October 1, 2018 / 9:51 AM / 2 months ago

Breakingviews - Trump-friendly trade reform is a hard ask

U.S. President Donald Trump sits behind his desk as he announces a bilateral trade agreement with Mexico to replace the North American Free Trade Agreement (NAFTA) at the White House in Washington, U.S.

LONDON (Reuters Breakingviews) - Good intentions and realpolitik rarely mix. That may well be the case with proposals from a trio of international bodies that seek to address some of U.S. President Donald Trump’s gripes with the World Trade Organization while providing ways for other countries to liberalize commerce without his signoff.

The report, penned by the WTO, the International Monetary Fund and the World Bank, calls for changes to rules on foreign direct investment to tackle restrictions such as joint-venture requirements and foreign equity limits. That should appeal to the White House, which has made such hurdles the focal point of its escalating trade dispute with China.

The organizations also offer something to partners worried about U.S. trade obstruction. They suggest that groups of like-minded countries be encouraged to free up trade amongst themselves in certain areas rather than waiting until everyone can agree. One model the report cites is the 2015 Information Technology Agreement, in which fewer than a third of WTO members accounting for more than 90 percent of world trade in covered IT products agreed to lower trade barriers. More such deals might speed up the pace of liberalization. But in most sectors, reaching such a critical mass would require China and the U.S. to join the early movers, something that’s difficult to envision in the current environment.

The joint report also makes the case for opening up the service sector. It accounts for around two thirds of global GDP and employment but faces much higher barriers than most goods. Fostering more trade here could boost productivity and long-term growth prospects. But that ignores how much sentiment towards globalization has changed. 

Politicians in the United States and other countries that have seen their manufacturing sectors hollowed out are wary of exposing disgruntled voters to potentially more job losses and dampened wage growth. Trump, it should be noted, has focused on areas like steel and cars and rarely mentions services.

The U.S. president’s willingness to challenge global trade rules is focusing minds on the benefits of those rules. But countries won’t agree to American demands without getting something in return. All the more so since politicians that question the benefits of ever-freer trade are in the ascendant in many Western countries. Good ideas may wither and die when sown in such difficult terrain.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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