International Economic Law and Policy Blog

Trade Deficits, Savings/Consumption, Currencies and the Causes of U.S. Budget Deficits

I've seen a number of recent statements by people suggesting that U.S. fiscal deficits are being driven by (1) the dollar as the reserve currency and (2) relatively low foreign consumption/high foreign savings. These factors, it is suggested, lead to lower interest rates for borrowing in the U.S., and consequently higher levels of U.S. budget deficits and debt, with implications for the trade deficit as well. Let's walk through what exactly people have been saying and then talk about it a bit. 

Concerns about the Dollar

First up, we have the issue of the dollar as the reserve currency, where the argument seems to be that reserve currency status creates above market levels of demand for U.S. debt, which leads to lower borrowing costs for the U.S. government, and therefore enables more U.S. government borrowing. Here's an exchange on this issue between Treasury Secretary Scott Bessent and Rep. Barry Loudermilk (R-GA) at a recent House Financial Services Committee hearing (starts at 58:59 of the video):

Loudermilk: You and I are both aware of the paradox of the US reserve currency status. The so called Triffin dilemma says that to maintain the benefits of a global reserve currency status, we may always run a current account deficit, which in turn risks undermining global confidence in the dollar. The US enjoys an exorbitant privilege from the dollar's reserve status. This means that, among other benefits, there is a high demand for dollar dominated assets worldwide, substantially lowering borrowing costs. It also allows us to run sustained trade deficits and drives capital investment into the United States. ...

... does the demand for dollars and the US debt worldwide, and the reduced borrowing costs that come with it, contribute, in a meaningful way, to some of our failings as fiscal stewards?

Bessent: Well, I would say that the unfettered ability to borrow has made us more prolific as there is very little potential for market discipline to date, right? There is the potential that the market may discipline the United States government one day, and I am, along with the administration, President Trump, trying to set the country on a path to avoid that.

A key point here is that, according to Bessent, "the unfettered ability to borrow," as a result of the dollar being the reserve currency, "has made us more prolific [in borrowing]."

Concerns about Relative Savings and Consumption

Next up is the level of savings and consumption. On this issue, you have arguments that I think are two sides of the same coin: Foreigners consume too little and save too much. Their savings makes its way to the U.S. and stimulates borrowing and consumption here. As the Economist recently put it: "It has become increasingly fashionable to believe that global imbalances—notably, China’s excess savings—have forced overconsumption on America. One way they might do this is by artificially depressing global interest rates."

As an example of someone holding this view, here's FT columnist Martin Wolf, in a piece called "The Old Global Economic Order is Dead," talking about the role of the level of foreign savings on U.S. fiscal policy: 

... the counterpart of external deficits tends to be unsustainable domestic borrowing. Combined with financial fragility, the latter can lead to huge financial crises, as it did between 2007 and 2015. Sectoral savings and investment balances are revealing indicators of this last challenge. Foreigners have been running a substantial savings surplus with the US for decades. US businesses have also been in balance or surplus since the early 2000s, while US households have been in surplus since 2008. Since these sectoral balances have to add to zero, the domestic counterpart of US current account deficits has been chronic fiscal deficits.

If real interest rates had been high, fiscal deficits might have been driving the chronic external deficits. But the opposite has been true: real interest rates have been either low or very low. The Keynesian hypothesis looks right: the inflow of net foreign savings, shown in capital account surpluses (and current account deficits) made big fiscal deficits necessary, because domestic demand in the US would otherwise have been chronically inadequate.

Wolf is arguing that high foreign savings has led to low interest rates for U.S. borrowers, and "the inflow of net foreign savings ... made big fiscal deficits necessary." The use of the word "necessary" here seems like he is going beyond the argument that foreign savings are a contributing factor to big fiscal deficits -- rather, he seems to be saying that they somehow made big fiscal deficits unavoidable.

And then on low foreign consumption -- which I think is the converse of high foreign savings although it may be more complicated that that -- here's Vice President JD Vance in some recent remarks:

And what the President has said is we must rebalance the global economy vis a vis China. We cannot absorb hundreds of billions of dollars, close to a trillion dollars per year, in annual surplus, most of it coming from the People's Republic of China. And what that's going to mean in the rebalancing is that we think that the PRC is going to have to, frankly, let their own population, consume a little bit more. They've held consumption levels down in order to increase these massive exports.

Also on consumption, President Trump's "Liberation Day" Executive Order ties relative consumption levels to the U.S. trade deficit:

... non-tariff barriers include the domestic economic policies and practices of our trading partners, including currency practices and value-added taxes, and their associated market distortions, that suppress domestic consumption and boost exports to the United States.  This lack of reciprocity is apparent in the fact that the share of consumption to Gross Domestic Product (GDP) in the United States is about 68 percent, but it is much lower in others like Ireland (27 percent), Singapore (31 percent), China (39 percent), South Korea (49 percent), and Germany (50 percent).

Foreign consumption levels also came up in the questions for the record for U.S. Trade Rep. Jamieson Greer after he testified before the Senate Finance Committee on April 8. Here is Greer's response to a question from Senator Bernie Sanders:

I do not share the assumption, implicit in your question, that you can attribute manufacturing jobs lost solely due to wage differential. High wage countries can, and often do, engage in unfair trade practices. For example, for years Germany, France, and other European nations illegally subsidized the Airbus Consortium to the direct detriment of US firms. ... These countries are also notorious for abnormally low consumption, necessarily driving them to produce more than they consume and export their lack of demand to the U.S. market to the detriment of U.S. workers.

Global Imbalances and Fiscal Deficits/Debt

OK, so we've seen some of the arguments people are making on the dollar as the reserve currency and on foreign savings/consumption. Let me now try to weave all of this together. If I understand this view correctly, people believe that a combination of one or both of (1) the dollar as the reserve currency and (2) high foreign savings/low foreign consumption, have led to "global imbalances," by which they mean the U.S. current account deficit and capital account surplus. Furthermore, they argue that a large U.S. federal budget deficit and high levels of debt are a consequence.

To assess this, let's start by looking at the U.S. federal budget. I don't follow the U.S. budget process as closely as those who do it for a living, but I am interested in it, I try to read about it as much as I can, and I have some views. From what I can tell, the decisions on taxing and spending that dictate the level of U.S. borrowing are made with only a small amount of regard to the long-term capacity to borrow. Many Republicans seem to believe that cutting taxes, on its own and regardless of what happens with spending, will result in high economic growth, and thus lead to a sustainable level of debt/GDP (if not a balanced budget). And many Democrats seem to believe that higher spending, in the form of "investment" in the economy, will result in high economic growth, and thus lead to a sustainable level of debt/GDP (if not a balanced budget). Based on these views of economic policy, most politicians in both parties generally push for high levels of borrowing.

Now, interest rates must have some impact on the ability and desire of the U.S. government to borrow. Those interest rates dictate the cost of borrowing, and I would hope that these costs are considered by policymakers. From what I can tell, though, these costs are not usually at the forefront of most policymakers' minds when they are making budget choices. Instead, the main factor being considered is their position on the size of government, as seen in political decisions on the level of taxing and spending. Some want to cut taxes and spending (but keep borrowing) while others want to raise taxes and spending (but keep borrowing). In this regard, I agree with how the Economist puts it in terms of the role of foreign behavior and policies: "But in America, a country that accounts for over a quarter of global GDP at market exchange rates, domestic forces almost always matter more than the foreign winds around them. Nobody forces the country to consume too much."

Consumption and Trade Deficits

Turning to foreign consumption levels, the World Bank has some good data comparisons. Here's one comparing the final consumption expenditure per capita of China and Germany (two countries often criticized for saving too much) with the U.S., going back to 1995:

 

And here's another comparing the final consumption expenditure as a % of GDP for a wider range of countries, going back to 1970:

 

 

What I see in both charts is the following:  (1) there's a range of consumption levels across countries; and (2) the U.S. is at the high end of consumption. What I don't see is evidence of a correct amount of consumption, or that there is some inherent unfairness in consuming at a particular level.

At the same time, I do understand how different consumption levels can affect trade flows. And I can see how these trade flows should lead to adjustments in currency levels. Ideally, I think you would want to have currency levels that adjust based on market signals to the greatest extent possible. At times, I get the sense that U.S. policymakers want that; at other times, though, it seems like they just want a "strong dollar."

What to make of all this?

Summing up, in my view, the idea that the fundamental cause of U.S. budget deficits/debt is that there's too much money from other countries being foisted on us, which then causes us to borrow too much, is pretty far-fetched. The reality is that the U.S. has a choice about how much to borrow, and it has made a choice to borrow a lot (and based on current U.S. fiscal policy discussions, I don't see that changing any time soon). We can debate whether that choice was and is the right one, but it was the choice made by U.S. policymakers.

With regard to trade and capital flows, relative savings and consumption clearly have some impact, as does the international currency regime. If the U.S. wanted to increase its own savings and reduce consumption, I can see ways to do that; if, on the other hand, it wants to push for lower foreign savings and higher foreign consumption, that seems much more challenging. And on currencies, I can imagine changes to the system that would be of value, but it seems to me that there is strong support from many different constituencies to keep the existing system mostly as is.

Overall, I don't see any big changes coming to the policies involved here, and thus probably no change in the complaints about global imbalances either.

Questions and Responses in DS623 on Non-Market Policies and the Relationship of GATT Exceptions to the SCM Agreement

The U.S. has posted its responses to the panel's questions in U.S. - IRA (China) (DS623). I want to highlight two specific questions/responses: One relates to the meaning of "non-market" policies and practices, and the other relates to the availability of GATT exceptions in the context of SCM Agreement claims.

Non-Market Policies and Practices

First up, there was this question from the panel on what exactly the U.S. means by the terms "anti-competitive" and "non-market," as the U.S. accuses China of adopting these kinds of policies and practices, and then uses this as the basis for justifying its own measures under GATT Article XX(a) (public morals):

Question 9. To the United States: With respect to the United States' arguments concerning the justification of the measures at issue under Article XX(a) of the GATT 1994:

a. At paragraph 1 of its opening statement, the United States submitted that China "has adopted anti-competitive and non-market policies and practices to secure global dominance in" certain sectors. Please provide further details about the United States' understanding of the terms "anti-competitive" and "non-market". Please also elaborate on the relationship between "anti-competitive and non-market" policies and practices and the United States' "public morals against unfair competition, forced labor, theft, and coercion" (United States' opening statement, para. 27).

I'm curious about this too. How does the U.S. draw the line between what is acceptable and what is not in terms of government interventions in the economy? There are many U.S. policies and practices (especially in recent years) that could get caught up here, so how will the U.S. bring in China's measures but carve its own measures out? Here is the U.S. response:

19. As an initial matter, the term “non-market” may be used to describe policies that interfere with or displace market-oriented outcomes – that is, the results of fair competition in the marketplace between market-oriented actors operating at arm’s-length under market economic conditions. In this sense, “anti-competitive” may be considered an aspect of “non-market” policies or conditions. The United States maintains a market-oriented economic system and pursues market-oriented policies and practices, which promote fair competition and specifically prohibits targeting of global dominance that China pursues.

20. China’s “non-market” policies and practices in the clean vehicle and renewable energy sector include: targeting of sectors for dominance; non-market excess capacity; state-directed investment; forced labor; forced technology transfer; and theft of trade secrets.16 Below, the United States explains how each of these policies and practices are non-market. Further, in response to the latter half of the question, the United States also explains the relationship between each of China’s non-market policies and practices with the U.S. public morals against unfair competition, forced labor, theft, and coercion.

21. As explained previously, China’s targeting of the clean vehicle and renewable energy sectors for dominance is non-market because China sets quantitative targets for the clean vehicle and renewable energy sectors,17 leading Chinese economic actors to overinvest, to displace foreign companies in existing markets, and to take new markets as they develop.18 In effect, China’s policy of global dominance is an effort towards monopolization. Indeed, as the Information Technology and Innovation Foundation observed, “[China’s] entrenchment as the dominant photovoltaic manufacturer has corresponded with plummeting R&D intensity, patents, and new market entry in the United States”.19 Therefore, China’s targeting of the clean vehicle and renewable energy sectors is contrary to the U.S. public moral against unfair competition, including as reflected in the U.S. prohibition and criminalization of monopolization – or even attempts at monopolization – in any aspect of interstate trade or commerce.20

22. China’s excess capacity is non-market because the capacity created is in excess of what would have resulted under market-oriented conditions.21 That is, in line with its targeting of sectors for dominance, China creates excess capacity through investments and capacity expansion far in excess of what market-oriented actors, operating under market economy constraints, would create.22 Non-market excess capacity discourages market-based investment and hinders market-oriented workers and businesses. Therefore, China’s non-market excess capacity is also contrary to the U.S. public moral against unfair competition.

