The Trump tariffs may not be only hurting economies, but also weakening the entire global trading system. Kim Parlee speaks with Chuck Gastle, lawyer and international trade litigator at Bennett Gastle on how that could spell more trouble ahead.
- Well, the markets have barely had time to calm down a bit over the trade war truce between the US and China, when President Trump proposes more tariffs on EU goods. My guest says Trump's ongoing use of tariffs are creating havoc for the global trade system and that could spell more trouble ahead.
Joining me is Chuck Gastle. He's a lawyer and international trade litigator at Bennett Gastle Professional Corporation.
It is good to have you back. I've seen you more in the past two years, I think, than I've seen you in a few years before that.
But let's start with the truce between China and the US. What do you make of that?
- It's a good thing, simply because it calms the markets. But we'll have to wait and see what happens, if they're able to reach an agreement or not.
KIM PARLEE: How-- I mean, I've heard from the complexity and the depth of this agreement that is needed is beyond what can be done. Do you agree with that?
- Well, it's dealing with a number of market access issues and changes that are supposed to-- that they're trying to take place in China to give the United States and others more access.
But the question is-- let's take a look back to NAFTA 2 verses NAFTA 1. The changes are not really that great between NAFTA 2 and NAFTA 1. So was President Trump looking for a true revolutionary agreement? Or was he looking for something that he can consider to be a win?
And so when he's negotiating with China, is he really looking for something to remarkably change things? Or is he looking for something that he can claim as a win in November of 2020?
- His stamp on it. Yeah, so that probably is much more likely than a comprehensive agreement.
How common do you think it is? I mean, you know, he has a fairly liberal use of tariffs, threats of tariffs, in terms of negotiating tactics with everybody right now. Is there precedent, do you think, for the way that he's been using them?
- With the exception of one, what he's doing is completely inappropriate and contrary to international trade rules and represents a threat of disruption to the world economy.
KIM PARLEE: Mm-hmm. So I guess the question is, how much of a disruption-- how much of a long-lasting disruption will it be? I mean, because the one thing that's interesting, I think, is that-- I mean, and equity markets are certainly not the be all, end all to everything. But you know, we've just got markets at all-time highs right now. They do get very spooked by the trade concerns. But they seem to become a bit immune to it now, I'd say, at this point. Tell me about the other long-lasting impacts you might think that be out there.
- It's the institutional damage to the international trading system, specifically, the World Trade Organization, because it provides a set of rules to establish reliable trade. And if you have a dispute, such as the things that Trump is raising, you go to the World Trade Organization and have the dispute settlement mechanism sort them out.
What Trump is doing is he's engaging in a self-help remedy, which was expressly agreed that United States would not do as part of the World Trade Organization agreements. It encourages others now to not rely on the World Trade Organization.
And if you want to take another example, take a look at China on the canola. I mean, it falls right into that category. So if-- the long-lasting damage will be to the World Trade Organization and its rules.
KIM PARLEE: Tell me-- I mean, I think the one thing that-- I mean, obviously, this is your world. This is what you know. But why-- give us some history here. Why was the WTO created? What did that come from? And what is the impact of it not being respected any further?
- It was created as a result of two World Wars and a Depression. It was created at the-- the seeds of it were created at the Bretton Woods Conference in 1944, at the same time as the IMF World Bank and what was to become the World Trade Organization. It was seen that, out of all of this disruption and all this craziness that took place at that time, there needed to be a stable basis for exchange rates, stable basis for trade.
And it took, actually, 50 years, until 1994, until the World Trade Organization became what was expected at the Bretton Woods Agreement. And the basis of that agreement was that people believed that a set of rules would be important to encouraging world trade, and also giving developing countries a reason to open up their markets and to rely on that system.
And if you start tearing this up-- when Trump, in August of 2018, threatens to leave the World Trade Organization, which is based on a set of rules that it developed, it really undermines it and undercuts it and creates huge problems. And these are long-lasting ones. If you take away-- if you delegitimize the World Trade Organization, that could cause problems for years into the future.
KIM PARLEE: Is there anything that could happen now-- I mean, there's a US election coming up. Depending on your view of things, I mean, President Trump could win again, a Democrat could come in. But let's just say for one scenario, if a Democrat came in, can this be repaired? Or has the world already started looking at taking care of itself and not relying on the WTO at this point?
- There are signals out there that the world is looking elsewhere than to the WTO.
KIM PARLEE: What signals?
- Well, take a look at China and canola. And there are others as well.
But the point is that-- is it possible to repair it? I guess anything's possible. But it's sort of like the genie is out of the bottle in the sense that-- look, it's the same thing where you hear fake news all over the world now all of a sudden. Well, now, other countries will be encouraged to follow the United States' lead in the way that they handle trade disputes.
It takes two to three years for a World Trade Organization panel to reach a decision. And so what you do is you slap on all kinds of tariffs in the meantime, create all kinds of havoc towards the other, weaker country to agree to your position. And so will we see more of that? Quite probably.
- I've only got about 90 seconds here. But what do you think-- so what does that new world trade order look like? And what does it mean for Canada?
- Well, I think what it means is that you end up with-- let's assume that the World Trade Organization was to really be delegitimized. You end up with China, Europe, and the United States, and their satellites. It may be-- from a certain respect, if NAFTA goes through-- then Canada may become a stable platform for trade, except when you see what's happened in Mexico with respect to the immigration thing.
So Trump may still lead those things. But as long as Canada can sign NAFTA, we may be able to weather some of that storm.
KIM PARLEE: Sobering conversation. Chuck, it's always a pleasure, though. Thanks for the insight.
- Thank you.