Global Economy

Send Word: Trump Right to Fight Some Global Rules



Last week, the Trump administration announced it was quitting the global treaty that governs mail delivery, calling it unfair to the U.S. Another episode of Trump vs. the World? Yes, but in this case probably justified—and therein lies a lesson.

President Trump’s frequent threats to tear up the pacts governing U.S. relations with the world are often met with a full-throated defense of the global rules-based order. Yet many of the pacts that make up that order have features that disadvantage the U.S., sometimes for reasons that have become obsolete.

The Universal Postal Union is an excellent example. Founded in 1874 and now an agency of the United Nations, the UPU ensures that when a post office delivers a letter to another country, the receiving post office carries it to its local destination.

Originally, post offices did this for free. Then in 1969, UPU members began negotiating “terminal dues,” fees that post offices pay their foreign counterparts for costs incurred delivering their mail. Post offices in richer countries charged their developing-nation brethren lower dues to help them out.

The cost of this arrangement became apparent as China rose to become the world’s dominant supplier of factory goods. The UPU classifies China as a developing country, so the U.S. Postal Service can’t charge its Chinese counterpart the full cost of delivery. Americans can order small manufactured products such as CDs, DVDs, jewelry, small electronics and dietary supplements from China at a lower cost, including delivery, than from competing merchants in the U.S. Since 2012 small packages from Chinese e-commerce firms have flooded the U.S. The Postal Service doesn’t publish the precise number but it does report that inbound foreign mail has soared 66% since 2013.

Numerous distortions result: The Postal Service must offset losses on inbound international mail ($135 million in fiscal 2016, according to the Government Accountability Office) by charging domestic customers more. Private delivery companies can’t compete with the artificially low rate. Most serious, American e-commerce merchants are undercut by Chinese competitors.

In a report last year, the Hudson Institute gave the example of an electronics soldering iron that RadioShack sold for $14.99, or $20.94 with shipping. Chinese website DHgate advertised it for $17.53 with free shipping, for a lower all-in cost.

China isn’t being nefarious: Its entrepreneurs have merely sniffed out and exploited an irresistible advantage. Yet U.S. efforts to correct the imbalance, dating back years, have bogged down in the ponderous 192-member UPU. In 2016 members agreed to raise terminal dues. They merely rose from “below cost rates to ‘less below’ cost,” complained Robert Taub, chairman of the Postal Service’s overseer, the Postal Regulatory Commission. 

U.S. withdrawal would take effect in a year; the U.S. by that point would declare its own rates for international delivery. But U.S. officials say they hope to negotiate a solution to their complaints within the UPU before that.

The UPU may be an especially clear-cut example, but similar irritants exist in many international arrangements. The U.S. has traditionally overlooked them for the sake of international cooperation and the welfare of its allies, who in turn have little incentive to change the status quo.

Mr. Trump has sought to change that.

Steel manufacturers have long suffered from global excess capacity, much of it in China, which now accounts for about half of world output. In search of a solution, the U.S. and other major economies formed the Global Forum on Excess Steel Capacity in 2016. It made little progress, says Scott Paul, president of the Alliance for American Manufacturing, which advocates for U.S. steelmakers: “China is perfectly happy to enter into a lot of dialogue as long as there aren’t actual commitments that are binding or actionable.” Steel tariffs were Mr. Trump’s response.

Since the North American Free Trade Agreement came into force in 1994, foreign auto makers have used loopholes in its rules of origin to shoehorn ever more non-North American content into Mexican-assembled cars. The renegotiated pact addresses that.

As with the UPU, the U.S. has grown frustrated with the World Trade Organization’s inability to cope with the rise of China. U.S. Trade Representative Robert Lighthizer complains other countries use the WTO’s dispute settlement mechanism to bat down American trade remedies even as the WTO fails to curb China’s distortionary and discriminatory behavior. The U.S. is now blocking appointments to the WTO’s top appeals panel, which could bring its work to a halt.

The jury is out on whether Mr. Trump’s approach to these problems hurts or helps. He doesn’t help his case by alienating potential partners, such as by imposing tariffs on steel and aluminum imports from allies to deal with a Chinese problem.

At a minimum, though, he has forced the rest of the world to take American gripes seriously. On Tuesday the UPU said it commissioned a report it hopes resolves U.S. complaints before it withdraws. And the European Union recently proposed a sweeping reform of the World Trade Organization. The Trump administration’s response so far has been tepid; now that it’s being listened to, it needs to reciprocate.

Write to Greg Ip at greg.ip@wsj.com



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