23. Further, China’s targeting of the clean vehicle and renewable energy sectors for dominance and non-market excess capacity does not occur in isolation. Rather, China’s targeting of sectors for dominance and non-market excess capacity is pursued and achieved through a variety of non-market means, such as use of state-directed investment, forced labor, forced technology transfer, and the theft of trade secrets.23 Accordingly, China’s targeting of sectors for dominance and non-market excess capacity are also contrary to the U.S. public morals, against unfair competition, forced labor, theft, and coercion, as reflected in U.S. law.24

24. China’s state-directed investment is non-market because China’s investment policy seeks to create dominance in the clean vehicle and renewable energy sectors through funding and investment strategies that are not market oriented, including by seeking to expand capacity in sectors in which China already has created massive excess capacity.25 The absence of a market-basis for funding is evident, for example, in China’s investment of an estimated $50 billion into solar production facilities between 2000 and 2010, despite China’s recognition that overcapacity was occurring.26 China’s also directs and encourages outbound investment by Chinese economic entities to acquire foreign companies in areas the government deems strategic, including in the renewable energy sector.27 Therefore, China’s state-directed investment is contrary to the U.S. public moral against unfair competition, including as reflected in the U.S. prohibition and criminalization of monopolization – or even attempts at monopolization – in any aspect of interstate trade or commerce.28

25. China’s use of forced labor in the processing of raw materials used in the clean vehicle and renewable energy sector is non-market because the use of unpaid or artificially cheap labor unfairly lowers the cost of production and deprives workers of fair, market-oriented compensation.29 Forced labor is contrary to basic conceptions of human dignity and autonomy.30 China’s use of forced labor is contrary to the U.S. public morals against unfair competition and  forced labor, including as reflected in U.S. criminal and civil laws against the use of forced labor.31

26. China’s use of forced technology transfer is non-market because its imposes foreign ownership restrictions, such as joint venture requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from foreign companies.32 That is, companies are forced to transfer technology that would not have occurred under normal market conditions.33 The use of forced technology transfer violates the U.S. public morals against unfair competition and coercion, as reflected in U.S. laws.34

27. China’s theft of trade secrets from foreign companies is non-market because commercially valuable business information, including trade secrets, technical data, negotiating positions, and sensitive and propriety internal communication, would not be released to competitors under market-oriented conditions.35 China’s conduct and support of unauthorized intrusions into, and theft from, the computer networks of foreign companies is contrary to the U.S. public morals against unfair competition and theft, including as reflected in the U.S. laws against cyber theft, economic espionage, and the misappropriation of trade secrets.36

28. Accordingly, as detailed above, China’s policies targeting the clean vehicle and renewable energy sectors for dominance, and in fact achieving dominance, are non-market, including through the means used to pursue and achieve that dominance. China’s non-market policies and practices are contrary to the identified U.S. public morals. 

In the view of the U.S., a key element here is whether a government uses its measures to achieve global dominance in a sector. If that is the goal, the policies and practices are likely to be a problem; if that is not the goal, the policies are more likely to be OK. Here, because China's policies and practices are trying to achieve global dominance, the U.S. would say, they constitute anti-competitive and non-market policies and practices, and therefore are a problem. By contrast, U.S. policies and practices (such as the ones China is challenging in this case) do not go nearly as far, and in fact the U.S. system "specifically prohibit[s] [the] targeting of global dominance that China pursues," and therefore its policies and practices are not a problem.

It would be nice if the panel pushed the U.S. a bit on this, to get more clarity. For example, in what sense is the U.S. not pursuing global dominance of particular sectors through its subsidies, tariffs, and other government measures? If global dominance is not what it is pursuing, what exactly is it pursuing? I suspect the U.S. would say something like "economic security," but I'd like to hear it all laid out. Also, how exactly is pursuing global dominance prohibited in the U.S.? Some parts of the tech sector are examples of where the U.S. has arguably achieved this outcome. While it's true that the U.S. government can bring (and has brought) antitrust suits against specific companies, I'm not sure that will affect overall U.S. dominance of this sector.

If pursuit of global dominance is the key element the U.S. has in mind, I feel like this could be a difficult standard to enforce. Nevertheless, if this is a test other governments can get behind, I wonder if it could provide a workable basis for a compromise between China and the U.S. in the context of the current round of trade wars. If someone could come up with a way to define when policies and practices go so far as to be seen as pushing for global dominance of a sector, that could set the boundary for what is acceptable.

GATT Exceptions to SCM Agreement Claims

With regard to the invocation of GATT exceptions as a defense to claims under the SCM Agreement, which I talked about here, the panel asked the following question:

Question 21. To both parties: Does the negotiating history (whether from the Uruguay Round or earlier) shed any light on whether Article XX of the GATT 1994 is applicable to the SCM Agreement?

The response is a bit long, and I'm just going to include here the part that relates to the Uruguay Round:

Uruguay Round Negotiations

103. Negotiation of the SCM Agreement during the Uruguay Round similarly reflects an elaboration upon the core principles and objectives of the GATT 1947,146 including the foundational exceptions reflected in Articles XX and XXI. In the Ministerial Declaration on the Uruguay Round, which launched the negotiations of the SCM Agreement, parties agreed that the negotiations would seek to “improve the multilateral trading system based on the principles and rules of the GATT.”147 Such principles and rules were foundational to the negotiation.

104. The parties expressly agreed that the GATT 1947 disciplines and exceptions would be addressed through negotiations only to the extent necessary. In other words, to the extent the contracting parties considered that the status quo application of certain exceptions to GATT 1947 disciplines was satisfactory, no further discussion was needed or had. The contracting parties stated: “Participants shall review existing GATT Articles, provisions and disciplines as requested by interested contracting parties, and, as appropriate, undertake negotiations.”148 Contracting parties with an interest in narrowing the application of the GATT 1947 exceptions from their well-recognized, comprehensive application had an opportunity to do so, and did not.

105. Throughout the negotiation of the SCM Agreement, the contracting parties never contemplated excluding application of the GATT 1947 exceptions to the subsidies disciplines. At the start of the Uruguay Round, the Secretariat circulated a note titled “Problems in the Area of Subsidies and Countervailing Measures,” in which the Secretariat “list[ed] problems which have arisen in the operation of Articles VI and XVI of the General Agreement and the Agreement on Subsidies and Countervailing Measures.”149 The note contains a comprehensive list of concerns raised by parties on provisions from both the GATT 1947 and the Subsidies Code – for example the notification requirements under Article XVI:1 of the GATT 1947 and the special and differential treatment granted to developing countries under Article 14 of the Subsidies Code.

106. The document makes clear that the negotiators were considering the GATT 1947 provisions and the Tokyo Round Subsidies Code collectively – including the exceptions – and that no contracting party had identified the GATT 1947 exceptions as a “problem” to have arisen in the operation of the subsidies provisions.

107. The negotiators subsequently confirmed their desire to focus the negotiations on these and other “problem” areas – and not on the existing applicability of the GATT 1947 exceptions. After soliciting from contracting parties the issues proposed for negotiations, the Chair of the negotiation circulated a “checklist of issues for negotiations” that served as the framework for the negotiations that would lead to the SCM Agreement.150 Again, this comprehensive document identifies issues from the GATT 1947 and the Tokyo Round Subsidies Code, including the issue of special and differential treatment in Article 14 of the Subsidies Code, but does not make any reference to the GATT 1947 exceptions – which apply to the GATT 1947 subsidies disciplines and, in turn, to the Tokyo Round Subsidies Code disciplines. The contracting parties did not consider it necessary to revisit this issue in the context of these negotiations. Instead, as that  Checklist explicitly states, the “point of departure” for those discussions “should be the existing GATT rules, particularly the [Tokyo Round Subsidies] Code.”151

108. The SCM Agreement reflects this understanding. The negotiators sought to further elaborate upon the existing subsidies disciplines, while preserving the foundational elements of the GATT 1947 disciplines and exceptions, except where expressly provided. Importantly, the SCM Agreement ultimately incorporated – at Article 32.1 and footnote 56 – Article 19 and footnote 1 of the Tokyo Round subsidies code which, read in conjunction, confirm that where an article is not interpreted by the SCM Agreement, the authority to take action under the GATT 1994 provisions remain unchanged.152

As I've noted before on this issue, I think I'm more sympathetic than most people to the argument that GATT exceptions can apply to non-GATT goods agreement. Having said that, I'd love to hear from some Uruguay Round negotiators on this. Did they talk about, or even think about, the question of whether GATT exceptions would apply to these other agreements? What did people have in mind back then?

JIEL Junior Faculty Forum 2025 Call for Papers

The Journal of International Economic Law is delighted to announce the fifth annual JIEL Junior Faculty Forum. The JIEL JFF brings together early career scholars (including junior faculty, visiting assistant professors, PhD candidates, post-doctoral fellows, etc.) working in the field of international economic law. The purpose is to allow scholars to present their work before an audience of peers and experts and receive feedback from senior scholars. In addition, at least one piece will receive an offer of publication to appear in the 28^th volume of the Journal of International Economic Law—the leading publication in the field.

We welcome applications from early career scholars teaching in law faculties or other schools such as in economics, political science, history or international relations. The Forum invites submissions covering a wide range of international economic law topics – trade, investment, finance, tax, labor, intellectual property, data, and other topics reflective of the broad nature of the field. Scholars who have previously presented at the JIEL JFF and scholars who have previously published an article in JIEL (not including book reviews) are not eligible to apply.

At the JIEL JFF, up to eight successful applicants will present their work; for each paper, a senior scholar will provide a response followed by general discussion by the entire Forum. The intention is to create a process of sustained exchange and feedback that can help to improve the piece.

Interested applicants should submit a brief description of the unpublished/unsubmitted project (up to 800 words) in a Microsoft Word document as well as a CV in PDF by 11:59pm EDT, Monday, June 30, 2025. The Word document description should be single spaced and should not include any identifying information as each submission will be reviewed without attribution.  The file name of the Word document should be the first 4-5 words of the title of your abstract.  The application form and upload links are available here: https://forms.gle/rvFuKnPHToMcCdtM7.

The JIEL JFF is held in virtual format.  The panel times are adjusted to accommodate as many time zones as possible. 

Participants in the JIEL JFF will also be invited to submit their papers for consideration for the SIEL/JIEL/OUP Prize. The deadline for submission for the Prize will be November 1, 2025.  Details on how to submit papers for the Prize will be provided at the JFF.

In sum, applicants should be prepared to comply with the following schedule:

- Abstract Submission by June 30, 2025.

- Selection and Notification by July 31, 2025.

- Draft Papers (up to 12,000 words) due by September 3, 2025.

- Forum held via Zoom on September 19 & 20, 2025.

- (Optional) Submission for the SIEL/JIEL/OUP Prize by November 1, 2025.

For any questions regarding the submission or selection process, please email [email protected].

Editors-in-Chief of JIEL

Professors Kathleen Claussen, Sergio Puig, and Michael Waibel

How Will the Trump Administration Approach the WTO and WTO Dispute Settlement?

At a hearing on Tuesday to consider the nomination of Joseph Barloon to be the Deputy U.S. Trade Representative in Geneva (and Ambassador to the WTO), there were some questions about the Trump administration's views of the WTO in general, as well as WTO dispute settlement and the WTO e-commerce moratorium in particular. Here's a transcript of some of the key exchanges:

(1:43:45 of the video) Senator Mike Crapo (R-ID): As USTR's former General Counsel, you supervised US litigation in the WTO dispute settlement system. It's not a perfect system, particularly because many disputes drag on for years, but it can be a useful tool, particularly for expanding agricultural market access. While I understand there's a need to reform WTO dispute settlement, we should not discount it as a tool altogether. If confirmed, would you support the United States pursuing offensive WTO cases where appropriate, particularly for America's agriculture industries?

Barloon: Yes, most definitely, I will do so. During my time in the first Trump administration, we did pursue disputes at the WTO. I don't believe there are disputes pursued more recently. But I certainly think that there is a role for the WTO dispute settlement system, particularly to gain access for our farmers and our businesses.

Crapo: The prior administration abandoned key long standing digital trade commitments in the e-commerce negotiations at the WTO. These included (1) promoting the free flow of data, (2) combating forced data localization, (3) preventing forced technology transfer, and (4) promoting open competitive markets for digital goods and services. Can we expect to see the USTR actively promote these digital trade commitments at the WTO, particularly and especially given the policy vacuum that China and Russia will otherwise fill? 

Barloon: Yes, I believe that advancing digital trade should be a key component of US policy. And I believe that there are many areas, such as the ones you mentioned, and then discriminatory policies of some of our trading partners regarding digital trade and our companies, that need to be addressed at the WTO. And I very much would look forward to working with you and your office if I'm confirmed on that issue.

...

(2:24:10) Senator Maria Cantwell (D-WA): Do you think the President, ... do you or the President support the WTO, or do you think that we should get out?

Barloon: ... I believe that there are significant problems with the WTO. I think that it has gone astray. I think that we've seen that, for example, with the large civil aircraft cases, where for years, there are subsidies that harmed our companies that weren't effectively dealt with ...

Cantwell: So does that mean, in that case, would you think a faster process -- I don't mean to interrupt, but I want to know your thought, how would you fix that example you just gave?

Barloon: I think that's a very good question, because, frankly, you had decades of litigation there, and at the end, although while I was General Counsel, we received the largest award in the history of the WTO, in many ways it was too little too late. I think that you need to look at all the tools in the toolbox, that can include dispute settlement at the WTO, ... but there may be other options that you need to look at as well. Certainly, if I'm confirmed to be the Ambassador to the World Trade Organization, I will work with all of the Members there to try to ensure that they do follow the rules and to advance the interests of the United States. 

Cantwell: So you believe in a rules based situation, even though the President isn't really following those rules, and you think that we could promote some changes to WTO for faster results in resolving conflicts?

Barloon: I do believe that there are potential reforms at the WTO. I'd be happy to talk with you and your office about what that might look like. I believe that there have been significant weaknesses and problems with dispute settlement in the past, but that we should engage in good faith with other members to try to see if we can improve the system.

...

(2:35:02) Crapo: ... The USTR's five year report on the WTO indicates a poor record and elusive prospects for reform. Some of this is certainly outside the control of the United States, but some of the inability is a result of the prior administration's lack of an active agenda for reform and refusals to tell partners what it wanted. The USTR also relied on outside consultants who only focused on interest based negotiations, whatever that meant, which never yielded results. What would be your approach to encourage progress with WTO reforms?

Barloon: I think that the United States in the past has been a leader at the WTO, certainly a leader in the foundation of the WTO. And if I'm confirmed, I will do my best to work with other Members there and to take a leading role for the United States and to bring about much needed reform.

What should we take from these remarks as to how the Trump administration will approach the WTO? I'm not totally sure, but here are a few thoughts.

On WTO dispute settlement, it's interesting to hear that the Trump administration might file some WTO complaints, after the Biden administration did not file any in its four years in office. With regard to the aircraft cases, they are often cited as an example of WTO litigation taking too long, and they did take an extraordinarily long time, although in fairness they were a bit of an anomaly in terms of length. Nevertheless, it is true that WTO litigation can take quite long and it would be helpful to speed things up. Jim Bacchus and I had some suggestions for making the process faster here.

