Recent ‘Power-Based’ Bargaining by the United States: Implications for the WTO and Global Trade Flows

Abstract

With the election of Donald Trump to a second term as president, the use of ‘power-based’ bargaining, initiated during his first administration, has been extended to virtually all US trading partners and all traded goods. In this context, the focus of this article is on the impact of this approach to trade negotiations on the multilateral trading system governed by the World Trade Organisation (WTO). Utilising the standard approach to economic analysis of the WTO, the targeting of ‘reciprocal’ tariffs is evaluated and the impact on global economic welfare described. This is followed by a description of the likely cost of ‘reciprocal’ tariffs, and their expected impact on the multilateral trading system and its governance. Two alternatives to ‘power-based’ bargaining are, then, outlined, drawing on existing articles contained in the General Agreement on Tariffs and Trade (GATT). The overall conclusion is that resolution offered by these GATT articles will not be the sought by the United States, and that its unilateral/bilateral approach to trade negotiations will seriously damage the world trading system with little or no gain to the United States and its trading partners. JEL Codes: F1, F13, Q17