As European officials struggle to do everything they can to save the WTO, which appears headed for an all-but-certain demise thanks to President Trump’s aggressive trade policies, EU leaders have apparently circulated an “internal memo” drafted by the European Commission that accuses the US of deliberately instigating the collapse of the global trade order, and warns of an upcoming “trade apocalypse.” In short, if this document is any guide, the trade war is about to get worse – as if Trump’s threat to impose 20% tariffs on all cars coming into the US last week wasn’t bad enough.
According to Bloomberg, the EU warned that the “rules-based system of international commerce” could revert to an trade environment where “the strong impose their will upon the weak,” the memo said.
Our world will go back “to a trading environment where rules are only enforced where convenient and where strength replaces rules as the basis for trade relations,” according to the memo.
The flirtations with a return to an environment of “mercantilist deals” have intensified as President Trump has been determined to narrow the trade deficit at any cost – even if the price is the collapse of the multilateral trade order.
Specifically, the memo, which was obtained by Bloomberg, spells out three complaints raised by the EU:
- Gaps in the rulebook of global trade “leading to distortions, many of which associated with non-market policies and practices in major trading nations, that the WTO does not seem able to address adequately”
- Aggressive unilateral actions by the US targeting allies and foes alike with punitive tariffs
- The US’s decision to block appointments of members to the World Trade Organization’s Appellate Body that serves as the final arbiter in trade disputes.
The EU also complained about the US’s practice of blocking appointments to the appellate body that would help render a judgment in a WTO trade dispute.
“As more appellate body members leave office while the new appointments are being blocked, the dispute settlement system will soon fall into paralysis, rendering enforcement of the rules impossible,” the commission says in its memo circulated ahead of this week’s summit of EU leaders to discuss trade, among other topics. “That would equate to a 20-year step backward in global economic governance.”
The Commission will have an opportunity to act on its complaints later this week when the leaders of the world’s largest trading bloc meet to hash out a “comprehensive approach” to “improving with like-minded partners, the functioning of the WTO in crucial areas.”
While it’s unclear whether the US would be amenable to any proposal brought by the Europeans, Moody’s gave the White House one more reason to consider it this morning, when it announced that the Trump administration imposing 25% auto tariffs would be credit negative for global automotive companies. Instead of harming foreign competitors first, tariffs would put the greatest strain on American firms like Ford and GM.
Meanwhile European automakers without US plants – a group that includes Jaguar Land Rover and Volvo, “would be hit particularly hard.” On the other hand, Trump has refused to head the pleas of corporate America so far. What exactly would be needed to prompt him to change that position?