The War on Trade - Combatants, Alliances and Cassi Belli

I have written repeatedly on the War on Trade being waged more or less covertly by regulators in the US, the EU, Japan and China. Between them, at last count, they had erected 7,220 non-tariff barriers (NTBs) to trade, all of them effectively restricting imports. In today's shrunken trade environment, that amounts to 13.6 NTBs per US$ billion of monthly imports in 2Q up from 12.1in 2Q19. Since there is no instance of the number of NTBs imposed by these economies falling, unless there is a rapid recovery in global trade, the number of NTBs per billion will continue to climb and break new records in legal restriction.

Some will recognize this as a classic Prisoner's Dilemma game, in which the strategy of defection from the common good is absolutely mandatory. So the war will continue to be waged unabated for the foreseeable future, to the economic detriment of all. As failures of global economic policy go, this is the bane of our times.

So it might be useful to list the various cassi belli of each of the combatants, and also to identify unambiguously who is really fighting who, and who is winning. The results differ somewhat from what one might assume by reading the press, or overhearing the public trade squabbles of trade diplomacy. One can draw a clearer picture by mining the WTO's Integrated Trade Intelligence Portal database, since this is the body which is keeping the score.

Who's Winning, Who's Losing. At the broadest level, one can track the bilateral NTB score, netting out the number of NTBs imposed by country A against imports from Country B, minus the NTBs imposed by Country B against Country A. If Country A is imposing fewer NTBs against Country B than Country B is against Country A, I shall describe Country A as being in NTB deficit.

On this broad basis, there is a clear loser: Although the US has imposed the largest number of NTBs, it is in significant NTB deficit against the EU, against China and against Japan. In the NTB war, in its position with major trade partners, it is more sinned against than sinning.

On the same basis, there is a clear winner: China may not have the greatest number of NTBs, but it has targetted them most effectively against all its major trade partners. It imposes more NTBs against the US, EU and Japan than those countries impose against it.

Less clearly, the EU is broadly protective, in NTB surplus against the US and Japan, but in deficit against Japan; and Japan is surprisingly non-protective, in NTB surplus against the US, but in deficit against both the EU and China.

More dramatically, the most contentious, litigious and lopsided relationship is the NTB war the EU wages against imports from the US. Currently, the EU has 78 NTBs in place affecting imports from the US, whilst the US has only 24 NTBs affecting imports from the EU. Contrary to the public friction which accompanies US-China trade relations, it is the EU which has erected the most prickly legal defences against US trade.

Casi Belli. Given the Prisonner's Dilemma dynamic at work, investigating the justifications for NTBs might be academic, since defection from the common good is strategically mandatory, so justifications must and will be found. Still, the WTO lists eight commonly cited justifications for imposing NTB restrictions on trade.

Overall, the non-tariff barrier most favoured by all four is the same: 'sanitary and phytosanitary (S&P)' barriers ostensibly designed to protect consumers from dodgy materials, and in practical terms the principal means for protecting domestic agricultural industries. Surprisingly, given its history of unfortunate hygiene, pollution, counterfeiting and toxic accidents in its food supply, the economy most given to banning imports on these grounds is . . . China. In fact, S&P NTBs make up 88% of China's total.

Excluding S&Ps, the other economies each tend towards a different set of reasons for imposing NTBs. In the US, the bulk are comprised of measures the WTO simply glosses as 'trade defence measures': anti-dumping measures, countervailing barriers, and special safeguards. The EU's explanations are more specific and perhaps subject to more detailed justification: anti-dumping measures are there, but so too are measures against export subsidies, and there are also quotas operating in concert with agreed tariff rates. In Japan, matters are bluntly straightforward, with quantitative restrictions and special safeguards.