Leonid Bershidsky
President Donald Trump’s unexpected call to remove all trade barriers didn’t gain much traction with other Group of Seven leaders, perhaps because they were fuming about the U.S. president’s behavior during the summit in Canada this weekend. But a partial implementation of the idea would be a good way to defuse the brewing trade war without preventing nations from protecting certain markets.
Trump’s demands for fairer terms of trade for the U.S. has focused on tariffs. On average, these levies don’t put the U.S. at much of a disadvantage even though those imposed by the European Union and Canada are generally slightly higher than America’s.
The averages hide some aberrations. The EU taxes U.S. cars at 10 percent, 7.5 percentage points higher than the U.S. tariff on European autos. But the U.S. levy on railroad cars is 14 percent, compared with 1.7 percent in the EU. Every imbalance represents some industry’s pet peeve, which creates a near-endless potential for clashes as interest groups exert pressure.
Removing tariffs altogether would get rid of the uneven headline numbers. At the same time, it would leave nations with ample tools to protect specific markets with more finely tuned non-tariff barriers, such as quotas, sanitary regulations and quality requirements, which can be far costlier, and far more unequal, than tariffs when applied among Western allies.
Reducing non-tariff barriers between Western allies was a more important sticking point in the TTIP negotiations. Europeans were worried, for example, that their market would quickly fill with inferior American food (“chlorinated chicken” was a rallying cry).
Again and again, Trump has assailed Canada’s 270 percent tariff on U.S. milk. But the reason he’s worried about milk exports to Canada is a non-tariff measure. Deterred from exporting whole milk to Canada by the tariff, the U.S. dairy industry began selling so-called ultrafiltered milk, a protein-rich product used in the making of cheese that wasn’t subject to the tariff. U.S. exporters did great until last year, when a regulation pushed through by Canadian dairy farmers priced local milk product ingredients at below international market prices, hurting the viability of U.S. imports.
Canada still buys more dairy products from the U.S. than the other way round. If it were to cancel its 270 percent tariff, it can still protect its farmers through moves similar to the National Ingredient Strategy, which created a new milk product class.
Abolishing tariffs would be a good start, if only because it would help take trade out of the populist realm of simple solutions and back into negotiating rooms filled with detail-oriented professionals. There’s a reason Trump keeps talking and tweeting about Canada’s milk tariff but not about Pricing Class 7, the actual problem for Wisconsin dairy producers: It’s much harder to explain in a tweet. Zero tariffs would give Trump a victory he could trumpet without hurting America’s allies any further.
Bershidsky is a Bloomberg Opinion columnist covering European politics and business. © 2018, Bloomberg Opinion
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