea as well.

Manufacturing jobs are important to the United States, but the United States has generally moved towards more service jobs, more white-collar kinds of jobs. Manufacturing is declining partly because of technology and partly because of imports. While there have been some pockets of the United States that have been severely harmed by imports from China, the United States economy generally has benefited by them. One of the questions is a distributive question, what do we do about the people who are harmed when the average person is helped? 

The second part has to do with bilateral deficits, which is a mistaken goal. The overall trade deficit is a product of macroeconomic policy, the difference between savings and investment. The bilateral deficit just happens to be where United States persons are buying things and where they are selling things. If you reduce the bilateral deficit with China, for example, you increase the bilateral deficit with someplace else because the overall deficit is a product of other factors. Vietnam or someplace else becomes the place that sends us stuff.

That bilateral trade deficit issue has been a mistaken basis for policy. I would define the trade wars as circumstances in which the United States - because the United States is the actor here is taking action outside of the multilateral legal system in response to perceived problems. 

Three things are worth mentioning.

One is China and intellectual property. There the United States under Section 301 of the Trade Act of 1974 has taken a number of actions. Tariffs imposed on China are largely based on concerns about Chinese conditions on foreign direct investment that require transfers or sharing of American intellectual property with Chinese companies. There is also piracy by China of United States intellectual property and  discriminatory licensing conditions.

Those seem like rather small concerns compared to the magnitude and impact of the tariffs. Indeed President Trump rarely mentions intellectual property concerns when he speaks about Chinese trade disputes. 

In imposing tariffs on China, the United States has acted unilaterally and has violated Article 23 of the World Trade Organization Dispute Settlement Understanding which says countries are not permitted to act unilaterally regarding trade disputes. The U.S. has also violated basic WTO rules relating to tariffs, which sets the maximum tariffs that the United States can charge. China has responded with its own violations and there's litigation ongoing at the WTO. 

The second component of the trade wars has been the Trump administration's national security pretext-based tariffs on steel and aluminum and threatened tariffs on automobiles. Those things are offensive to other countries. They're based on a false pretext of national security concerns. American national security claims may be litigated at the World Trade Organization and the United States may lose its argument there. 

To a large degree these national security-based measures are motivated by manufacturing concerns, and in particular, steel industry concerns.  One should take into account that Commerce Secretary Wilbur Ross and the U.S. Trade Negotiator Robert Lighthizer are steel industry people. That explains a bit of this.

The third phase of the trade wars is renegotiation of free trade agreements with Korea and with Mexico and Canada in the administration’s efforts to replace NAFTA. These were negotiated in a somewhat coercive way with threats of withdrawing completely from these agreements. In the end, the United States got very little change vis-a-vis Korea - nothing that would address the bilateral deficit in any significant way. This is also the case with the new United States-Mexico-Canada Agreement - the USMCA -  there is little there that would address the concerns about manufacturing jobs or even the deficit in any significant way.

VI: The original NAFTA agreement was negotiated years ago and there's certainly a need to revise it.  But even given the terms of the new USMCA is there any expectation that this current Congress will pass what the Trump administration has negotiated?

Joel Trachtman: The Democrats are concerned about the labor provisions of the USMCA and want stronger provisions. You're right, there's no assurance that it would pass and then, who knows what will happen

 Would the President purport to withdraw the United States from NAFTA as a way to coerce Congress? He threatened to do that. I may be in the minority in believing that he doesn't have the unilateral constitutional or statutory power to do that, but he certainly could purport to do that. That would create some fireworks.

VI: As the United States moves away from the multilateral trade agreements and toward bilateral trade deals, have there been any successful bilateral negotiations between the United States and other countries? 

Joel Trachtman: I don't think that there's been anything that you could call successful in terms of achieving United States policy in a greater or more beneficial way than in the past. Very often the approach is to threaten to break things, threaten to get out of the NAFTA agreement, or the US-Korea agreement, or even the World Trade Organization, and then back away from that precipice and declare a victory and say, we've gotten the greatest deal ever. The administration achieved very, very modest changes to the US-Korea agreement that don’t have economic substance. There are also pretty modest changes to the NAFTA, some modernization, some coverage of digital trade but not really anything of great economic significance.

We can't say that any of the president's trade policy has been successful, and I think the starkest area where we see that is on the China front where we've had these tariffs that have been growing for 15 months. They've never been taken off. They keep ratcheting up. 

By the way, all of these tariffs and all of these threats create a great deal of uncertainty that deters investment in the United States and makes it tougher for United States businesses to develop export and import relationships.  With supply chains being complex and manufacturing in the United States being dependent on imported raw materials and components, these tariffs and the threats of more tariffs make it tougher for businesses to manufacture here in an efficient and competitive way. One would expect to see more investment outside the United States where there's greater certainty about trade policy.

