Why Isn’t the World Retaliating against US Tariffs?

When President Trump threatened in May to raise tariffs from 15 percent to 25 percent on European autos, he delayed their implementation and gave Europe a deadline of July 4. The EU could have retaliated. In a show of considerable restraint, however, the Europeans declined to escalate. Instead, in June, they decided to implement a trade agreement, through their own deliberative institutions, with the United States.

Although this new U.S.-EU trade agreement is considerably less than ideal, this was a reasonable — and responsible — move by the EU in the face of warrantless provocation.

One of the harder lessons of serving in public office is learning that there will be no expression of gratitude for preventing the worst from happening. Voters value positive results they can see and touch. They do not much value damage control. So it is now with the current chaos in world trade. In their commitment to restraint in their trade with the United States, the Europeans are engaged in damage control.

To date, few have credited for their farsightedness the leaders of other countries who have, despite enormous pressures, refrained from retaliating against the repeated tariff onslaughts of the United States with a countering protectionism of their own. Although confronted by a seemingly never-ending avalanche of unilateral and illegal tariffs by the United States, U.S. trading partners, with only a few exceptions, have not responded in myopic kind by imposing similarly unilateral and illegal tariffs on their imports of American goods. Instead, they have mostly turned the other trade cheek to these commercially minatory American measures.

To be sure, some U.S. trading partners may have refrained from tit-for-tat retaliation because of Trumpian intimidation. Up to a point, bullying tactics can often succeed. There is, though, much more to the general absence of retaliation than merely apprehension of additional American economic coercion.

The Trump tariffs are unilateral; they are singular actions by the United States. Under President Trump, the United States has clearly abandoned its longstanding bipartisan commitment to the collective action of multilateralism as a founding and formerly leading member of the World Trade Organization.

But other members of the WTO have not. One important reason why most of them have not retaliated is that they persist in trying to preserve the global benefits, hard-won through the decades, of the rule-based multilateral system overseen by the WTO and so prefer not to take unilateral actions outside that system. This is true, for example, of the European Union.

Unlike President Trump and his trade team, the other members of the WTO continue to understand that the path to increased prosperity for all the 166 countries in the global trading system is lowering barriers to trade, not raising them, and that a shared global prosperity can only be achieved when the overall economic gains from trade are maximized through the collective international cooperation of a multilateralism that all trading countries sustain and strengthen and in which they all fully participate.

Another reason for the general lack of tariff retaliation by other countries is that the Trump tariffs are illegal under international law. Under President Trump, the United States has discarded the central WTO principle of non-discrimination in trade — the obligation of “most-favored-nation” treatment on imports of all like traded products wherever they may have originated — for a perverse policy of pervasive trade discrimination arising mainly from the arbitrary and ever-changing expression of presidential whim. Indeed, the Trump administration is even trying to erase the general obligation of non-discrimination in trade from the WTO agreement.

Yet, despite this abandonment by the United States of a fundamental trade principle that Americans of both major political parties have long professed, other members of the WTO still understand that world trade is better by far in enhancing global prosperity when based on non-discrimination and other agreed principles enshrined in the WTO agreement and when upheld by the international rule of law than when governed by the midnight mutterings on social media of one misguided man.

The principle of non-discrimination in trade can be traced back eight hundred years to the Baltic trade of the Hanseatic League, and its basic logic remains unchanged and economically irrefutable irrespective of the current course of geopolitics. So, too, does the logic of upholding the rule of law in trade.

To these reasons why other countries largely refrain from retaliation against the trade predations of President Trump must be added to the practical fact that they have options for their trade other than the United States. Because the United States accounts for only about 10 percent of world exports and about 13–15 percent of world trade, these other countries, instead of bothering to reply to U.S. tariffs with tariffs of their own, can simply take their trade elsewhere in the world, which is precisely what many of them are doing.

They are importing much of what they need from other countries. They are exporting to other markets. They are rearranging their supply chains to avoid the United States. All of this benefits these countries much more than would engaging in a mutually-defeating trade war — even as it results also in the loss by trade opportunities for the United States that, if seized, would raise the prosperity of American producers, workers, and consumers.