The "interest based" approach to WTO negotiations that Crapo brought up was something the Biden administration made a big deal of (I quoted former U.S. Trade Rep. Katherine Tai's explanation of it here). I was never quite sure what to make of it, but on the issue of dispute settlement reform, it does not seem to have gotten Members across the finish line. Of course, maybe nothing will do that, but nevertheless I'll be interested in seeing how the Trump administration approaches these issues. My instinct is that in the short term, other Members will just have to go ahead on their own with initiatives such as the MPIA. However, I can't rule out the possibility that the Trump administration will put forward some concrete proposals. For example, they could propose a rule change that says an appeal process is optional in any given dispute and there would be no possibility of an appeal if either party to a dispute objects to using appeals (which the administration could also sell as a way to speed up dispute settlement). 

And then finally on digital, that's kind of any easy policy shift for the Trump administration. The Biden folks wanted international trade rules to give more deference to domestic regulation in this area, both in the U.S. and abroad, which explains why they pulled back on previous U.S. positions supporting new WTO rules. By contrast, the Trump administration wants less domestic regulation of digital, both in the U.S. and abroad, so this is an example of a situation where they might be happy to see more WTO and other international constraints on regulation (in practice, that mainly means constraints on foreign regulation, but still).

MPIA Update: A New Party Joins and Four New Arbitrators are Appointed

I mentioned here that Paraguay had joined the MPIA in early May. Since then, Malaysia has joined too, bringing us to 29 parties (counting the EU and its 27 member states as one). But the bigger news is that there has been a successful transition to a partially re-composed arbitrator pool. As MPIA arbitrator Joost Pauwelyn explained on LinkedIn: "On 1 June 2025, 5 of the 10 arbitrators, randomly selected, were replaced by 5 new arbitrators, appointed by consensus of all WTO Members participating in the MPIA (one of the 5 selected arbitrators was re-appointed) ... ." The official announcement is here.

The four new arbitrators are:

• Mr Ichiro Araki (Japan)
• Ms. Ana Caetano (Brazil)
• Mr Esteban B. Conejos Jr. (Philippines)
• Mr. Paul Richard O'Connor (Australia)

The original arbitrator who was replaced but then re-appointed is Ms Locknie HSU (Singapore).

The four new arbitrators have all served as WTO panelists before (the links are to the WorldTradeLaw.net pages with the panels they served on).

It's also worth noting that Japan joined the MPIA in 2023 and the Philippines joined in 2024, and now each country has a citizen on the MPIA. That's not the main reason to become a party to the MPIA, but it's something for those governments who are not currently parties to think about.

The original five arbitrators who remain in the pool are:

• Mr Mateo Diego-Fernández ANDRADE (Mexico)
• Mr Thomas COTTIER (Switzerland)
• Mr Alejandro JARA (Chile)
• Mr Joost PAUWELYN (Belgium)
• Mr Guohua YANG (China)

And the following four original arbitrators are no longer serving:

• Ms Valerie HUGHES (Canada)
• Mr José Alfredo Graça LIMA (Brazil)
• Ms Claudia OROZCO (Colombia)
• Dr Penelope RIDINGS (New Zealand)

Guest Post: Initial Thoughts on the IEEPA Tariff Rulings

This is a guest post by Perry Bechky, a partner at Berliner Corcoran & Rowe LLP and a visiting scholar at Seattle University School of Law.

On Wednesday and Thursday, two courts ruled that President Trump lacked the statutory authority under IEEPA to impose tariffs.  The cases are VOS Selections v USA (CIT) and Learning Resources v Trump (DDC).  Here are a few initial thoughts:

--It isn’t possible for both courts to have jurisdiction.  Either the CIT has exclusive jurisdiction or it doesn’t have jurisdiction at all.  The jurisdictional question (whether the case “arises out of any law … providing for … tariffs”) is closely entwined with the merits question (whether IEEPA authorizes the challenged tariffs).  The DDC took the straightforward position that the case arises out of IEEPA.  By contrast, the CIT looked away from IEEPA in its jurisdictional analysis, apparently rooting its jurisdiction in the Harmonized Tariff Schedule (“the law … setting tariffs”) and/or the Executive Orders amending the HTS (on the ground that the CIT has previously considered “presidential action” to qualify as “any law of the United States” to establish jurisdiction).  This seems a stretch.  The CIT’s opinion hardly mentions the HTS outside its jurisdictional determination, while discussing IEEPA throughout and ultimately “hold[ing] … that IEEPA does not authorize any of the [tariffs].”  And, CIT precedent aside, it seems questionable to treat “presidential action” as a “law” – and especially as the “law” a case arises out of – when the construction of a statute (indubitably a “law”) is squarely before the court.

--The appellate courts will benefit from considering both opinions, which make different points while reinforcing each other.  Reading both calls into question the wisdom of giving one court exclusive jurisdiction.  Thirty years ago, in my first law review article, I argued for a specialized court in the name of uniformity.  My thinking has become more pluralistic over the years.  It’s messier and takes longer but gives hope that the dialogue between courts may lead to better-reasoned decisions in the end.  Here, for example, the CIT was bound by the 1974 precedent in Yoshida, while the DDC was free to question Yoshida and its compatibility with modern norms of statutory construction.

--The Government raised the political question doctrine as a defense.  This defense has a core kernel of merit:  whether to declare a national emergency and respond with statutorily-authorized sanctions are foreign policy decisions within the discretion of the President.  But the Government overreached, trying to bar the courts from deciding whether the specific actions taken by the President (tariffs) are ultra vires.  As Joel Trachtman noted, the Government’s position would have rendered meaningless Congress’ efforts to constrain the President’s IEEPA powers within limits set in the statute.  The CIT had a fuller discussion of this point and rendered a strong rule-of-law decision.  Marbury beats in the hearts of the CIT judges. 

--On the merits, both courts made some strong points.  I am particularly persuaded by two arguments.  First, in our constitutional system, the powers to regulate and tax are distinct, so the word “regulate” in IEEPA should not be construed to include tariffs, i.e., taxes.  Indeed, if the statutory authority to “regulate … importation and exportation” included the power to tax exports, it would be flatly unconstitutional as to exports.  “No Tax or Duty shall be laid on Articles exported from any State.”  Maybe it’s possible to construe the word “regulate” more broadly as to imports than exports, but surely the more natural understanding is that the word has the same meaning in both contexts.  Second, Congress has enacted numerous statutes governing tariffs, including Section 122 on “temporary import surcharges” to respond to balance of payments concerns and Section 232 on “adjustment of imports” to protect national security.  Both statutes establish limits and procedures.  IEEPA tariffs would end-run around those limits and procedures.  The CIT took a deeper look at Section 122, while the DDC looked more broadly at the overall statutory regime.  They both reached sensible outcomes, but I’m more persuaded by the DDC’s broader approach.  As it concluded, “It would be anomalous, to say the least, for Congress to have so painstakingly described the President’s limited authority on tariffs in other statutes, but to have given him, just by implication, nearly unlimited tariffing authority in IEEPA.” (punctuation omitted).

--The CIT also rejected the so-called “fentanyl tariffs” against Canada, China, and Mexico on the ground that the tariffs do not “deal with” the fentanyl problem, as required by IEEPA, because they merely pressure others to “deal with” it.  This argument could have wide consequences for the way IEEPA is used to impose economic sanctions (other than tariffs).  Going back to the Iranian Hostage Crisis in 1979, when IEEPA was new, Presidents have used non-tariff sanctions to “deal with” foreign policy problems by pressuring other countries (and private persons) to change their policies.  Congress has blessed that practice, repeatedly.  What’s new here are the tariffs, but the CIT’s ruling sweeps broadly enough to call established IEEPA practices into question.  The professionals at OFAC must be recalling the adage that bad facts make bad law and hoping (as I expect will be the case) that this aspect of VOS will be overturned on appeal. 

Will the Trump Administration Revisit ISDS?

Back during Joe Biden's presidency, there were some hints that the Biden administration might be willing to push for the removal of ISDS from existing trade agreements and investment treaties. Members of Congress pressed then-U.S. Trade Rep. Katherine Tai on this issue on a couple occasions, including a Congressional letter to the Biden administration in May 2023 and an April 2024 exchange between Senator Whitehouse (D-RI) and Tai at a hearing. Some FOIA materials on this issue provide additional details. But obviously these efforts did not get very far, as ISDS was not removed from existing agreements/treaties under Biden.

So where do things stand on this issue with Trump now in office? As part of the questions for the record for U.S. Trade Rep. Jamieson Greer after he testified before the Senate Finance Committee on April 8, Senator Warren (D-MA) asked this question:

You were part of an important improvement in sovereignty and protection of rule of law by getting rid of Investor-State Dispute Settlement with Canada and reducing it with Mexico [as part of the NAFTA renegotiation]. Will you commit to revisiting ISDS in existing trade agreements and BITs?

Greer responded as follows:

I agree that the United States should not support mechanisms that support offshoring of manufacturing to other countries. I look forward to working with you, this Committee, and Congress on ISDS and other investment-related issues in USMCA and other agreements, as appropriate.

That didn't strike me as a ringing endorsement of the idea of revisiting ISDS in existing agreements and BITs. What I wonder here going forward is the following: How hard will progressives in Congress push the Trump administration on this? And would the Trump administration take any action?

I can see reasons why the Trump administration would want to do this. On economic policy, they worry about things that encourage U.S. investment abroad rather than at home (not that there is good evidence that ISDS actually does this, but it is perceived that way). And on politics, pulling out of existing international agreements fits with their general worldview; also it would be something they could do to generate a bit of praise from progressives, which could be helpful.

But at the same time, they will also have reasons not to do it: They would get pushback from various investor interests; some members of the administration and close allies could be users of ISDS themselves; and putting policy aside, they may be stretched a bit thin right now in terms of their resources.

Overall, I'm skeptical that they will take this up. But it will be interesting to see how they respond if progressive members of Congress continue to push the issue.

Initial thoughts on V.O.S. Selections v. U.S. (Court of International Trade per curiam, 5/28/25)

In a clear and decisive opinion, the CIT has struck down as unlawful the tariffs imposed by President Trump under the International Emergency Economic Powers Act (IEEPA) (i) worldwide to “retaliate” for purported balance of trade reasons against alleged trade barriers imposed by other states, and (ii) on Canada, Mexico, and China to address trafficking by cartels and in fentanyl. This decision will surely be appealed. 

As to the retaliatory tariffs, the CIT uses the non-delegation doctrine and the major questions doctrine (a 2018 Supreme Court innovation limiting executive power) as tools of interpretation of section 1702 of IEEPA.  The non-delegation doctrine requires an “intelligible principle,” and the major questions doctrine requires that Congress speak clearly to delegate authority on major issues.  Using these tools of interpretation, the CIT finds that the President’s authority to “regulate commerce” under section 1702 of IEEPA must be limited.  On this basis, it distinguishes the 1974 Yoshida case (526 F2d 560), which upheld Nixon’s balance of payments tariffs imposed under the Trading with the Enemy Act (TWEA), on the basis that the claim of authority there was expressly limited:  “quite different from imposing whatever tariff rates he deems desirable” (Yoshida, p. 578).  Furthermore, Congress intended with IEEPA to provide reduced authority in relation to the statute at issue in Yoshida, the TWEA. Finally, Congress legislated section 122 of the Trade Act of 1974 to give specific limited authority to address balance of payments problems, subject to a 15% cap and a 150 day limit, removing these issues from IEEPA.  The latter could provide a roadmap for the Trump administration to reimpose these tariffs subject to these limits. 

With respect to the trafficking tariffs, the CIT finds that these do not comply with section 1701 of IEEPA, which allows only measures that “deal with” the purported “unusual and extraordinary threat.” First, the CIT finds that this question is not a non-justiciable political question because the interpretation of these terms is judicially manageable.  Second, it finds that “deal with” requires a closer link of “reasonable relation” between the measure and the threat (also relying on Yoshida precedent).  Here, the government is simply seeking leverage over Canada, Mexico and China, and this is not a sufficiently direct link. 

The CIT has reaffirmed the rule of law in this context, by asserting the authority of the judiciary to review the President’s actions under the applicable constitutional and statutory law.  More specifically, it has acted to protect Congress’ constitutional powers from an unprecedented encroachment.  It adds to the large body of judicial decisions holding in immigration and other contexts that the President has exceeded his powers.  In this particular case, the CIT cites legislative history in which legislators are aware of the Schmittean concept that the power to determine the exception—here for purported national security reasons—is the power to rule.  Those legislators sought to constrain that power, and the CIT is best understood here as carrying out this fundamental anti-authoritarian statutory intent.  The alternative construction would be to hold that Congress has no power to delegate with effective conditions on the exercise of delegated authority, in stark contradiction of the requirements of the non-delegation doctrine. 

CIT grants IEEPA Plaintiffs' MSJ; Vacates and permanently enjoins all IEEPA tariffs

A unanimous panel (Katzmann, Reif, Restani) of the Court of International Trade has granted Plaintiffs' motion for summary judgment and injunctive relief in the V.O.S. Selections et al. and State of Oregon et al. challenges to all three sets of President Trump's IEEPA tariffs (worldwide/universal; retaliatory; and trafficking/immigration) and has vacated and permanently enjoined the associated Tariff Orders. Broadly, this is a resounding win for the Plaintiffs and there is no reason to think the outcome of the California case would be any different. The ruling does set out a clear path for the Administration to impose some tariffs under Section 122, but as noted below those are limited in degree and duration. Of course, the Administration will appeal and the Federal Circuit/Supreme Court may see things differently.