VI: The World Trade Organization has been the leading international organization for setting trade policy and handling disputes. Right now, there seem to be two attitudes toward the WTO. One is the Trump administration’s approach of ignoring WTO rules with its unilateral imposition of tariffs. On the other hand, when the WTO Appellate Body ruled on European subsidies to Airbus, the United States praised the WTO’s ruling and immediately planned to impose tariffs. Isn’t this a contradiction?

Joel Trachtman: This is another situation where President Trump called the WTO a terrible deal for the United States, he complained that for years American interests have been abused. As you know, the WTO is the outgrowth of the General Agreement on Tariffs and Trade (GATT) which the United States led in 1947. The United States has championed the GATT and the WTO throughout their histories. The WTO is an international organization where United States trade professionals, real experts, have been involved in negotiations that have been a real benefit to the U.S. and its global relations.

The WTO is the result of painstaking negotiations by expert U.S. negotiators who have had the best interests of the U.S. in mind, while recognizing the agency of foreign countries.   It has made life better and it has done so over the years by reducing the cost of trade and making everybody's consumption opportunities better. It's also been a place where there's been litigation to try to determine the meaning of the treaty when there is a dispute. The Airbus case is an interesting one. It's been going on for 15 years and the fundamental economic problem is a lot older than that.

The problem is that large aircraft are tough to manufacture successfully without subsidies. Both the United States and Europe have provided subsidies to their national aircraft manufacturers. The United States did win a lawsuit and was authorized by the WTO to retaliate against Europe for Airbus' subsidies. President Trump responded and said, "Look, they finally listened to us because they're afraid of me, President Trump," but that's not true.

What is true is that the United States had a persuasive case which proceeded over a long period of time. The WTO judicial system, the panels, and the Appellate Body responded to those arguments. By the way, there's a mirror image case brought by Europe against the United States which will result in authorized retaliation in a large amount against the United States. However, perhaps it's good that President Trump was able to claim some success at the WTO - maybe that will protect the WTO a little bit.

The United States has also been following a policy of refusing to appoint new members of the WTO Appellate Body, basically eviscerating the judicial function at the WTO. As a result, it will soon cease to operate. It’s an important institutional part of the world trading system. We can expect countries to behave more lawlessly if adjudication can't determine definitively whether they've violated the rules or not. In the end the WTO is a worthy global institution dedicated to reducing tariffs and other unnecessary and inefficient barriers to trade.

As I said, the United States has benefited from it and led its formation. If we destroy the WTO, we will just have to reinvent it. This President and United States Trade Representative, Robert Lighthizer, think the United States does better when it negotiates bilaterally. It may be true in some ways, in some circumstances, that bilateral negotiations are useful, but there are limits to that bilateral activity, not the least of which is the number of expert negotiators we can deploy.

The United States hasn't really been successful in increasing its bilateral market access in other countries. The United States’s withdrawal from the Trans-Pacific Partnership and decision to no longer negotiate the Transatlantic Trade and Investment Partnership means that the United States is not keeping up with competitor states in getting zero tariffs and other benefits from those trade agreements that enhance market access.

VI: Another issue for President Trump is currency manipulation. He complains about the strong dollar, about China’s devaluation of its currency, and other countries manipulating currencies to advantage exports. Is there a risk in becoming more aggressive about currency manipulation issues?

Joel Trachtman: Yes, the United States has become more aggressive on currency issues. However, it hasn't been true that China has manipulated its currency in an identifiable way, for at least six years. It's not an issue today. That’s not to say it can't be an issue in the future and maybe other countries are doing it, but it's very hard, I think, to successfully manipulate your currency today to affect trade.

The International Monetary Fund does have some supervision of currency manipulation, modest as it is, and even the WTO has some provisions that might address it, but it's not an issue today and while the Trump administration may seek additional disciplines on currency manipulation, they won't have a significant economic effect.

VI: Another situation that affects the American trade surplus is the amount of foreign capital that flows into the United States. It's not just imported goods but also foreign monies, foreign investment. What can an administration do to properly deal with foreign investment?

Joel Trachtman: In order to induce people to invest in the United States, you have to provide good opportunities to do business here. If we're talking about manufacturing, the one thing you can do is provide trade policy predictability and low barriers to imports for those raw materials and intermediate products that I've mentioned. That will induce investment. Another question, which involves a broad set of issues, is how we tax foreign investors in the United States. 

There have been some tax subsidies that different countries have offered over time and those may be addressed in different legal systems. I think the main thing to do is to have policy certainty and to have a vibrant economy that others will want to participate in. 

I would say that the trade policy of the Trump administration causes uncertainty, reducing exports and reducing imports.  This has reduced growth in the United States and around the world. We don't have a recession now, but the chances of recession rise as you reduce growth.  At some point, we might see more economic problems in the United States

VI: At a time when international cooperation is at a low point, will that complicate things even further?

