Trump Got Trade Right at the G-7: All Tariffs Must Go

President Donald Trump’s unexpected call to remove all trade barriers didn’t gain much traction with other Group of Seven leaders, perhaps because they were fuming about the U.S. president’s behavior during the summit in Canada this weekend. But a partial implementation of the idea would be a good way to defuse the brewing trade war without preventing nations from protecting certain markets.

Trump’s demands for fairer terms of trade for the U.S. has focused on tariffs. On average, these levies don’t put the U.S. at much of a disadvantage: even though those imposed by the European Union and Canada are generally slightly higher than America’s.

No Biggie

Average applied tariffs for most favored nations

Source: WTO

The averages hide some aberrations. The EU taxes U.S. cars at 10 percent, 7.5 percentage points higher than the U.S. tariff on European autos. But the U.S. levy on railroad cars is 14 percent, compared with 1.7 percent in the EU. Every imbalance represents some industry’s pet peeve, which creates a near-endless potential for clashes as interest groups exert pressure.

Removing tariffs altogether would get rid of the uneven headline numbers. At the same time, it would leave nations with ample tools to protect specific markets with more finely tuned non-tariff barriers, such as quotas, sanitary regulations and quality requirements, which can be far costlier, and far more unequal, than tariffs when applied among Western allies.

These measures are difficult to quantify because assessments of the effects of trade restrictions on the final prices of goods can vary widely. One attempt, during the early discussions over the now-dead Transatlantic Trade and Investment Partnership in 2015, provided a comparison of previous efforts to calculate the tariff equivalents of non-tariff barriers. The authors, Koen Berden and Joseph Francois, cited a 2009 study showing  that the regulations in place at the time added the equivalent of a tariff of up to a 48.2 percent to the price of U.S. fruit and vegetables in Europe; the U.S. effectively imposed a 60.2 percent tariff on European fruit and vegetables through import regulations.

Another 2015 study calculated that U.S. non-tariff measures added 25 percent to the cost of European air transport services, while EU regulations added 11 percent to the U.S. cost. 

That’s why reducing non-tariff barriers between Western allies was a more important sticking point in the TTIP negotiations. Europeans were worried, for example, that their market would quickly fill with inferior American food (“chlorinated chicken” was a rallying cry). 

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