Here is a quick summary of the opinion (https://www.courthousenews.com/wp-content/uploads/2025/05/court-of-international-trade-trump-tariffs-illegal.pdf):

1. The Court found both sets of plaintiffs had standing. The Government failed to "meaningfully contest the 'economic logic' tracing the Worldwide and Retaliatory Tariffs to the V.O.S. Plaintiffs' showings of downstream harm." (page 21). The "Government implicitly concedes" the State plaintiffs are "importers who have personally paid tariffs" and thus have standing. (page 23).
2. The CIT acknowledged the nondelegation and major questions arguments raised in the parties' briefs and noted the importance of separation of powers, but rather than working through the parameters of these, said: "Regardless of whether the court views the President’s actions through the nondelegation doctrine, through the major questions doctrine, or simply with separation of powers in mind, any interpretation of IEEPA that delegates unlimited tariff authority is unconstitutional." (page 28)
3. The Court draws upon the Federal Circuit's decision in Yoshida (which upheld President Nixon's narrow imposition of tariffs pursuant to the Trading with the Enemy Act from which the relevant language of IEEPA was derived) for its statement that it was authorizing a limited surcharge, not "imposing whatever tariff rates he deems desirable" (quoting Yoshida at 578) and found that President Trump's tariffs do not include the limitations upon which the Yoshida court relied (including that President Nixon's tariffs were limited  by the HTSUS rates while President Trump's have no similar limits). (page 30)
4. Further, the CIT draws upon the legislative history underlying IEEPA to conclude IEEPA was intended to limit presidential power and that "regulate...importation" was not intended to mean unfettered power to impose tariffs. Instead, Section 122 of IEEPA (allowing tariffs to be imposed to respond to balance of payments problems) is the only authorization to impose tariffs pursuant to the statute. (pages 30-31). 
5. The CIT characterizes the Worldwide and Retaliatory tariffs as "falling under the narrower, non-emergency authorities in Section 122" (page 34) but that the tariffs as imposed do not comply with the parameters set in Section 122 (pages 35-36). [Section 122 allows the imposition of tariffs of up to 15% for up to 150 days to address serious BoP issues]
6. The CIT found the "Trafficking Tariffs" (encompassing the first set of IEEPA tariffs against Mexico, Canada and China regarding fentanyl and illegal immigration) do not fit within the scope of IEEPA in that the situations are not "unusual and extraordinary" and because the tariffs do not "deal with" the conditions identified.  The Orders themselves would have to "deal with" the identified problems, nut merely create leverage (as President Trump has stated) to do so (pages 36-37; 44-45)
7. The Court found the political question doctrine does not preclude judicial review of whether the trafficking tariffs deal with an unusual and extraordinary threat under Sec. 1701 of IEEPA (pages 37-41). "Section 1701 is not a symbolic festoon" and "the court will give it is due effect." (page 41)

Fighting the Trade Narratives: "Unfettered" Liberalization and "Reckless and Dogmatic" Free Trade

This is my second post about the questions for the record with U.S. Trade Rep. Jamieson Greer from his April 8 Senate Finance Committee testimony. Senator Warren (D-MA) asked this question:

In the last recession, 700,000 American workers lost their jobs each month. While the President has paused the reciprocal tariffs he recently levied on America’s trading partners, the future of tariffs under this Administration remains unclear. The tariffs are paused for now, but presumably in 90 days, sweeping tariffs will go into effect that could have devastating effects on our economy and the jobs that hardworking Americans rely on. This Administration has not prioritized protecting American jobs, which should be a primary objective of our trade policy. If 700,000 Americans lose their jobs in a single month as a result of the President’s tariffs and trade war with China, will the Administration reverse course?

A. If 1,000,000 American workers lose their jobs?
B. If 2,000,000 American workers lose their jobs?
C. How many Americans would have to lose their jobs before the Administration reconsiders its trade policies?

I am curious about this question myself, but Greer's response goes in a different direction:

The reckless and dogmatic pursuit of “free trade” by Washington insiders during the late 20th and early 21st centuries resulted in the U.S. becoming the importer of last resort, with other countries basing their economic growth strategies upon excessive reliance on U.S. consumers. This global predation caused persistent and increasing U.S. trade deficits and the loss of 5 million American manufacturing jobs and 90,000 factories since 1994. I applaud the President for taking bold action to end this madness and put America on a solid economic footing.

The reason I'm raising this exchange is to note that Greer's answer involves similar language to what we heard from his predecessor Katherine Tai, who once referred to the "unfettered" liberalization of "the past many years and decades." Greer's characterization is along the same lines: "The reckless and dogmatic pursuit of 'free trade' ... during the late 20th and early 21st centuries." Now, I don't know how this plays as a talking point in politics, although from what I can tell from the polling, Americans tend to (1) not care much about trade and (2) be mildly pro-trade these days. Regardless, as I see it, U.S. trade policy in this period did not reflect either a "reckless and dogmatic pursuit of 'free trade'" or "unfettered" liberalization.

If those are the wrong terms, what are the right terms to use here? It's hard to come up with the perfect description, but when we think about U.S. trade policy during this era, it's clear that what we are talking about is some moderate degree of protectionism. In the Tai post I linked to above, I mentioned these examples:

• Ordinary tariffs in the U.S. tariff schedule
• Trade remedy tariffs (AD/CVD/safeguards)
• Regulatory protectionism such as the U.S. country of origin labelling for beef statute/regulation (not all country of origin labelling measures are protectionist, but this one was)
• Protectionist restrictions on international trade in many service sectors
• Buy America government procurement policies
• The Jones Act

Unfortunately, it's hard to be precise about all this in terms of the degree of protectionism. It would be nice to have a simple numerical value, but we don't have that. Some people point to a low U.S. applied tariff rate as evidence of how free trade-oriented the U.S. was, but that's misleading for two reasons. First, it ignores the wide range of non-tariff barriers. And second, with regard to tariffs, when there is a high anti-dumping rate (say, 744.81% for Slovenian mattresses), there are two problems that arise: (1) a very high duty shuts down all trade in the product, which turns into a zero in the calculation of the tariffs being applied; and (2) anti-dumping duties don't show up in the tariff schedules, so it counts as zero there as well, which throws things off if you are calculating tariffs based on what's in the schedules.

As a separate point about the policies being pursued in this era, it's also worth noting that trade agreements during this time often had a "geoeconomic" component to them, so it's not as though free traders were running the show all by themselves. Foreign policy considerations were driving some of this, including the choice of negotiating partners. (Some of the more pure free traders were even arguing that trade agreements weren't a good approach to trade liberalization, and that we should just do free trade unilaterally.)

Summing all this up, the narrative that there was "unfettered" liberalization or a "reckless and dogmatic pursuit of 'free trade'" is out there, but it is not a good reflection of actual U.S. trade policy during the late 20th and early 21st centuries. It would be nice to steer the public discourse in the direction of more nuance about the policy during this era, which is what I'm trying to do here, but it's an uphill battle. Back in 2023, the Washington Post editorial board proclaimed that "[t]he era of unfettered free trade is over." I think it's worth pushing back whenever people use that sort of characterization, because it's hard to have a good debate on the future of trade policy if people don't understand the past.

A Few Questions and Answers (and Then More Questions) about Trump's Trade Deals

As part of the questions for the record for U.S. Trade Rep. Jamieson Greer after he testified before the Senate Finance Committee on April 8, there was an interesting exchange between Senator Ron Wyden (D-OR) and Greer related to any trade deals resulting from the IEEPA "reciprocal" tariffs. Wyden asked the following:

National Economic Council Director Kevin Hassett told the press that at least 130 countries are negotiating trade deals with the United States.

a. Please provide me with a list of countries with which the Administration is negotiating, as well as the Administration’s specific negotiating objectives for each.

i. Is USTR leading negotiations with each of these negotiations? If not, please provide the lead official for each negotiation and their specific negotiating authority.

ii. What is the timeline for each negotiation?

iii. Will you commit to providing a public consultation process for each negotiation?

b. Given limited resources, as well as limited time until the end of the Administration’s partial tariff pause, how is the Administration prioritizing countries for negotiations?

c. Will you commit to memorializing any deal reached with formal documentation?

d. Will you commit to submitting any deal reached to Congress for approval?

These are some good questions, many of which I had been wondering about myself. In particular, I'm curious about (1) the formal documents that will come out of these deals and (2) the role of Congress in approving them. I know they won't be full-fledged FTAs, but will they look something like a smaller-scale FTA? And will Congress try to assert a role here, sort of like it did with the Taiwan trade deal during the Biden administration?

Here was Greer's answer:

As I discussed at my nomination hearing, I will continue working closely with Congress on formulating U.S. trade policy. USTR has apprised Congress of number of ongoing negotiations with trading partners that USTR is leading, and USTR has begun the process of sharing the list of countries and negotiating objectives for these negotiations with Committee staff. USTR will continue to consult with Congress on the proposed negotiating objectives for each negotiation.

USTR is leading negotiations with our trading partners, and USTR seeks to negotiate and conclude agreements in each of these negotiations where such agreements might help resolve the national emergency declared by the President.

In advance of the April 2 IEEPA action, USTR asked the public for comment on nonreciprocal or problematic trade practices by our trading partners, and this informed the IEEPA action and informs our negotiating. Given the accelerated timeline of these negotiations, USTR cannot commit to providing another public consultation process for these negotiations. However, USTR has provided and will provide Congress with an opportunity to comment on proposed negotiating texts prior to USTR sharing them with a foreign trading partner consistent with our statutory obligations and will keep Congress apprised of developments with specific trading partners.

We are prioritizing negotiations with trading partners willing to take measures that will lower our bilateral goods trade deficits, directly addressing the national emergency that the President declared on April 2. I commit to memorializing these agreements formally.

Given that these agreements, if accepted, will rebalance trade with the particular foreign trading partner, the vast majority of commitments they contain will be made by the foreign trading partner, not the United States. To the extent that the United States does make a commitment in these agreements, I do not foresee that any U.S. law would need to be changed. As such, USTR will negotiate and conclude these agreements as executive agreements. USTR will share the text of country-specific reciprocal trade agreements with Congress prior to concluding and signing them.

One important point here is his comment that "USTR will negotiate and conclude these agreements as executive agreements." Will Congress be satisfied with that? Are executive agreements sufficient for what the members of Congress are looking for here? I think that what many members of Congress -- especially the agriculture state folks -- want is market access. If that access does not feel durable because a future administration can undo the whole exercise, will they be concerned? Obviously a future administration will be reluctant to wipe away any market access for U.S. producers that has been achieved, but at the same time I can see those future officials wanting to start the trade negotiating process with a clean slate and on a firmer statutory footing. It's worth noting here that the IEEPA tariffs serving as the foundation for the negotiations are being challenged in court, leading to some uncertainty as to the value of concessions related to these tariffs as part of a negotiated trade deal.

Greer also says "I commit to memorializing these agreements formally." That sounds good, but I do wonder what that will mean in practice. In the U.S.-UK context, so far what we have is the "General Terms" document. Will there be more than that at some point? How much documentation are we going to be getting and what will be in those documents?

The USMCA Rapid Response Mechanism: What Do Workers Expect?

I want to thank Kathleen Claussen for succinctly summarizing last week’s Second USMCA Rapid Response Labor Panel. Many of us missed the panel discussion while participating in the fantastic ASIL International Economic Law Interest Group Biennial Conference (my kudos to the organizers).

Professor Claussen points out the Mexican government’s concern that “Some of the workers expressed the expectation of obtaining benefits that go beyond the powers of these panels.” If one were to look at the Biden administration’s characterization of the USMCA Rapid Response Mechanism (RRM), one could understand why expectations in Mexico have become, perhaps, a bit exaggerated. Under a headline How has [the RRM] empowered workers?, the Biden administration’s USTR notes:

These cases have directly benefited over 36,000 workers: 

• provided nearly six million dollars in backpay and benefits to workers, 
• ensured wrongly terminated workers were reinstated, and
• helped secure free and fair elections in which workers selected independent unions to represent them.

The RRM tool had become “so effective in delivering real results to workers that the U.S. has seen a significant increase in petitions.”

The Biden administration’s accomplishments in returning workers to their rightful positions under Mexican labor laws (meaning they have the job, salary, and opportunity to vote for unions without discrimination or interference) are laudable. However, I am not sure that suggesting to workers that they will become empowered through financial gains was foremost in the minds of the USMCA’s negotiators [if you’re interested in the mindset of the USMCA’s RRM negotiations, you will likely enjoy Bob Lighthizer and the late Kevin Middlebrook’s respective accounts].

Rather than read the minds of the USMCA’s negotiators, I’d like to weigh in on the views and expectations of Mexican workers. This is not to suggest that I, from my perch in the United States, have any more business representing the views of Mexican workers than did the Biden administration. On the contrary, I was so uncomfortable with the way the U.S. government was characterizing Mexican workers that I asked two researchers in Mexico, Alex Covarubias-V and Cirila Quintero Ramírez, to conduct an empirical investigation to ask the workers, themselves, what they thought about the Mexican labor law reform, the USMCA RRM, and the role of the U.S. government in empowering them.

The RRM Empirical Study

We document our methodology, key findings, and recommendations here. Our questionnaire distinguished workers at auto facilities in Mexico who had faced an RRM case (“RRM Workers”) from workers at auto facilities that had not faced an RRM case (e.g., “Unionized Non-RRM Workers” or “Non-RRM Workers”).

Instead of explaining all 69 pages worth of findings, below are some key points related to the views and expectations of the workers we spoke with in the Mexican auto sector (chosen due to its central importance under the USMCA).

An important takeaway from the findings is that significant discrepancies exist in the awareness and expectations of RRM Workers and Non-RRM Workers. As the Biden administration explained, the former category of workers has received considerable workplace gains. Those workers had also received shopfloor training on their labor rights and enforcement possibilities. By sharp contrast, the latter category of workers was relatively unfamiliar with their labor rights, the USMCA, or the RRM, and had incredibly low expectations of the U.S. government and the RRM. That discrepancy helps explain, however, why Mexican workers may be so interested in RRM panels. The USMCA and its RRM have created a regime whereby benefits are only accrued through ex post enforcement, rather than ex ante training and empowerment. Like it or not, the fates of Mexican workers seem to hinge on U.S. and panel intervention.

Key Finding #1: Most Workers Don’t Have High Expectations; They Don’t Know the USMCA Exists

The Mexican government worries that workers’ expectations are too high about what the USMCA RRM panels can accomplish. Presumably, it only spoke with RRM workers (workers at facilities that had participated in an RRM). Of the workers we spoke with, only 21% of non-RRM workers had any idea that the RRM existed, or that they could use it. That sharply contrasts with the 70% of RRM workers who were aware of it. Furthermore, when we explained to the non-RRM workers what the RRM was (and how they could anonymously raise complaints about violations of their freedom of association and collective bargaining rights), slightly less than half told us they’d be willing to use it.

