Stop Crying “Trade War!”

Every week the news cycle seems to deliver a brand new bombshell, followed by panic and endless commentary decrying a nationalist shift in U.S. policy positions. Trade policy provides a prominent example. Though it is exciting to see broader interest in the trade debate, the tendency to declare every little thought or action taken by the administration or by U.S. trade partners as a sign of a trade war is getting a little out of hand. Like the boy who cried “wolf,” the media’s incessant “trade war” refrains are losing credibility. Yes, there are trade disputes. There is trade conflict. And, perhaps, there are even trade skirmishes. But when every little administrative action or tweet is treated as part and parcel to “war,” it gets difficult to take the reporting seriously.

For instance, recent reports that the Canadian government thought the Trump administration was planning to withdraw from the North American Free Trade Agreement (NAFTA) caused immediate shock, riling North American markets, despite the fact that the reports were mere speculation. Moreover, the rumor was based on something President Trump has been saying all along:  If a deal that favors the United States can’t be reached, he would withdraw from NAFTA.  (That’s a position not too different from those mouthed by Barack Obama and Hillary Clinton on the campaign trail in 2008).  Yes, it’s true that the 6th round of NAFTA talks is scheduled to begin January 21st, and many are nervous about its outcome. However, it is also true that every round has been touted as the “tipping point” in the negotiations. But just this week, President Trump suggested that he was open to continuing negotiations until after the elections in Mexico this summer. Those don’t sound like the words of someone preparing to kill NAFTA anytime soon.

In addition, there have been a number of needless alarm bells rung regarding a recent action by Canada at the World Trade Organization (WTO). On January 10, Canada requested consultations with the United States regarding certain aspects of U.S. trade remedy laws.  U.S. Trade Representative Robert Lighthizer called the action, “a broad and ill-advised attack on the U.S. trade remedies system,” and others suggested that the action was an unnecessary provocation by Canada that could threaten to derail the NAFTA talks.

First, for domestic political reasons, Lighthizer had to respond strongly, so we shouldn’t be reading too much into his statement. Second, there is nothing extraordinary about Canada’s request, as the issues brought up have been lingering for a long time. Though the timing may seem inconvenient, given ongoing NAFTA negotiations, it could also be seen as Canada trying to get some leverage in relation to the resolution of the softwood lumber dispute. Third, Canada is unlikely to take any action that would seriously harm its most important trading relationship. It is worth remembering that the Canadian Constitution enshrines the principle of “peace, order and good government,” so it is actually rather un-Canadian to rock the boat, so to speak.

Finally, just because a country files a request for consultation does not mean that the issue will lead to contentious litigation. In fact, of the 537 requests for consultations that have been filed since 1995, roughly a third have led to formal dispute settlement. Many disputes are settled or dropped before formal adjudication begins because the complainant accomplished its goal of getting another member to sit down and resolve a problem quickly and amicably. Following a request for consultation at the WTO, the respondent (the defending member government) has 10 days to reply, after which a consultation period of up to 30 days ensues.  The parties have a total of 60 days to come to some sort of agreement from the date the request was originally made. If not, the complainant can request the formation of a panel to hear the dispute. These steps are all very important, but also explain why consultation requests on their own are no reason for alarm. Consultations facilitate diplomacy and often prevent litigation.

While the Trump administration’s unconventional approach to trade policy (as well as our partners’ reactions) may keep us on our toes, it is essential that we separate the trade policy signal from the noise.  The ambush of frivolous news should not distract us from the important issues, such as recent and potential U.S. reactions to China’s alleged intellectual property theft, forced technology transfer, and cyber-threats, as well as the administration’s blocking of appointments to the WTO’s appellate body.

While the stakes of NAFTA withdrawal are high, and the administration’s skepticism about the WTO is apparent, there hasn’t been much in the way of actual policy change that should cause us to panic. Let’s all take deep breaths and get back to doing our parts to preserve and improve the current trading system rather than ringing the alarm when there’s no fire.

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