Donald Trump has done much to upset the liberal world order in his divisive reign so far. Not least his ‘trade war’ rhetoric and threats of tariffs has caused consternation amongst governments across the globe. At the 2018 G7 Trump refused to sign the official statement, engaged in a spat with Canadian PM Justin Trudeau and drew criticism from French President Emmanuel Macron. Jean Claude Juncker, the European Commission President is also upset, branding the US president ‘protectionist’ and threatening retaliation saying ‘We can also do stupid’. Trump has also walked away from the Trans-Pacific Partnership and threatened to withdraw from NAFTA.
Some have defended Trump, pointing out that those who criticize him are in fact imposing high tariffs themselves, in many cases at above US levels. So who are the champions of free trade? Well… it’s complicated.
Let’s first look at the so-called WTO bound tariffs, which are agreed ceilings for tariffs that each member country can apply. These are different for each country and types of imports. The US has agreed to the lowest bound tariffs, and as such cannot raise tariffs to the levels other countries can and still be in compliance with WTO rules. But in reality few tariffs are anywhere near these bound tariff levels. The US applies tariffs as an average rate of 3.5 percent, significantly lower than the EU at 5.2 percent. But simple averages don’t tell us much. A more informative picture emerges from looking at trade weighted average tariffs. Here, the US is at 2.4%, still lower than the EU’s 3.0%. These averages hide big differences between sectors. Trump has been particularly upset about cars, where the US charges 2.5 percent versus the EU’s 10 percent.
The EU imposes tariffs on farm products at a trade-weighted average is 7.8%, against a US average of 3.8%. Measured on tariffs Junker and the other EU bureaucrats have few bragging rights.
But tariffs only tell part of the story. There are other ways of restricting imports, so-called Non Trade Measures (NTMs). Members are required to report some measures to the WTO and a report by the Vienna Institute for International Economic Studies ranked China first with the US second and the EU third in numbers of measures reported. The report paints a clear picture: rich countries impose and face by far the most NTMs.
Unsurprisingly neither the EU nor the US can, with a straight face, claim to be standing up for free trade. Those who criticize Trump for his protectionist stance should get their own house in order before pointing the finger. Speaking during a news conference at the G7 summit, Trump said his ultimate goal was the elimination of all trade duties. ’You want a tariff free. You want no barriers. And you want no subsidies. Because you have some cases where countries are subsidizing industries and that’s not fair.’ Those grandstanding politicians who like to portrait themselves as defenders of the globalized economy and free trade against Trump’s regressive nationalism could put their money where their mouth is and call Trump’s bluff. Of course, they won’t.