Another Trump presidency could disrupt global trade

Another Trump presidency could disrupt global trade
A potential return of Donald Trump to the White House threatens to paralyse the WTO, escalate global trade wars, and undermine multilateral agreements.

As the 2024 US presidential election looms, the potential re-election of Donald Trump has raised concerns for major players in global trade. With a history of contentious trade policies and a critical stance on multilateral institutions, Trump could have a major impact on the World Trade Organisation and international trade agreements. One of the most immediate concerns is the potential paralysis of the WTO.

Developed countries, anticipating a possible Trump victory, are pushing to finalise key agreements on e-commerce and fisheries at the upcoming WTO General Council meeting in July. These countries, including the US, EU, and UK fear that Trump’s return to power could weaken the WTO further. During his previous term, Trump labelled the WTO as broken and unfair, even threatening to withdraw the US from the organisation if significant reforms were not made. He also blocked appointments to the WTO’s appellate body, effectively crippling the organisation’s dispute settlement mechanism.

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India remains cautious and is not keen to join the rush. The Indian stance, as stated by a Geneva-based trade diplomat, is driven by national interests rather than external political pressures. India’s concerns in fisheries remain unresolved, and it has only an observer status in the e-commerce JSI negotiations. 

Tariff hikes and trade wars 

Trump’s trade policies in his first term were marked by major tariff hikes, particularly against China. His second term could see an even more aggressive stance. Trump has promised a 10 percentage point tariff increase on all US trading partners and a potential 60% tariff on Chinese imports . This could lead to a sharp rise in global trade tensions and economic instability.

The impact of such widespread tariffs would be more pronounced than during his first term. A broad 10% tariff could elevate US inflation to between 3% and 4% by the end of 2025, according to Capital Economics. Retaliatory measures from trading partners, especially the European Union, seem inevitable, given the new powers the European Commission has to respond outside the WTO’s weakened dispute settlement system .

Another critical aspect to consider is the impact on developing countries. Trump’s protectionist policies could exacerbate economic disparities, particularly for nations heavily reliant on exports to the US. Developing countries might face reduced market access and increased competition, leading to economic strain and potential social unrest. This could undermine global development goals and increase geopolitical tensions.

Shift in Trade Dynamics 

Trump’s return could also reshape global trade dynamics in three significant ways. First, the scope of the threatened measures would be broader, affecting a wider range of goods and countries. Second, the debate around trade deficits could shift, informed by the experiences of his first term. While the initial tariffs reduced the bilateral trade deficit with China, they led to increased deficits with other countries. A broader import tax aims to address the consistent trade deficits the US faces year after year.

Third, China’s evolving economic position would be a critical factor. Concerns about China’s chip production and manufacturing exports are now more intense. The Biden administration’s recent warnings to China about not using domestic economic weakness to boost exports highlight the growing tension. The EU’s trade deficit with China has also risen sharply since the pandemic, adding to the pressure on European producers.

A Trump presidency could further challenge the concept of multilateralism in trade. His preference for bilateral deals over multilateral agreements weakens collective efforts to address global trade issues. This shift could lead to fragmented trade policies, where power dynamics favour stronger economies, leaving smaller nations with less bargaining power. The erosion of multilateralism might also hinder coordinated responses to global economic crises.

The potential return of Trump to the presidency injects a significant level of uncertainty into the global trade environment. Businesses and investors may hesitate to commit to long-term investments due to the unpredictability of trade policies. This uncertainty could stifle innovation and economic growth, as companies adopt a more cautious approach to expansion and development.

Opposition to Regional Trade Deals 

Trump has also expressed strong opposition to regional trade deals like the Indo-Pacific Economic Framework (IPEF), which the Biden administration has been negotiating with 13 other countries. Trump argues that such deals would hollow out US manufacturing and lead to job losses, echoing his stance against the Trans-Pacific Partnership (TPP) during his first term. His promise to “knock out” the IPEF, or what he calls “TPP Two,” reflects his protectionist approach to trade, favouring bilateral deals over multilateral agreements.

Trump’s opposition to regional trade deals, like the IPEF, also has implications for environmental and labour standards. By rejecting agreements that include stringent labour and environmental provisions, a Trump administration could set back global efforts to promote sustainable development. This stance may encourage other nations to lower their standards to remain competitive, resulting in a “race to the bottom” in terms of environmental protection and workers’ rights.

A possible Trump presidency poses significant risks to the global trade order and the functioning of the WTO. His aggressive tariff policies, critical stance on multilateral institutions, and opposition to regional trade deals could lead to increased trade tensions, economic instability, and a reshaping of global trade dynamics. As the world watches the upcoming US election, the stakes for international trade and economic cooperation have never been higher. The need for a balanced and strategic approach to trade policy and multilateral agreements is more crucial than ever.