Key Finding #2: Most Workers Aren’t Aware that the U.S. Government is Monitoring and Enforcing Their Labor Rights, Although Most Are Okay with That Role

Like the above, most of the workers we spoke with were unaware that the U.S. government was monitoring and enforcing their labor rights under the RRM, while most of the RRM workers knew about it. What surprised me, however, was that most workers approved of that role when we explained it to them.

Key Finding #3: Most Workers Assume the U.S. Government has Mixed Motives

We wanted to dig a little deeper into what workers expected would come out of the USMCA RRM, so we asked them what they thought the U.S. government was trying to accomplish by using the Mechanism. We offered them a series of non-exclusive options concerning U.S. government motivation. Our two most popular options were that the U.S. government was using the Mechanism to (1) protect workers in Mexico; and (2) protect workers in the United States. This parallel is indicative of labor provisions in trade more broadly; that is, a government can enforce labor-rights commitments in trade instruments to strengthen working conditions and raise wages in a foreign country for altruistic and protectionist purposes, given the link between wages, working conditions, production costs, and competition.

The workers’ responses also showed that some workers were a little less trusting of the U.S. government’s motives. Nearly half told us they thought the United States hoped to raise the costs of production in Mexico and exercise power over Mexico.

Despite those mixed reviews, most of the workers we spoke with in the Mexican auto sector expressed their hope that the U.S. government would put more pressure on its factory to respect labor rights.

Response to the Mexican Government

If the Mexican government is concerned about workers’ expectations, it should devote more time and resources to educating them. Educate them on their rights under the labor law reform, their collective bargaining agreements, the USMCA, and its RRM. We found that most non-RRM workers had not received this necessary training. It’s no surprise, then, that its workers are placing their hopes in a foreign government and are allowing themselves to have high expectations for the labor panels. Until the Mexican government takes up the gauntlet, empowerment in Mexico will continue to rest on enforcement measures in trade, and that seems to benefit only some categories of workers while creating foreign dependencies.

Thinking to the Future

The Trump administration helped create the RRM, so it is no surprise (or should be no surprise) to see its USTR continue to use the Mechanism as aggressively as the Biden administration. Assuming that the USMCA continues to exist (that assumption’s doing a lot of work, I know), we should consider how it and the RRM should be reformed to effectuate the parties’ objectives. While I am happy that Professor Claussen and others are thinking of the panel side of things, it is equally important that we think of ways to reduce Mexico’s dependency on USMCA enforcement to educate and empower its workers. There are several avenues to explore, from how training is carried out, to whether U.S. labor attachés follow formal procedures when visiting facilities, and how and whether workers and unions should have a voice in remediation plans.

Many of us are working on these issues, and if you are interested in joining the conversation, please reach out: [email protected].

Second USMCA Rapid Response Labor Panel Hears Arguments in Mexico

On May 15 and 16, the second panel convened under the USMCA/TMEC/CUSMA Facility-Specific Rapid Response Labor Mechanism (RRM) held a hearing in Mexico to review the arguments of Mexico and the United States concerning worker rights at Atento Servicios, S.A. de C.V. (MEX-USA-2024-31A-01).  This panel proceeding stems from the United States’ request that Mexico review the collective bargaining situation at Atento nearly a year-and-a-half ago.  USTR requested the establishment of a panel more than a year ago.

The Atento situation is noteworthy for several reasons.  First, this is the first state-to-state free trade agreement (FTA) panel hearing of the Trump Administration, but it is of course not a traditional FTA dispute.  The RRM is a special tool under the USMCA, and this is only the second RRM panel to reach the hearing stage.  Last year, another panel agreed with Mexico concerning a mining facility that there was no qualifying denial of rights (or that the panel did not have jurisdiction, depending how you view the panel’s commentary).  

Second, unlike the last panel convened under the RRM, this panel is reviewing alleged labor violations in the context of the services sector, specifically in telecommunications, which creates new considerations for the penalties that the parties may impose. 

Third, this panel includes one member who also served on the first panel by chance, although there are repeat players across several RRM panels currently underway.  The most recent panel convened under the RRM, for instance, is made up entirely of panelists who have previously served, suggesting that perhaps some members of the roster are opting out from selection. 

Let me review in brief the primary arguments of the parties concerning Atento. 

Overview of the primary arguments

The Atento panel is charged with making a determination “as to whether there is a Denial of Rights” at the relevant call centers per Article 31-A.8 of the USMCA.  In this instance, like the last, the United States and Mexico disagree about whether there has been a qualifying “Denial of Rights” under the terms of the USMCA. 

Mexico again characterizes its position as jurisdictional: it claims that the panel does not have jurisdiction over the situation at Atento because this particular call center is not a “Covered Facility”, whereas the United States claims that the call center is a Covered Facility under the USMCA and that there are three Denials of Rights that have not been cured despite the Mexican government’s involvement with the firm. 

Mexico sought during the first RRM panel proceedings and now this one to delineate a boundary that the United States cannot cross under the current language of the Agreement.  Mexico has argued twice that the RRM is not a blank check for the United States to act as labor police for all of North America.  Rather, the USMCA demarcates a trade-related sphere in which the two governments are intended to work together on labor matters.  There is necessarily a limit to where the United States has a say.  The first RRM panel agreed with Mexico on this point and drew those boundaries fairly narrowly.  Here again, Mexico asks this panel to find the RRM inapplicable to the Atento call center in question.

The United States’ response is to reject Mexico and the first RRM panel’s definition of Covered Facility.  Although it accepts that there is a boundary, USTR argues that this call center is covered by the Agreement and the prior RRM panel got the meaning of Covered Facility wrong. 

With a broader definition in mind, the United States then goes on to argue that Mexico’s intervention at the relevant call centers to remediate the labor rights violations was necessary but not sufficient under Mexican law to remedy the workers’ collective bargaining rights. By contrast, Mexico maintains that if the panel finds that the Atento call center is a Covered Facility, there is no ongoing Denial of Rights there – anything that might have been a Denial of Rights has been remediated.

With each RRM situation that goes to a panel, the panels and the parties are forging new ground in their elaboration of the processes intended by the Agreement – an agreement which is otherwise very much under fire and under scrutiny.  For instance, we learned at the hearing that the panel and the parties spent time earlier in the week speaking with workers as part of the verification process that is envisioned by the Agreement.  The Labor Chapter and engagement between the parties under the Labor Chapter appear to be proceeding somewhat apace since the start of the Trump Administration. 

As we wait for the panel’s decision in the coming weeks, I will just flag three interesting exchanges from last week’s hearing in case you couldn’t dedicate your Thursday and Friday to Zooming in. 

Covered facilities and “manner affecting trade” -- again

Let’s take a closer look at the “Covered Facility” discussion.  Mexico repeatedly argued that the United States was trying to turn the RRM into an appellate court and to “go beyond what was agreed by the parties in the USMCA” by trying to extend the panel’s jurisdiction to facilities not covered by the Agreement.  This exchange of arguments between the parties led to yet another discussion of the phrase “manner affecting trade” in the USMCA and the footnote accompanying that language in the Labor Chapter which is the origin of the foundational language for the meaning of “Covered Facility”. 

Labor and trade friends and family know that this phrase has a fraught history.  It was the language on which the United States lost its first labor dispute under an FTA, and it was language that was “corrected” in the Trans-Pacific Partnership Agreement negotiations at the last minute – that “correction” was then carried over to USMCA.  (I described a similar exchange from almost exactly a year ago when the first RRM panel, dealing with a mine called San Martín, struggled with the same question.)

In the San Martín situation, the panel concluded that a complainant Party must show that the facility in question produces a service that is “exported to the complainant Party’s market” or produces a service that “competes with a service of a Party in a Party’s territory” (i.e., “a like or substitutable . . . service is exported by the complainant into the respondent Party’s territory”).  If the Atento panel were to apply the same standard, the United States appears to concede that it would lose.  Consequently, as noted above, it rejects this definition and is trying to re-litigate the matter, including in its closing arguments on Friday when it argued that the purpose of this language is “to ensure that [the panel is] . . . not covering labor activities or labor violations that do not have a relationship to trade.  An example of that would be . . . if a case was brought to us about government workers or workers in a hospital that . . .  aren't working in a sector or an industry that is involved in North American trade and therefore having this necessary link to the trade agreement.”  We will see if this panel considers the prior panel’s report to be influential in its own thinking.

The role of the RRM panel

The two governments have struggled in both the first RRM proceeding and now this one to define what the scope of the panel’s work ought to be.  At the hearing last week, the United States argued that the panel’s role “is to determine whether Mexico has complied with its international obligations” – an argument Mexico repeatedly rejected. 

As noted above, the USMCA is clear that the panel is charged with determining whether there has been a Denial of Rights (stemming from any source) at a work site, assuming the work site is covered by the Mechanism in the first place.  The hearing followed a “verification” in which the panel spoke directly with affected workers from at least one call center run by Atento.

Mexico’s position is that the reformed labor relief process in Mexico has been activated and it played out at the call centers; there is no evidence of any USMCA-qualifying Denial of Rights today and the United States simply wants too much from the Mechanism.  The fact of the matter may be that the United States designed a tool for facility-specific purposes though it lacks facility-specific data. 

Checks and balances on the RRM process

Mexico also expressed concern at the hearing that Mexican workers are getting confused about the Mechanism and what it affords them: “Some of the workers expressed the expectation of obtaining benefits that go beyond the powers of these panels.”  In reality, the roles of each of the parties have evolved as both have experimented under the RRM.  With each situation that comes before them, the entities involved learn more about what each side intends and how it will carry out its work.  The hard part remains trying to figure all that out from the outside if you are an employer or worker seeking to exercise your rights in the face of the Mechanism when so little is made publicly available. 

To be sure, the Mechanism is not a substitute for the Mexican labor reforms.  Here I do think the parties are on the same page, but adversarial environments like these panels may not be helping, especially if the United States demands more from the reformed labor process in Mexico than it is entitled.

But look at their track record of some success.  With nearly three dozen cooperative efforts between the parties to address alleged denials of rights at facilities in Mexico, including three begun in the Trump Administration, the two governments have no doubt done a lot to ensure that workers’ rights are protected and the playing field leveled multiple times over, including where they have had a deterrent effect.  (We reviewed many of these successes, and the ongoing challenges, at a recent event held at Georgetown Law together with El Colegio de Mexico.)

That does not mean there is no room for improvement.  It might help if the parties were to convene the panelists as required by the USMCA and its Rules of Procedure to “coordinate the drafting of the report on the functioning of the [Mechanism]” per Article 31-A.3.6 and 31-A.B.6.  A couple different less official reviews are underway that one hopes will be of use to all three parties in their upcoming re-evaluation of the Agreement, but the future of how the United States views the relationship between trade and labor will no doubt also be affected by the major cuts the Trump Administration has made to the Bureau of International Labor Affairs at the U.S. Department of Labor.  If the Trump Administration wants to continue to be assertive in its stance with Mexico on trade and labor issues, it will have to find new ways to support its work under the Mechanism and the many supporting cast members across the government.

Is the U.S. Pulling Back on Its Hormone-Treated Beef Demands?

In my recent post about the U.S.-UK trade deal, I noted the discussion of hormone-treated beef at the White House press conference, including a response by U.S. Trade Rep. Jamieson Greer to a reporter's question. I did not take his answer, or the General Terms of the U.S.-UK deal, to indicate a change in the U.S. position on this issue, which has traditionally been that bans on hormone-treated beef are not science-based, violate international trade rules as a result, and should be removed.

Then last Thursday, I came across this Washington Post headline: "In U.K.-U.S. trade deal, hormone-fed beef is off the menu." The article elaborates as follows:

U.S. Agriculture Secretary Brooke Rollins, who said during the Oval Office announcement of the deal last week that she wanted Britain to take “all meats,” seemed to soften that stance following talks in London this week. During a news conference Tuesday, Rollins suggested that American exporters might make concessions and wean themselves from ranching and processing practices that are standard in the United States but rejected by British and European regulators.

...

Rollins, in response to a question, acknowledged that more American farmers are dropping the methods. “Our agricultural producers, our cattle producers obviously are constantly watching what the markets look like,” she said. “If the markets are calling for a specific type or they see more opportunities somewhere, then I think we, potentially, do see some movement in the market.”

The American practice of treating processed poultry with a chlorine wash has declined in recent years, she said, adding that only about 5 percent of the birds now get a bleach bath.

“We have moved over the last decade completely away from the, quote, chlorine chicken,” she said.

A Trump administration retreat on the safety standards discussion would mark a big shift on an issue that has been raising hackles on the U.S. side of the negotiating table for round after round of talks.

It is certainly true that "[a] Trump administration retreat on the safety standards discussion would mark a big shift." But is that what was being signaled here by Rollins? When I read the Post's account, I had some doubts about their interpretation of the remarks by Rollins, so I looked for the video of the news conference and put together a transcript.

Here was the first question and the response by Rollins:

Q: British farmers are concerned [that] the agreement is really one way for the US to push a relaxation of rules on agricultural produce, especially on hormone grown beef. Can you guarantee your trade partners in the UK, its farmers, that you're not going to be doing that?

Rollins: Well, I think the first and possibly the biggest takeaway from last week, from my perspective, was that this was not a one way street. I mean, clearly I am here and am the biggest fan and cheerleader of American agriculture, but at the end of the day, this is about opening up markets. This is about taking down barriers and walls that have been built. This is about expanding choice between our two countries. And it's interesting, I just in the last meeting, talked about, you know, aligning with our partners. And there is no greater partner than the UK. I mean, from the very beginning, I guess once we got past the revolution, but since then, the partnership between our two nations has been really what has driven freedom and opportunity and prosperity in the entire world. So it makes so much sense that last Thursday, this was the first trade deal announced, and again, while President Trump and your Prime Minister are working to elevate and to ensure that your own people and our own people are protected and reaching new levels of prosperity, at the end of the day, when it is those partnerships with our allies like the UK that are just so very important. So while in fact, we are excited about getting American beef, ethanol, et cetera, hopefully down the line, rice, seafood, other products are coming into your country, this is also about getting more of your country's products into ours as well. And when we have that increased food security, that's increased national security for both of our nations.

