The Trump Administration’s Latest Trade Move

The latest attack on international institutions by the Trump administration distinguishes itself by being quite obscure: It’s about postage. It also may have more of a basis than most of the administration’s complaints about trade. 

The administration is concerned about the Universal Postal Union (UPU), a specialized agency of the UN. The UPU was established by the Berne Treaty of 1874 and became a UN agency in 1948. The administration has taken issue with the “terminal dues” rates issued by the UPU, under which, the administration argues, the United States has been subsidizing the shipping costs of foreign suppliers in certain countries, including China, when they send goods to the United States. The basic story is as follows (some good background is here).

When companies or individuals ship goods abroad, they use their domestic postal service to send the item. When that item arrives in the foreign country, the postal service of the shipping country makes a payment to the postal service of the destination country in the form of “terminal dues.” These “terminal dues” are set by the UPU and are designed to cover the destination country’s portion of the transportation costs – basically an agreed upon reimbursement rate to transport the item to the recipient.

The Trump administration’s concerns relate to the “terminal dues” rates set through the UPU for less wealthy countries, such as China. These countries’ rates are set very low, and do not necessarily cover the actual costs of shipping (and are sometimes significantly less than the rate American companies pay to ship within the United States). What this means in practice is that American taxpayers are sometimes subsidizing the transport costs of American companies’ foreign competition. It appears, then, that there is some legitimacy to the administration’s concerns about unfairness. 

Of course, as is often the case with the Trump administration, its approach to the problem is confrontational and perhaps risks inflaming tensions. The administration has, yet again, decided to use a threat of withdrawal from a treaty as a negotiating tactic, taking steps to withdraw from the UPU. Perhaps the withdrawal threat will force quick action to change the fee structure at the UPU, although there are some risks. Pulling out of the treaty would give the United States the flexibility to set our own transport rates, but it would also mean that we lose the power to stop others from charging us higher rates in return, while doing away with a mechanism that was designed to reduce, and streamline, transaction costs. In essence, the administration’s approach could lead to a postal “trade war.”

Are there alternative approaches? A Bloomberg editorial board piece sets out what they think may be a workable solution: having the administration look for a compromise on a postal rate during the broader trade negotiations with China. Of course, there would have to be some negotiations going on for this to work.

If it weren’t for all of the other aggressive trade actions taken by the Trump administration, this issue might be more easily addressed. Because it is part of a larger package of contentious moves, it might get lost in the mix of all the real and perceived trade slights the administration is complaining about. In calmer times, this might be a simpler problem to fix.

Thanks to Logan Kolas for research assistance with this post.

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