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International trade

The Trump jolt

by Hans Dembowski

In brief

German car manufacturers are making a difference in South Africa.

German car manufacturers are making a difference in South Africa.

Washington’s stance on trade has become protectionist under President Donald Trump. The USA’s partners are bewildered. Whether the end of multilateralism must be expected, is another question.

Karl Brauner, the deputy director-general of the World Trade Organization (WTO), is worried about the future of his institution’s system for settling trade disputes. It has been quite successful in the past, but it may soon lack a sufficient number or arbitrators to take decisions. In the fall, at the latest, a new arbitrator must be appointed. The problem is that the Trump administration has been blocking new appointments for several months.

Brauner says it increases his concerns that most WTO members are not in panic mode in view of Washington’s current stance. The dispute settlement panels are crucial for preventing trade wars, he points out. So far, all members are playing by the rules, and that is true of the USA too, in spite of Trump’s protectionist rhetoric. Brauner stresses that the recent tariffs Washington has imposed for punitive reasons on solar panels and washing machines are, in principle, WTO compatible, and, if other countries do not agree, they can appeal to the WTO dispute settlement system. A lack of arbitrators, however, would make the system unviable, and the result could be real trade wars with escalating sanctions and potentially devastating impacts.

The WTO has only made little progress since it adopted an ambitious agenda to liberalise global trade in Doha in 2001. It has nonetheless achieved some success. For one thing, its existing rules have given rise to complex multilateral trade relations. Moreover, member states adopted a new agreement on trade facilitation in 2013. It is geared to speed up customs procedures on borders. Brauner says the agreement proves that the WTO is not ineffective, but he admits that the USA under Trump is no longer a global leader, along with the EU, as it has been in the past.

Mexico is the country that has most to fear from US protectionism. Its economy is particularly interdependent with the USA. Mexico does about half of its foreign trade with its northern neighbour. Trump has been insisting the North American Free Trade Agreement (NAFTA) must be renegotiated, and the consequences may prove far-reaching for Mexico.

Luis de la Peña Stettner, the former president of USEM, the association of Mexican employers, reports that Trump’s election victory came as a shock. In the meantime, however, the sense of doom and gloom has dissipated, according to him. Mexican business leaders now understand that their country cannot only rely on north-bound exports, but must consider all directions. In his eyes, Mexico serves as a bridge between North and South America, and it can also be node linking Europe to Asia. De la Peña says the “Trump jolt” was healthy in the sense of making Mexican managers considering opportunities they should have noticed earlier. He regards greater diversification and a more cosmopolitan outlook as healthy.

Questions of ethics

De la Peña is in favour of international exchange as a matter of principle. In late January, he told a conference hosted in Bonn by the Konrad-Adenauer-Stiftung (KAS), which is close to Germany’s Christian Democrats, and Germany’s Association of Catholic Entrepreneurs (BKU) that young Mexican business leaders benefit from interaction with their German counterparts. For instance, they are exposed to ethical standards they are not accustomed to. Relevant issues include the demand for transparency and an anti-corruption attitude, according to de la Peña.

Not everyone agrees that German companies are in a position to claim ethical leadership, however. Cornelia Schmidt-Liermann, a member of Argentina’s parliament, says that mid-sized business in Germany apply high standards, but major corporations such as Deutsche Bank, VW and Siemens are known for malfeasance in international scandals. Stephan Werhahn of Steinbeis Hochschule, a private Berlin-based college with close ties to business, praises the way US courts have ensured that consumers were compensated in the course of the diesel scandal. In his eyes, it casts a bad light on Germany that the same did not happen here. Hubertine Underberg-Ruder, a business owner, argues that market economies need renewal “from inside” after the global financial crisis. And according to Ulrich Hemel of the BKU, the big question is how ethical standards can be enforced in systemic ways that do not depend on interventions by courts.

Nixon Kariithi, a business journalist and professor of media affairs from Johannesburg, defends German car makers. He says their production lines are making a difference in South Africa. He expresses the hope that similar industry hubs will be established in Kenya and Nigeria. Kariithi emphasises the relevance of trade facilitation, moreover, since red tape and long waiting times hinder intra-African trade to the detriment of economic development.

Dominik Ziller of Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) agrees that trade helps to fight poverty. The BMZ spends $ 5 billion annually on “aid for trade”. The civil servant admits that boosting trade is a side-effect and not the main goal of many of the related measures. Ziller warns however: “Unrestricted markets do not automatically trigger growth to the benefit of everyone”, so  classic infrastructure programmes are of lasting relevance.

The BMZ opposes social and environmental dumping. In recent years, it has been focusing on garments production. One lesson, according to Ziller, is that environmental and social standards are hard to enforce:

  • when competitors do not live up to them, and
  • when consumers do not pay attention to the issues.

In the eyes of Peter Fischer-Bollin of KAS, Trump’s presidency does not necessarily mean that the age of multilateralism has ended. He finds it encouraging, for example, that the Trans-Pacific Partnership is now set to be launched soon by the 11 remaining partners even though Trump pulled the USA out of the negotiations last year.

Argentina’s government believes in multilateral cooperation as well. Legislator Schmidt-Liermann belongs to President Mauricio Macri’s centre-right party and knows what topics he will put high on the Agenda of this year’s G20 summit in Buenos Aires. Social inclusion and gender justice matter, she says, as everyone must get the education “he or she” needs for gainful employment, especially as work life is increasingly marked by technological change. In her eyes, other core issues are the future of work, infrastructure and food security. Her government also wants the global community to cooperate on fighting tax avoidance.


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