Her answer here seems to be a careful attempt to avoid the question. But the questions on this issue kept coming.

The second question was a little hard to decipher but I think got most of it:

Q: Just on the hormone beef thing, I've been hearing that some producers are already shifting from hormone free beef in the US in anticipation of market access in the UK. ... Is that a signal that things are starting to reshape US agriculture from the ground up?

Rollins: Yes. Well, thank you for that. The first thing I think that's very important to say is that we have decades of research that show that the beef produced in America, whether it is hormone or hormone free, is entirely safe, and we believe one of the crown jewels of our American agriculture industry. I am from Texas, this is my background, so I know this industry and area very, very well. And I could not be more proud of our beef cattle industry in America. Having said that, our agriculture producers, our cattle producers, etc, obviously, are constantly watching what the markets look like. And if the markets are calling for a specific type, or they have more opportunity somewhere, then I think that we potentially do see some movement in the market. It's very early to say exactly.

This answer involved a mild effort to defend hormone-treated beef, along with an acknowledgement that U.S. producers will take into account the types of products a particular market wants.

And then later during the press conference, there was this final question on the issue:

Q: Steve Reed, our Environment Secretary, has absolutely ruled out, saying, we're never going to have chlorine chicken in the UK or hormone beef. I believe you said that you want to talk about all meats. So do you think any tariff reduction will be contingent on accepting chlorine chicken or hormone beef?

Rollins: Well, let's first talk about chlorine chicken. I think that is a narrative in your country that perhaps we have not done a good enough job pushing back on. Only about 5% of our chicken in America is actually treated that way, with the chlorine. So we have moved, over the last decade, completely away from the, quote, chlorine chicken. So that's, I think that's a really important myth to dispel, and I'm grateful to do that. I think the conversations are continuing, and I think that building the relationships, just for me yesterday, being with Mr. Reed, and Mr. Reynolds today, being with several of your other leaders and building those relationships and having those conversations and ensuring that both of our countries, we're putting our countries first, but in doing so in partnership. I know that there are probably different views on this. But the more we can talk, the more that, frankly, I also can talk to y'all, the people that you're reporting to, ensuring that the right news and message is moved out based on data and scientific study is really, really important, and just looking forward to a really strong partnership moving forward.

Here, Rollins emphasized the high level of non-chlorine chicken in U.S. production, although she later referred to "data and scientific study," which I think is a way to say that U.S. chlorine-washed products are safe, and people in other countries should be allowed to buy them. In addition, it's worth noting the higher figure for hormone-treated beef, which I generally see as around 80%.

Based on all this, is the Post's characterization correct? Is the Trump administration going to pull back on traditional U.S. demands about selling hormone-treated beef and chlorine-washed chicken in foreign markets? I am a bit skeptical. Taking into account the full context above, I don't think Rollins was necessarily suggesting a pullback. I think maybe she was aware that her audience was a group of UK media folks, and therefore she was trying to phrase things carefully and avoid inflaming tensions. A headline like "U.S. demands hormone-treated beef be sold in UK" would obviously hurt these negotiations, and she didn't want to say anything that had a negative impact. But I didn't take her remarks to suggest that U.S. demands are going to change.

Having said that, I suspect the U.S. negotiators understand the limits of what is possible here, and probably do not have high expectations that foreign governments will make the changes that U.S. industry is pushing for, either immediately or through subsequent enforcement of the trade deal's SPS rules. The U.S. government balancing exercise between what the domestic industry wants and what foreign governments are willing and able to give is a delicate one. What would be interesting to hear (but we in the general public probably never will) is how exactly the U.S. presents its demands on these issues in the behind the scenes negotiations, and whether there is any change in emphasis relative to how things were done in the past.

ADR in the WTO

With the Appellate Body appointments process still blocked, people have been looking for alternative approaches in WTO dispute settlement. The MPIA is one alternative. With Paraguay recently joining, the MPIA is now up to 28 parties (including the EU-27). And as noted here, the MPIA is about to hear its second appeal. Beyond the MPIA, there was recently a WTO arbitration related to Australia's modification of its GATS commitments.

All of this makes it a good time to talk about alternative dispute resolution in international law, with a focus on trade law. For those interested in these issues, the ILA Committee on ADR in International Law will be hosting a webinar on May 28 on "Resolving international trade disputes through ADR: Ambitions, possibilities, practicalities." The description of the event is as follows:

Stakeholders have long called for more use of alternative dispute resolution (ADR) to resolve trade disputes – yet use of formal ADR in the WTO has been low. Our speakers will examine past use of ADR in trade disputes, obstacles to ADR, and proposals to facilitate ADR. When are disputes amenable to ADR – or not? Why do governments and stakeholders choose ADR – or not? Would ADR procedures help – or not? When can ADR deliver a better solution than adjudication?  

Amy Porges is the moderator, and the speakers are:  

• Smrithi Bhaskar and Katherine Connolly (Sidley Austin LLP Geneva) 
• Marco Tulio Molina Tejeda. (Molina & Associates, Geneva. As DCM of the Guatemalan Mission to the WTO, Molina was the convenor of the WTO informal process on DS reform which produced the ADR proposals in JOB/GC/385)
• Hunter Nottage (Director, Economic Growth, New Zealand Ministry of Business, Innovation and Employment)   
• Discussant: Niall Meagher (Executive Director, ACWL)

You can register here.

Does the Trump Administration Want a Strong or a Weak Dollar?

In a recent post, I brought up some of CEA Chair Stephen Miran's comments on the role of the dollar as the reserve currency, and wondered what the Trump administration's plans were on the value of the dollar:

... [Miran] makes clear that he wants the dollar to remain the reserve currency (during the Q & A, he said "dollar dominance is a great thing"), but it's clear that such a policy will limit the prospects for any adjustment taking place. Maybe he is saying that his "burden sharing" options can operate as an alternative way to reduce deficits, even with the dollar remaining as the reserve currency, but that has the problems noted above (among others). Or do they have in mind a plan to weaken the value of the dollar while keeping its role as the reserve currency? Would Trump be OK with that plan? I hope someone presses them on these questions.

Last week, I was excited to hear someone better placed than me to get an answer press the administration on these questions. At a House hearing with Treasury Secretary Scott Bessent, Rep. Bill Foster (D-IL) asked the following about a strong vs. weak dollar (starts at 1:15:25 of the video):

Foster: I'd like to speak today about the strength of the US dollar and the decline of US manufacturing. ... in terms of the strength of the dollar, it's affected by many things, including central bank policies, interest rates, tariffs, and the balance of trade. But in the long run, I believe that the strength of the dollar reflects the world's confidence in the US economy and the competence of US leadership and the value of products made by American workers and our reputation as a fair place to do business and the rule of law in America. Now, Secretary Bessent, earlier this week, you ran an op-ed in the Wall Street Journal, echoing many of the points you made in your testimony. And in that op-ed, you promised, inter alia, more jobs, more manufacturing, more deregulation, lower taxes, less national debt, all while maintaining a strong dollar. On the other hand, Stephen Miran, Trump's choice for the chair of the Council of Economic Advisers, wrote a paper last year, arguing for weakening the dollar through something he called the Mar-a-Lago Accords, which you have reportedly been placed in charge of negotiating. The President himself has just been all over the map on almost a daily basis, on whether a strong dollar or a weak dollar will make America great again. So my question is, what is it? Does the administration support a strong dollar or a weak dollar?

Great question! Maybe we'll finally get some clarity here!

Bessent began his answer this way:

Bessent: I'll work a little backwards. [The] Miran paper was when he was in the private sector, and I think it related to a range of outcomes. ... I believe that the conditions for a strong dollar, they are important for international competence. And again, when we think of strong dollar, what is a strong dollar? Is it the composite on the Bloomberg of all currencies? Is it a trade weighted dollar? And then we can also look at bilateral relationships, because much of that could be not so much a strong dollar, but other countries manipulating and suppressing their currencies ...

It's not clear whether that response was leading up to an answer, and at that point Foster jumped in again:

Foster: We lived through that in the Bush administration, and his non-reaction to what China was doing, I know all about that. But I think it's interesting to look at the historical record here. I think I have behind me, you know, a plot of the strength of the US dollar under recent presidents. ... And what it says is remarkable. It says that under every president, from every Republican President, Reagan, Bush, Bush Junior, Trump one or now Trump two, the dollar has weakened. Under every Democratic president, without exception, Clinton, Obama, Biden, the dollar has gone up significantly. And I don't think that's an accident. I think it's because of all the factors we've included, predominantly the confidence that the US will maintain a well regulated and and well governed economy and a fair place to do business. ... The argument in favor of weak dollar. It should make manufacturing easier in the United States, ... that's one of the arguments for it. But if you look at the historical record here, if you just look at, for example, change in manufacturing employment under Democratic and Republican presidents, it's remarkable. For longer than you or I have been alive, Democratic presidents have increased manufacturing employment, and Republican presidents have decreased manufacturing employment. You know, from FDR, Truman, Kennedy Johnson, Carter, Clinton, Obama and Biden, all increased manufacturing employment. Eisenhower, Nixon, Ford, Reagan, Bush, Bush II, it all dropped. I don't think this is an accident, but the thing I want to ask you about is, how did the Republicans manage to weaken the dollar and weaken manufacturing employment at the same time? Because it seems like that's completely crossways to the narrative that we're hearing from this administration.

I was on the edge of my seat waiting for more, but then unfortunately time expired. I think Bessent is now supposed to answer this question in writing. We'll see what he comes up with.

The "General Terms" of the U.S.-UK Trade Deal: A Few Answers, Still Lots of Questions

On Thursday, U.S. and UK officials held a press conference on a new trade deal, and issued some press releases, remarks, and fact sheets, as well as a "General Terms for the United States of America and the United Kingdom of Great Britain and Northern Ireland Economic Prosperity Deal" (EPD) document that provides additional details.

It's not clear how long it will take to get to a final version of the deal or to release a full legal text that is in effect. On the timing, the General Terms document states: "The United States and United Kingdom are immediately beginning negotiations of the EPD to develop and formalize the proposals made in this document." And on the legal effect, while the General Terms states that "[t]his document becomes operative on May 8, 2025," it also says "[b]oth the United States and the United Kingdom recognize that this document does not constitute a legally binding agreement."

Regardless of all that uncertainty, we have a few details of what is in, or is likely to be in, the deal, so let's take a look. When the U.S. pushed the UK into a trade negotiation by imposing the IEEPA tariffs, alongside the Section 232 steel/aluminum and auto tariffs, what was the result?

IEEPA tariff remains

A White House fact sheet states: "The reciprocal tariff rate of 10%, as originally announced on Liberation Day, is in effect." That's a big deal, with the UK conceding on a major point. With this tariff still in effect, UK exports are much worse off than they were prior to April 2.

If a deal on these terms looks unbalanced, can the UK government fight off criticisms that it got bullied into making too many concessions? Based on their press release, I can see how they are trying to spin this as a win. But it can be hard for governments to control these narratives. To some extent, the perception in the UK may depend on what other governments do in their own negotiations. If I understand the stated Trump administration position, the best that countries can hope for with regard to the "Liberation Day" tariffs is to end up with a 10% tariff. We'll see if that holds, but regardless I am interested in seeing (1) how each country will handle this in the negotiations, and (2) how the results play politically in different countries, especially when these countries start comparing their negotiating results.

Autos

On autos, the UK was able to get a TRQ under which most of its usual quantity of exports can be imported at a rate of 10%. The White House fact sheet says: "The United States will agree to an alternative arrangement for the Section 232 tariffs on UK autos." In this regard, "[u]nder the deal, the first 100,000 vehicles imported into the U.S. by UK car manufacturers each year are subject to the reciprocal rate of 10% and any additional vehicles each year are subject to 25% rates." And the General Terms document explains that: "The United States will create a quota of 100,000 vehicles for UK automotive imports at a 10 percent tariff rate, and an accompanying arrangement for attendant auto parts for such autos." The UK press release adds some more details: "Car export tariffs will reduce from 27.5% to 10% - saving hundreds of millions a year for Jaguar Land Rover alone. This will apply to a quota of 100,000 UK cars, almost the total the UK exported last year."

Most UK auto exports to the U.S. are items I can't afford: Rolls Royce, Aston Martin, and Bentley, and something described as "McLaren supercars." While this tariff adjustment doesn't help me or most Americans, these UK producers are not in as bad a place as they were with the full Section 232 tariffs, although of course they are worse off than before the Section 232 tariffs.

Beef and Ethanol

Agriculture is always a big issue for farm state members of Congress (many of whom are Republicans), and my sense is some of them have been holding off criticism of the Trump tariffs in the hopes that they will get something out of these negotiations. On agriculture, the White House fact sheet says: "This trade deal will significantly expand U.S. market access in the UK, ... [including] more than $700 million in ethanol exports and $250 million in other agricultural products, like beef."

Starting with beef, the General Terms says:

U.S. beef exports to the United Kingdom are currently subject to a 20 percent tariff within a quota of 1,000 metric tons (mt). The United Kingdom will remove the 20 percent tariff. Additionally, the United Kingdom will create a preferential duty-free quota of 13,000 mt for U.S. beef. In return, the United States will reallocate to the United Kingdom 13,000 mt of its existing “Other Countries” tariff rate quota (TRQ) for beef. 

This UK market opening helps U.S. producers out a little bit, although of course what they really want is to be able to sell hormone-treated beef in the UK. The UK press release appears to shoot this down: "There will be no weakening of UK food standards on imports." On this issue, hormone-treated beef (and chlorine-washed chicken) came up in a question at the press conference, and US Trade Rep. Greer answered:

I would just say that it's very clear, and we have in the [General Terms], that we are going to discuss all of these types of issues, and obviously the importing country, whether it's us or them, you gotta follow the rules on those types of things. But our point is the rules need to make sure that they are based on science, and that's our expectation. We know the UK believes that too. So we want to come to an accommodation. We want the consumers in each country to be able to choose what they want and give them the information.

