WITA Panel: US Trade Aggression Leading Allies to Look Elsewhere

The panel talked late last week on a Washington International Trade Association podcast, before Trump announced he'd lower tariffs on Indian imports.

Mark Linscott, a former assistant U.S. trade representative for South Asia and a senior adviser at the U.S.-India Strategic Partnership Forum, argued that the more the U.S. pressures Asian countries like Vietnam and Indonesia to fall in line on reducing their exposure to China's exports, the more it is "making it clear that the U.S. market, which is so important to virtually every country in the world ... is no longer a dependable market. Each threat, each effort to up the ante with each of these countries, I think motivates them to seek out trade deals with other countries."

Linscott said the India-EU deal was influenced by additional factors. He noted that the 50% tariffs on top of most-favored nation rates for apparel and textiles hurt Indian exporters.

"The European market is an even bigger one for them on textiles and apparel. And they actually just lost their benefits under the EU's GSP program," he said, referring to the EU's tariff breaks for developing countries. The U.S.'s Generalized System of Preferences benefits program never covered textiles, since they were seen as too sensitive.

"So it was pretty critical for them to get a tariff done as part of this FTA to maintain access to the European market when they've been losing it in the U.S. market," he said.

For European exporters, he said, the lower tariff rates will be transitioned in gradually. He said with regard to the non-tariff barriers that India agreed to change, "we'll see how they are implemented and how effective they are. So I think the jury is out a bit, at least in terms of timing on the economic impacts."

Daniel Mullaney, a former career USTR negotiator with Europe now at the Atlantic Council, noted that the free trade agreement left out some of the most difficult issues -- the most sensitive areas in Indian agriculture, and how the EU will use the carbon border adjustment mechanism on Indian exports, which is still under discussion.

Moderator Joe Damond noted that U.S. Trade Representative Jamieson Greer suggested that India got the better end of the deal, and called Greer's comments "passive-aggressive."

Chris Padilla, a former undersecretary of Commerce for international trade and a senior adviser at the Brunswick Group, said Greer's comments struck him as sour grapes.

Padilla added, "The remarkable thing that we've seen in the last year is that, in response to U.S. tariffs," countries have not hiked their tariffs in return, but rather are trying to sign more deals to lower their tariffs with other countries, such as this deal and the EU-Mercosur deal, covering South American countries.

Mullaney said the U.S. has noticed this trend, including Canada's de-escalation with China, "and the administration doesn't seem particularly happy about that."

Wendy Cutler, a former career negotiator at USTR with Asian countries, now a senior vice president at the Asia Society Policy Institute, said she doesn't take those disgruntled comments too seriously, since Canada had a similar tariff de-escalation to the U.S.'s moves last year, and since the U.S. can't convincingly say that commercial engagement is dangerous when "we've just approved selling AI chips to China."

"It does smack as sour grapes to me," she said.

The panel noted that U.S. insistence that Asian countries reduce their reliance on Chinese inputs and investment has prevented the conclusion of trade agreements with Vietnam and Indonesia.

Padilla said, "Don't you think that's an interesting thing to watch ... given the blowback that the Malaysian government has gotten? How many more countries will agree to that kind of poison pill language?

"Even in the context of USMCA, where I think we had hopes that we would raise common external tariffs against China," he said, because the Canadian agreement with China allowed a quota of Chinese EV imports at MFN rates, rather than the 100% rates it imposed during President Joe Biden's term.

Cutler said that it's not unreasonable that the administration is trying to light a fire under South Korea's National Assembly to set up an investment vehicle. But she said it's ironic, given how long Congress took to ratify trade deals.

But she acknowledged, "Once again, this does send that message that even if you have a trade deal, you're never really safe."

Linscott agreed. "If more and more countries that have done deals or agreements with the United States find that it doesn't shield them at all from new threats or new tariffs, what is the value of doing these agreements? What's the value of staying in these agreements?"

Padilla agreed, and said that kind of on-again, off-again threats will undermine Trump's goals of driving investment in U.S. manufacturing, or establishing strategic supply chains with allies for goods where the U.S. is now overdependent on China.

He said that while the EU-India deal may not be as comprehensive as some EU stakeholders would have liked, "it's probably not going to be threatened with being blown up in the next two months because [EU Council President] Ursula von der Leyen woke up on the wrong side of the bed, right? So, that kind of a deal, maybe, will have more of a positive investment effect than a deal that's a fact sheet and a Truth Social post."