China Research

The whole world has learned in the past few weeks that American President Donald Trump does not understand cross-border trade policy – or does not want to understand it. More or less all experts inside and outside the U.S. have accused him of neglecting the most obvious advantage of free trade and the disadvantages of protectionism and raising tariffs on such a broad global scale.
What should be discussed more in our part of the world are the bad consequences that affect many of the emerging and less developed countries by all the single bilateral trade accords the U.S. wants to achieve, primarily with strategically important trading partners such as India and possibly also China.

Bilateral trade deals have a lot of disadvantages
We know from reality that there exist both bilateral and multilateral trade agreements which should not be equalized with more ambitious pure free trade agreements. Let’s begin by discussing somewhat what bilateral trade agreements are about – the kind of trade agreement that President Trump and his administration clearly prefer. This was – by the way – obvious already in February 2017 (https://www.brookings.edu/articles/what-will-trumps-embrace-of-bilateralism-mean-for-americas-trade-partners/).

We know that it is not difficult to recognize that a bilateral trade agreement practically uses to be easier and faster to achieve than a multilateral one. The main reason for this is that bilateral negotiations only have two sides, in our already mentioned case, for example, the U.S. and India. Multilateral trade negotiations with several or many involved countries on the other hand can take years or even decades. However, multilateral trade agreements can create a larger harmonized market than bilateral trade agreements, provide connected countries with more competition and innovative power plus, consequently, lower prices. They can also help to resolve trade disputes via the currently disarmed WTO and promote cooperation and stability among countries.

In my view, the time-limited duration of bilateral trade negotiations compared to multilateral trade talks manifests itself as the major advantage that this option of trade negotiation usually enjoys. Otherwise, quite a number of disadvantages can be found.
Among the countries that initially are particularly affected by Trump’s tariffs are, for example, China, Lesotho, Cambodia, Laos, Vietnam, Sri Lanka, Syria, Botswana, Bangladesh, Thailand, Indonesia, Angola, South Africa, Pakistan, India, Malaysia, etc (see https://www.cbsnews.com/news/trump-reciprocal-tariffs-liberation-day-list/).
Many other emerging and less advanced countries could be quoted as well, spread all over the globe – countries that are strongly hit by the irresponsible Trump tariffs. Consequently, it cannot be regarded as a surprise that that more than 50 affected countries already a few days after the so-called “Liberation day” on April 2 had announced – according to Trump advisers – that they wanted to negotiate over the import taxes they have been confronted with (https://www.pbs.org/newshour/politics/trump-advisers-say-more-than-50-countries-have-reached-out-for-tariff-talks-with-white-house). Other sources speak currently about stronger interest from even more countries (https://www.independent.co.uk/news/world/americas/us-politics/trump-tariff-trade-deal-countries-b2737526.html). We know that it will be bilateral negotiations accordingly.

Bilateral trade negotiations for so many countries mean by definition that different results will come out for the participating countries – leading to further injustice between suffering countries. Different results are logical because of the fact that bilateral trade negotiations have no underlying support by the WTO. This means also that more and more bilateral trade agreements tend to hollow out the position of the WTO – very much at the expense of outsiders among emerging and less developed countries. From this point of view, multilateral agreements are more beneficial to developing countries than bilateral ones because the included countries become more competitive as a group.
In general terms, larger corporations are supposed to benefit the most from bilateral trade agreements because they usually have bigger resources for different competition-improving activities than smaller and medium-sized companies.

Conclusion – disparities may increase, also geographically
Altogether, analysts should be cautious about positive trade interpretations after the ongoing or forthcoming bilateral negotiations between the U.S. and a significant number of emerging and less developed countries, particularly since the results may differ substantially between non-OECD countries both in trade details and geographically. It should be a good idea to look deeper into the negotiated trade deals between the U.S. and the tariff-affected countries – and what they really mean to them.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University