My interpretation of his answer is that the same sorts of international SPS rules used in the past will be relied on here, rather than the UK immediately opening its market to these products. For what it's worth, the General Terms has the following to say on this subject:

The United Kingdom and the United States plan to work constructively in an effort to enhance agricultural market access. Further, both countries positively support future discussions to strengthen bilateral agricultural trade. The United Kingdom and the United States affirm that imported food and agricultural goods must comply with the importing country’s sanitary and phytosanitary (SPS) standards and other mutually agreed standards. The United Kingdom and the United States commit to working together to improve market access for agricultural products, to highlight concerns, and to increase agricultural cooperation on areas such as certain export verification programs to facilitate greater trade, and more formal bilateral engagement through international standard setting bodies.

Putting all of this together, my view on whether U.S. producers will get what they want in terms of selling these controversial products remains the same as it has always been: It's not going to happen. If I were these producers, I would focus on pushing for better market access for their non-hormone-treated/chlorinated products.

On UK exports of beef to the U.S., the UK press release states: "In a win for both nations, we have agreed new reciprocal market access on beef – with UK farmers given a quota for 13,000 metric tonnes." And the General Terms says: "the United States will reallocate to the United Kingdom 13,000 mt of its existing 'Other Countries' tariff rate quota (TRQ) for beef." But note that it is only recently that UK beef exports to the U.S. have resumed, after the mad cow scare of a couple decades ago, and there has been a small amount of exports over the last few years. When I talk about this with trade lawyers who work on beef trade issues, they have a hard time seeing UK beef exports growing much.

And on ethanol, the General Terms says: "the United Kingdom will offer a preferential duty-free TRQ of 1.4 billion liters for U.S. ethanol." The UK press release states: "We will also remove the tariff on ethanol – which is widely used in our manufacturing sector - coming into the UK from the US, down to zero." In terms of the practical impact here, an agriculture expert noted the following on this issue: "The U.S. exported $535 million in ethanol to the U.K. in 2024, according to USDA data, making ethanol the top agricultural export product to the U.K. As the industry touted the news, representatives in the ethanol industry were looking for more details about how the White House came up with the $700 million figure."

Steel

Turning to steel, there are some potentially interesting things here. The UK seems to have mostly gotten out of the Section 232 tariffs. The UK press release states: "The UK steel industry – which was on the brink of collapse just weeks ago – will no longer face tariffs thanks to today’s deal. The Prime Minister negotiated the 25% tariff down to zero, meaning UK steelmakers can carry on exporting to the US. This follows last month’s intervention from the Prime Minister to take control of British Steel to save thousands of jobs in Scunthorpe."

The White House fact sheet adds some detail:

• The United States also recognizes the economic security measures taken by the UK to combat global steel excess capacity and will negotiate an alternative arrangement to the Section 232 tariffs on steel and aluminum.
  • This deal creates a new trading union for steel and aluminum.

What will this "trading union" mean exactly? The Biden administration was trying to negotiate something on green and non-market steel and aluminum with various trading partners. I'm not sure Trump will care about green, but there could be some overlap here with what the Biden administration was doing. The General Terms adds a bit more context:

The United Kingdom will work to promptly meet U.S. requirements on the security of the supply chains of steel and aluminum products intended for export to the United States and on the nature of ownership of relevant production facilities. Understanding the United Kingdom will meet these requirements, the United States will promptly construct a quota at most favored nation (MFN) rates for UK steel and aluminum and certain derivative steel and aluminum products.

The full details of this arrangement are hard to pin down at this point, but an FT piece had some insights:

The UK has accepted strict US security “requirements” for its steel and pharmaceutical industries, in what diplomats see as template that Washington could use to exclude China from other countries’ strategic supply chains.

Thursday’s trade deal offered tariff relief to both industries, but only on the condition that Britain “work to promptly meet US requirements” on their supply chain security and the “ownership of relevant production facilities”.

UK officials said the provision applied to all third countries, but acknowledged that Trump had signalled that China was the intended target.

As industry groups sought to clarify the nature of the US requirements on supply chain security and ownership, trade experts argued that the deal indicated that the Trump administration was stepping up long-standing demands to restrict Chinese inputs to strategically important goods.

... Britain’s Labour government has rejected as “complete nonsense” accusations by the opposition Conservatives that this week’s deal, which also offers tariff relief for UK aluminium, hands Washington a “veto” over supply chains.  “There is no such thing as a veto on Chinese investment in this trade deal, this is not what this trade deal is about,” Darren Jones, Treasury chief secretary, told Times Radio.

One British official said: “The US do not want, given that the UK will have much lower tariffs than the rest of the world, to become somewhere where countries or companies could circumvent their rules via UK exports to the US. Details of that will be worked through.” 

It seems likely that whatever the details are here, they will be a model the U.S. uses for the other trade deals being negotiated.

Airplanes

An adjacent element (i.e., not in the text) mentioned at the press conference was that a British airline would buy $10 billion of airplanes from Boeing. News reports later indicated that IAG was placing a "new order for 32 Boeing 787-10 aircraft for British Airways, and 21 Airbus A330-900neo aircraft," while also disclosing "options exercised in March for six Airbus A350-900s, as well as six Airbus A350-1000s and six Boeing 777-9s." Is this IAG order different from what would have happened without the deal? Did Boeing get more than it otherwise would have?

The White House fact sheet also talks about how the deal "maximizes the competitiveness and secures the supply chain of U.S. aerospace manufacturers through preferential access to high-quality UK aerospace components." At the press conference, Commerce Secretary Howard Lutnick talked about letting "Rolls Royce engines and those kind of plane parts ... come over tariff free."

Issues to be negotiated: Digital, future Section 232 tariffs, compliance, review, MFN/WTO

The official documents make clear that there is still a lot to be worked out.

On digital, I can imagine something fairly significant will come out of this. The UK press release says: "The Digital Services Tax remains unchanged as part of today’s deal. Instead the two nations have agreed to work on a digital trade deal that will strip back paperwork for British firms trying to export to the US – opening the UK up to a huge market that will put rocket boosters on the UK economy." And the General Terms states: "Both countries confirm that they will negotiate an ambitious set of digital trade provisions that will include within its scope services, including financial services."

At the same time, the USTR fact sheet has a complaint about digital services taxes: "The United States is disappointed that the UK was unwilling to agree to fully address its discriminatory Digital Services Tax (DST). It is discriminatory, unjustified, and should be removed promptly."

So what does all this mean? Are digital services taxes still in play? Will there be a tech friendly deal with provisions that, at least on their face, constrain domestic regulation? Will such a deal be enforceable? Will it have an actual impact on UK regulation in this area?

The UK also seems hopeful it has shielded itself from future Section 232 tariffs (like this new investigation on aircraft and jet engines). Its press release says: "the US has agreed that the UK will get preferential treatment in any further tariffs imposed as part of Section 232 investigations." How will this commitment be worded in the final legal text? Will the UK really get what it is hoping for? The General Terms adds the following detail:

In addition to products already addressed in this document, the United States and the United Kingdom intend to adopt a structured, negotiated approach to other sectors that may be subject to Section 232 investigations or other tariff measures with a view to a significantly preferential outcome. Any such approach is contingent on the United Kingdom ensuring the security of supply chains, using appropriate measures, of products intended for export to the United States and on the findings of related U.S. investigations of, or other tariff measures related to, such sectors.

Another issue is whether this deal will actually be upheld, and what happens if it is not. Will there be a dispute settlement mechanism to adjudicate disagreements on compliance? Based on the General Terms, I suspect there will not be. All I see is a basic provision allowing for consultations, which I suppose could be used in the situation where there is a dispute over compliance:

The United Kingdom and the United States recognize that the purpose of this arrangement is to deepen our trade relationship based on mutual trust and a shared commitment to fair and reciprocal trade. On request of either country, the United Kingdom and the United States will consult with a view to considering any changes that may need to be made to this arrangement to ensure that it remains mutually beneficial.

So what happens if one side takes an action that the other side believes is not consistent with the terms of the deal? How does each side expect this scenario to play out? It would be useful to get on the same page about this now.

Somewhat relatedly, how durable will the specific terms of this agreement be? The General Terms says: "The United Kingdom and the United States further plan to discuss procedures for review and termination as part of the negotiations of the EPD." This raises the possibility that the U.S. might push for something like the USMCA six year review/extension process, potentially leading to regular renegotiations of the terms, in order to get to a certain result. What would the UK think of that possibility?

And finally, another big systemic issue is the following: Will the tariff lowering take place in a way that can be justified under WTO rules? That's a big one for anyone who cares about a rules-based trading system. The preferential beef and ethanol TRQs noted above are relevant here, as is the following from the General Terms:

Following a reasonable period of negotiation: (i) the United Kingdom intends to reduce its applied tariff rates on a preferential basis on a range of originating goods of the United States in sectors of importance to the United States; and (ii) the United States intends to reduce its applied tariff rates on a preferential basis on a range of originating goods of the United Kingdom in sectors of importance to the United Kingdom.

It seems clear from this language that tariff lowering will not be done on an MFN basis. Could it be justified under Article XXIV? While there may be some disagreement on what constitutes the "substantially all trade" that is required to comply with Article XXIV, the trade covered by the EPD does not seem likely to reach that level. While the WTO Committee on Regional Trade Agreements has not served as an effective check on what happens in bilateral and regional trade agreements, there is the possibility of using WTO dispute settlement here. If other governments see that their producers are at a disadvantage as a result of the preferential tariff lowering, would they file a WTO complaint?

The Second MPIA Appeal

The second appeal of a WTO panel report to the MPIA is underway in the China - IPRs Enforcement (EU) dispute (DS611). It will be interesting to see what approach the arbitrators take in terms of their scrutiny of the panel report. On the fairly technical IP issues that were the main subject of the dispute, along with some systemic issues related to the existence of a measure, how much deference to the panel will the arbitrators show?

With regard to who exactly will be deciding on the approach, the WTO announced on Friday that the following arbitrators will hear the case:

• Dr Penelope RIDINGS (Chairperson)
• Ms Claudia OROZCO
• Mr Mateo Diego-Fernández ANDRADE

Recall that the arbitrators in the first MPIA appeal were:

• Mr José Alfredo GRAÇA LIMA (Chairperson)
• Mr Alejandro JARA
• Mr Joost PAUWELYN

So who is left in the MPIA arbitrator pool that hasn't served yet? At the moment, it is these four:

• Mr Thomas COTTIER
• Ms Locknie HSU
• Ms Valerie HUGHES
• Mr Guohua YANG

(Note that Diego-Fernández Andrade and Yang served on a non-MPIA DSU Article 25 appeal arbitration.)

I said "at the moment" because there's also the question of the makeup of this pool going forward. A WTO document from last July suggests that there could be some adjustments coming to the composition of the pool:

The Members participating in the MPIA wish to inform the DSB that, should the conditions laid down in paragraph 15 of the MPIA communication still prevail on 1 March 2025, the process of partial re-composition of the pool of arbitrators will be launched at that point in time with a call to Members participating in the MPIA to nominate candidates by 31 March 2025. The participating Members intend to finalise the process of partial re-composition by 31 May 2025.

But I haven't heard anything more about this and it's not clear to me whether the process has started.

The next case on the MPIA's docket could be a repeat of the first one: There is a Colombia - Frozen Fries Article 21.5 panel going on right now, with the panel saying it expects to issue its final report to the parties during the third quarter of 2025.

More on Charming Betsy

In my last post, I raised the possibility that Charming Betsy could play a role in the challenges to the Trump administration's IEEPA tariffs. (There have been three new complaints filed since that post: State of Oregon v. Trump, Learning Resources v. Trump, and Princess Awesome v. CBP. By my count, that makes eight cases in total.) Recall that the Charming Betsy canon of interpretation, as articulated by the U.S. Supreme Court in 1804, states that "[a]n act of Congress ought never to be construed to violate the law of nations if any other possible construction remains." That was a long time ago, and in a 2020 article, law professor Justin Hughes explains some later refinements:

Just a few years after [the 1982 case of Weinberger v. Rossi], the Restatement (Third) of United States Foreign Relations Law expressed the doctrine in words that track Justice Marshall but expands it to include all public international law:

Where fairly possible, a United States statute is to be construed so as not to conflict with international law or with an international agreement of the United States.

The Restatement Third tweaks Marshall's interpretative standard ("fairly possible") while also clarifying that the canon - couched in the nineteenth century idea of the "law of nations" - applies to both customary international law and the specific international legal obligations that the United States undertakes through agreements.

(footnotes omitted)

As noted in the earlier post, a key issue in the IEEPA complaints is whether the statute allows for the use of tariffs. There are two main aspects to the Charming Betsy analysis on this issue: Is the statute ambiguous on this question? And if so, how might international obligations guide the interpretation of the statute?

With regard to whether the IEEPA allows tariffs, I think there is a good argument that it does not, which would put an end to all this. But at the least, I would say the statute is ambiguous on this point, which brings in Charming Betsy. I won't go into the details on that point here, though, because I want to focus on the role of international obligations in providing interpretive guidance. In this regard, let me turn to an issue on which I raised questions in my earlier post: What exactly are the "international obligations" at issue here, and how should a U.S. court ascertain their meaning?

When determining what the "obligations" in an international agreement are, I think it's clear that you have to look at both the obligations and any exceptions that qualify them. As I noted in the earlier post, the key WTO obligations at issue are GATT Articles I and II, and for our purposes I don't think there is much doubt about the application of these provisions to the IEEPA tariffs (the tariffs are in violation). Rather, the focus here will be on interpretive questions related to the Article XXI security exception: How should a U.S. court think about whether the tariffs are justified under that exception?

There are several approaches I can imagine here:

• The court could accept the official U.S. government position that the security exception is totally self-judging, and on this basis find that the tariffs would not violate the international obligations of the U.S. on the basis that the U.S. has invoked Article XXI.
• The court could do its own interpretation of the text of Article XXI, in order to decide whether (1) it is totally self-judging or (2) it requires some type of good faith/objective analysis to determine whether a particular measure is justified; and in the case of (2), the court could then do that analysis and determine whether the IEEPA tariffs are justified under the Article XXI exception.
• As a variation on the second approach, the court could take into account WTO dispute settlement rulings that interpret and apply Article XXI, and use those interpretations to help it determine whether the IEEPA tariffs are justified under the Article XXI exception.

