Some Initial Consequences Of Trade Tensions

The Trump Administration argues that other countries have been taking unfair advantage of the US on trade for years, and what many are calling a trade war is really only the US finally saying enough.  The US has taken many several countries, including China, to the WTO for trade violations and wins the vast majority of cases it has brought.  

It has become fashionable to talk about reciprocity and intuitively has much appeal. However, when one delves into the data, one sees how this important principle is achievable on a high-level but may not be operative on a specific good level. The weighted-mean tariff that is applied is roughly the same for the highly industrialized countries and considerably higher for emerging markets.

This Great Graphic from Pew Research is derived from World Bank data: 

According to this data, Canada has the lowest tariff barriers, while the US, Europe, and Japan are within a few tenths of a percent of each other. Is that an operational definition of reciprocity? China’s weighted mean tariff is higher than the G7, though compared with other emerging market economies, including Mexico, Brazil, and India, it is not such an outlier. However, China’s mean-weighted tariff is a prima facia case for it to continue to be considered a non-market economy, which makes it easier for its trading partners to take anti-dumping action.  

One of the most significant achievements of GATT and its successor, the WTO, is to reduce tariff barriers to trade. The main obstacle and distorting factors come from non-tariff barriers. The challenge to the WTO grows out of its successes, and that is to suggest the low hanging fruit has already been picked. This is tariffs on merchandise. Extending the free-trade to agriculture, services, and investment is more controversial. Addressing non-tariff barriers is even more difficult.