Joel Trachtman: Indeed. Once you have a global recession, you'll see countries probably trying to protect their markets without a cooperative approach, without World Trade Organization discipline, which actually held nicely in the 2008 financial crisis, but perhaps it won't hold the next time, causing greater pain, and deeper problems.

VI: Looking forward, there are a lot of matters that require international cooperation and trust. You recently sent me an article about the Internet of Things and cybersecurity in relation to trade. You point out that the only way to get effective global policies to deal with artificial intelligence and next generation goods is regulation based on trust and cooperation. How will the United States’s go-it-alone attitude impact future policy?

Joel Trachtman: One of the important features of the United States-China trade war is that, in addition to economic issues, there are also security issues and the security competition between the United States and China. You can see this illustrated in the Huawei discussions where the United States doesn't want itself or other countries to use Huawei 5G technology because of concerns about cybersecurity. There are those who suggest “decoupling” to try to reduce China's economic growth, and to limit China's ability to attain leadership in artificial intelligence and robotics.

These security issues are real concerns and while they are not exactly the same as the trade concerns, the two sets of concerns are interrelated. We are likely to see blocking of imports of certain kinds of high-tech goods, including really all Internet of Things products. There will be more and more of these kinds of products so we need to assure ourselves that they are safe from surveillance, from some kind of physical attack, or espionage.

Security will require a system for trust and verification of those things. If the goods are coming from an ally, we might trust the production in that allied state but of course, production in that trusted state will be based on supply chain manufacturing with components coming from all over the world and employees and other personnel  from all over the world.

The cybersecurity threats arising from the Internet of Things and services and 5G is very significant. These will have to be addressed in order to maintain beneficial international trade. This will be a very serious problem unless we address it, but it's not being negotiated in any significant way. 

VI: In the past, would that be something that a committee in the WTO or other international organization would take up and the United States would play an active role in negotiating?

Joel Trachtman: I think that's right, and if the President weren't wasting his administration's attention on non-issues, he would be beginning to address real challenges that are important and difficult. It may be that a system could be devised based on trusted suppliers with appropriate safeguards and surveillance, possibilities for verification, and design of software in such a way that it can be checked more easily than today. Those things could be explored but as far as I can tell, they're not being explored in a multilateral setting.

VI: To sum up, what would your recommendation be for a new president? To rebuild international cooperation and project American leadership among international organizations that are working on next generation trade realities?

Joel Trachtman: Yes, there's been a lot of destruction of the United States's political capital and of cooperation in the world. It will be important to rebuild, and not just for the sake of multilateralism itself, but for the sake of the United States's actual interests that are expressed through and provided by international agreements. 

Joel P. Trachtman is professor of international law at The Fletcher School of Law and Diplomacy. Recent books include "The Future of International Law: Global Government" (Cambridge 2013), "The Tools of Argument" (Createspace 2013), "The International Law of Economic Migration: Toward the Fourth Freedom" (Upjohn Institute 2009); "Ruling the World: Constitutionalism, International Law, and Global Governance" (Cambridge 2009); "Developing Countries in the WTO Legal System" (Oxford 2009); and "The Economic Structure of International Law" (Harvard 2008).

Professor Trachtman has served as a member of the Boards of the American Journal of International law, the European Journal of International Law, the Journal of International Economic Law, the Cambridge Review of International Affairs, and the Singapore Yearbook of International Law. He has consulted for a number of governments and international organizations, including the United Nations, the World Bank, and the OECD. From 1998 to 2001, he was academic dean of The Fletcher School, and during 2000 and 2001, he served as dean ad interim. He has been a visiting professor at Basel, Hamburg, Harvard, and Hong Kong.professor of international law at The Fletcher School of Law and Diplomacy. Recent books include "The Future of International Law: Global Government" (Cambridge 2013), "The Tools of Argument" (Createspace 2013), "The International Law of Economic Migration: Toward the Fourth Freedom" (Upjohn Institute 2009); "Ruling the World: Constitutionalism, International Law, and Global Governance" (Cambridge 2009); "Developing Countries in the WTO Legal System" (Oxford 2009); and "The Economic Structure of International Law" (Harvard 2008).

Professor Trachtman has served as a member of the Boards of the American Journal of International law, the European Journal of International Law, the Journal of International Economic Law, the Cambridge Review of International Affairs, and the Singapore Yearbook of International Law. He has consulted for a number of governments and international organizations, including the United Nations, the World Bank, and the OECD. From 1998 to 2001, he was academic dean of The Fletcher School, and during 2000 and 2001, he served as dean ad interim. He has been a visiting professor at Basel, Hamburg, Harvard, and Hong Kong.