A European Union (EU) flag is reflected in a puddle outside the Chancellery building in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

Europe Vows to Keep Fighting Trump on Trade, Seeing Risk to WTO

(Bloomberg) -- President Donald Trump’s aggressive approach to recasting U.S. partnerships and his direct assault on the World Trade Organization will unwind decades of progress and return global commerce to a free-for-all, according to an internal European Union memo.

The note, prepared for EU governments ahead of a June 28-29 summit where trade will be discussed, reflects the growing strains between traditional allies. It said Trump’s policies will force nations to revert to a Machiavellian system where might prevails.

Europe Vows to Keep Fighting Trump on Trade, Seeing Risk to WTO

“The rules-based multilateral trading system is facing its deepest crisis since its inception,” according to the memo, which was obtained by Bloomberg. The challenge could lead to a “20-year step backward in global economic governance. It would mean going back to a trading environment where rules are only enforced where convenient.”

The global battle over trade is already under way, threatening to impair growth. The world’s biggest central bankers have warned that trade tensions are damaging confidence, posing a danger to the worldwide economic expansion. After a series of escalating broadsides, the U.S. has said it may impose tariffs on at least $250 billion of Chinese products, with Beijing vowing a proportionate response. The EU placed duties on 2.8 billion euros ($3.3 billion) of American imports last week, retaliating for American metal levies.

‘WTO is Unfair’

Trump’s wrecking-ball approach, using antiquated laws and leveraging seldom-used loopholes including those that invoke national security, has sown fear that the president intends to undermine the WTO, the Geneva-based adjudicator of trade disputes. In April, Trump tweeted: “The WTO is unfair to U.S.”

Since August, the U.S. has blocked nominees to the WTO’s appellate body -- a key forum for mediating disputes -- saying it’s overstepped its mandate. If the U.S. continues its hold, the body will be paralyzed by late 2019 because it will lack the three panelists required to sign off on rulings.

“The WTO and the rules-based system is like oxygen: when it is there, you take it for granted, but once it is gone, we will all struggle to survive,” J.S. Deepak, India’s ambassador to the WTO, said last month.

For More on the Trade Dispute:
European Union sees looming trade breakdown 
Europe is ready to retaliate as trade dispute grows
Trump escalates global trade war with tariff threat for EU autos
The five biggest threats to the World Trade Organization
Here’s the U.S. law on trade as a national security issue

Trump has relied on a Cold War-era law -- Section 232 of the Trade Expansion Act of 1962 -- to impose tariffs on steel and aluminum products, saying the imports threatened national security. The White House argued that the WTO has no authority over such disputes because the organization’s rules permit countries to take “any action” to protect their “essential security interests.” Trump has threatened to use the same justification for a 20 percent tariff on European car imports.

The U.S. actions “flout the WTO rulebook,” according to the EU memo, and the bloc’s trade commissioner, Cecilia Malmstrom, has called the tariffs “ridiculous” and “illegal.” Trade officials are concerned that the WTO could be sidelined if countries increasingly cite the national-security exemption to justify their trade restrictions.

To defend the multilateral trading system, the European Commission, the bloc’s executive arm, is seeking a mandate from its 28 member states to begin reforms of the WTO, according to the memo. They want to modernize the organization to make it more flexible, and to make sure the rules are effective and efficient, addressing some of Washington’s main complaints.

The EU views the threat as potentially existential, writing in the document that the current situation poses a major risk for the EU, “both for the stability of the political order and for the sustainability of economic growth.”

©2018 Bloomberg L.P.