(An additional consideration would arise if there were a panel ruling on the IEEPA tariffs themselves. If such a ruling existed, the courts could just rely on that to determine that the tariffs are or are not consistent with international obligations. But we are not there yet.)

In thinking about how courts should approach these issues under Loper Bright (i.e., in a post-Chevron world), Jacobson and Finan argue that "if applicable international law is too ambiguous to guide the interpretation of an ambiguous statute, only then should courts give agencies’ interpretations 'respect' to the extent they have the 'power to persuade.'" How would Article XXI be treated under this approach? I think it's fair to say that the Article XXI text itself, on its face, is a bit ambiguous in terms of how much deference to national governments it requires. If we were ignoring the WTO panel interpretations of this provision that clarify it (I'll get to those later), we could then turn to the post-Loper Bright approach that Jacobson and Finan lay out:

Notably, the Supreme Court in Loper Bright “warmly embraced Skidmore v. Swift & Co., which calls not for deference, but for respectful attention to the views of the relevant agency.”  The Court held that interpretations “‘made in pursuance of [an agency’s] official duty’ and ‘based upon . . . specialized experience,’ ‘constitute[d] a body of experience and informed judgment to which courts and litigants [could] properly resort for guidance,’ even on legal questions.”²⁷ Courts should use the Skidmore factors to weigh whether the agency’s interpretation is entitled to such “respect.”  Factors for a court to consider include the “thoroughness evident in [the agency’s] consideration, the validity of [the agency’s] reasoning, [the interpretation’s] consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”  Under this approach, courts can fulfill their duty to interpret statutes, while relying on agencies’ expertise as a guide when both the statute and applicable international law present true ambiguity, in line with the standard established in Loper Bright.

Applying that approach here, does the U.S. government view of whether the tariffs are justified under Article XXI merit the Skidmore respect? Was its consideration of these issues "thorough", "valid", and "consistent"? I'm really not sure how a court would see this. Maybe the judges would defer to the Executive branch here, or maybe they would want to do their own analysis of Article XXI. I can imagine that the views of the U.S. Supreme Court justices would vary on these issues, but I'm not familiar enough with these views to make a prediction on how they would come out.

Regardless of how U.S. courts would approach an analysis of the text of Article XXI on its own, in my view there is a strong argument that the courts should take into account WTO dispute settlement rulings on these issues, which have removed much of the ambiguity from Article XXI. The DSU has a specific provision that explains the role of the dispute settlement system as "clarifying" the meaning of the agreements through "the customary rules of interpretation of public international law":

The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.

The Uruguay Round Agreements Act Statement of Administrative Action has a similar statement, making it clear that U.S. negotiators were on board with this approach. As a result, in thinking about what Article XXI means, U.S. courts should take into account the clarifications provided through WTO dispute settlement (which, of course, may be ambiguous themselves at times). I won't walk through it all in this post, but applying the clarifications set out by WTO panels, I think a court should find that the IEEPA tariffs are not justified under Article XXI. And consequently, under Charming Betsy, to avoid a conflict with international law, the court should reach an interpretation of the IEEPA that does not allow tariffs.

The IEEPA Lawsuits and Charming Betsy

By my count, so far there have been five lawsuits filed in U.S. court related to either the IEEPA fentanyl tariffs or the IEEPA "reciprocal"/universal tariffs:

- Barnes v. U.S., CIT (complaint) (fentanyl tariffs)

- Emily Ley Paper v. Trump, U.S. district court, N.D. Florida (complaint) (fentanyl tariffs)

- Webber v. DHS, U.S. district court, D. Montana (complaint / amended complaint) (reciprocal/universal and fentanyl tariffs, as well as Section 232 steel/aluminum tariffs)

- V.O.S. Selections v. Trump, CIT (complaint) (reciprocal/universal tariffs)

- California v. Trump, U.S. district court, N.D. California (complaint) (reciprocal/universal and fentanyl tariffs)

(There have been motions filed to transfer the California, Florida, and Montana cases to the CIT).

An issue I haven't seen mentioned in any of the lawsuits is Charming Betsy. As a new Harvard International Law Journal online piece by Michael Jacobson and Stephen Finan, entitled "The Charming Betsy Canon: Time to Ride the Tide of Loper Bright," reminds us, "[t]he Charming Betsy canon of interpretation, articulated by the U.S. Supreme Court in 1804, states that '[a]n act of Congress ought never to be construed to violate the law of nations if any other possible construction remains.'"

So how might Charming Betsy apply in the context of these IEEPA lawsuits? The authors don't address that question explicitly, but they do put forward "a three-phase approach that courts should employ when reviewing agency interpretations of statutes where international law is at play": 

a. Step 1

     First, courts should determine whether a statute is clear.  If the statute lacks ambiguity, in particular if Congress expressly declared its intention to legislate in a manner that contradicts an international obligation, courts should apply the statute as written, irrespective of international law.  Where Congress has clearly spoken, Charming Betsy is inapplicable. 

b. Step 2

     Second, if the statute is ambiguous, courts should look to international law to guide their interpretation of the best meaning of the statute.  In accordance with Charming Betsy, courts should interpret the domestic statute in a manner that comports with the United States’s international obligation, with the goal of avoiding conflict between domestic law and international law wherever possible.  This interpretive exercise should take precedence over agency interpretation of a statute, in accordance with the Supreme Court’s clear directive in Loper Bright that courts should seek the best meaning of a statute, irrespective of agency interpretation.  Courts have long applied Charming Betsy as an aid in the statutory interpretation process in this way.  Unbridled by Chevron, Charming Betsy should be a primary tool employed to interpret ambiguous statutes where coinciding international obligations exist. 

c. Step 3

     Third, if applicable international law is too ambiguous to guide the interpretation of an ambiguous statute, only then should courts give agencies’ interpretations “respect” to the extent they have the “power to persuade.”  Notably, the Supreme Court in Loper Bright “warmly embraced Skidmore v. Swift & Co., which calls not for deference, but for respectful attention to the views of the relevant agency.”  The Court held that interpretations “‘made in pursuance of [an agency’s] official duty’ and ‘based upon . . . specialized experience,’ ‘constitute[d] a body of experience and informed judgment to which courts and litigants [could] properly resort for guidance,’ even on legal questions.”²⁷ Courts should use the Skidmore factors to weigh whether the agency’s interpretation is entitled to such “respect.”  Factors for a court to consider include the “thoroughness evident in [the agency’s] consideration, the validity of [the agency’s] reasoning, [the interpretation’s] consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”  Under this approach, courts can fulfill their duty to interpret statutes, while relying on agencies’ expertise as a guide when both the statute and applicable international law present true ambiguity, in line with the standard established in Loper Bright.

In the IEEPA context, we are not dealing with an agency interpretation, but nevertheless the same principles could apply to the Trump administration's interpretations of the statute. 

To illustrate how Charming Betsy might come up in an IEEPA lawsuit, looking at their step 2, there is some uncertainty about whether the IEEPA allows for the imposition of tariffs, which are not explicitly mentioned as a possible government action authorized by the statute. Arguably, then, this ambiguity means that under Charming Betsy, international law -- as articulated through international trade agreements -- should play a role in interpreting this aspect of the statute. Applying Charming Betsy to this interpretive issue, U.S. courts should look for constructions of the IEEPA that avoid a violation of these trade agreements.

If the courts were to find that the fentanyl and reciprocal/universal tariffs are permitted under the statute, that will certainly lead to violations of GATT obligations (e.g. MFN and tariff bindings). Whether these violations are justified under the Article XXI security exception is a more difficult issue, but there are strong arguments that they would not be. As a result, pursuant to Charming Betsy, it could be argued that, in order to avoid a violation of international law, the courts should adopt an interpretation of IEEPA that does not allow the imposition of tariffs.

In addition to issues related to ambiguity in the statute, there is also the question of whether the international law in this area is clear enough to guide the statutory interpretation (their step 3). If the international obligations are ambiguous, more "respect" for the government's interpretation may be required. With regard to the meaning of the relevant international obligations here, how exactly should a U.S. court approach the issue of whether the IEEPA tariffs violate GATT Articles I or II and whether they would be justified under Article XXI? While the violations of Articles I and II are probably clear to everyone, would a court think the text of Article XXI is too ambiguous to reach a conclusion on the security justification? Should WTO panel interpretations in past cases play a role in this consideration by U.S. courts? Should the U.S. courts do the WTO legal analysis themselves, making their own determination of whether the the tariffs are consistent with GATT obligations or justified by the Article XXI exceptions? And then there's the issue of a WTO complaint against the specific IEEPA tariffs at issue. Would a WTO panel ruling that the IEEPA tariffs themselves violate GATT obligations and are not justified by the Article XXI exception make the applicable international law in this case more clear?

None of the complainants have made an argument based on Charming Betsy yet, but despite the uncertainty as to how it would apply in this context, I can see some value in putting it out there for courts to consider.

Dark Globalization: Authoritarian Arbitrage in the Case of Kilmar Abrego Garcia

One dimension of the current case of Kilmar Abrego Garcia concerns the dark side of globalization:  arbitrage by authoritarians to subvert constitutional and human rights protections.    

Abrego Garcia has been strategically disenfranchised through jurisdictional arbitrage implemented by physical transfer to El Salvador.  If he remained in the U.S., he would have had important due process rights and would be entitled to better treatment and perhaps release.  But the U.S. now claims that it has no jurisdiction/power to correct its error and bring him back, and rejects judicial interference with its foreign policy powers on constitutional allocation of powers grounds.  For El Salvador’s part, President Bukele says he has no power to return Abrego Garcia to the U.S.  With power comes responsibility:  the disavowal of power by the U.S. and El Salvador is a disavowal of responsibility resulting in the stripping of rights from Abrego Garcia.  Furthermore, the Abrego Garcia case is a test case for a broader strategy that can be applied to all residents and citizens.  President Trump has stated that it might be applied to “home grown” criminals.  This would nullify constitutional rights of citizens. 

The Trump administration is asserting the power wantonly to physically move people in order to subvert their constitutional rights.  MNCs have long moved physically or notionally to seek legal treatment more favorable to them.  The Trump administration’s innovation here is to utilize the power of government arbitrarily to move people in order to accord legal treatment less favorable to them. Effective constitutional and human rights will require constraints on this power, either in national law or In international law. As Jeffrey Dunoff and I explained in our 2013 volume, Ruling the World, “Constitutional subsidiarity implies that under some changes in technological or social circumstances, the vertical level at which it is appropriate to guarantee certain constitutional values may change. Supplemental constitutionalization responds to gaps in the domestic law constitutional framework that are created or accentuated by globalization.”

Questions About the Upcoming Trade Deals

There have been a lot of U.S. tariffs in recent months, and it's getting hard to keep track of them all. This post deals with the IEEPA "reciprocal tariffs" announced on April 2, rather than the earlier IEEPA fentanyl tariffs or the various Section 232 tariffs or any other tariffs. Soon after imposing the April 2 tariffs, President Trump announced a 90 day pause on a portion of the tariffs, starting on April 9 (except for tariffs on Chinese imports, which were increased because China had retaliated). That modification left us with a 10% baseline tariff in place on all countries except China, with the Trump administration indicating that negotiations would now begin on issues related to the tariffs and non-tariff barriers of these countries. An administration official suggested they could sign "90 deals in 90 days."

I have a few questions about the trade deals that may (or may not) result from these negotiations.

1. What will the content of these agreements be? A recent Washington Post article identified the following possibilities for things the U.S. will be pushing for:

• Lower tariffs on U.S. exports
• Purchases of U.S. natural gas
• Removal of barriers for U.S. agriculture exports
• Lower taxes on U.S. tech companies
• Coordination on limiting imports from China
• Stopping transshipment of goods from China

You can also imagine coordination on export controls and investment screening being in there; weakening of the regulations affecting U.S. tech companies; and language related to currency manipulation.

2. Will the U.S. undertake obligations too? Presumably a big ask of the other countries will be to remove the reciprocal/baseline tariffs, but they may push for other things as well.

3. Relatedly, how will these agreements play in the domestic politics of other countries? Will governments be accused of caving to U.S. demands if they can't show they got something more than just the tariff rates that existed prior to Trump raising the tariffs?

4. Will there be any formal process for outside input into the negotiation of these agreements? At the moment, it does not seem like there will be.

5. Will these agreements be durable? Will there be a text, or will it be more of a handshake agreement?

6. Assuming there will be a text, will there be some sort of dispute settlement mechanism in the agreements? The 2019 U.S.-Japan trade agreement had a simple request for consultations procedure, with nothing further spelled out. The U.S.-China Phase One deal had what I have characterized as an internationalized version of Section 301, under which one party can declare the other to be in violation and then impose duties. And then standard FTAs have an adjudication mechanism under which panels assess formal complaints of violation filed by a party. Will any of these be used? Or will there be nothing at all included in these agreements about dispute settlement?

7. Will there be a formal process for the Trump administration to make its assessments of compliance with the agreements? How transparent will this decision-making be? Will they seek public comments?

8. What role will Congress play here? Will they hold hearings? Will they offer a formal endorsement like they did with the U.S.-Taiwan trade deal legislation in 2023? Would that kind of action shift these new agreements from being purely trade executive agreements into something with a stronger domestic legal foundation?

9. How many agreements will there be? Over on Bluesky, I guessed 5-20. Will that prediction be close to the reality?

10. What statutory authority will the administration cite for negotiating these deals? The tariffs were imposed under IEEPA. Is IEEPA broad enough to allow for negotiating trade deals of this sort?

11. Will there be adjacent issues that exist separately from the trade part of the agreements, such as agreements to purchase specific U.S. military equipment?

Stephen Miran on the U.S. Providing Global Public Goods

Last week, Stephen Miran, the Chairman of the Council of Economic Advisers, gave a speech at the Hudson Institute in which he explained that the U.S. deserved compensation for certain "global public goods" it provides to the world. In his opening remarks, he identified two such public goods:

Today I’d like to discuss the United States’ provision of what economists call “global public goods,” for the entire world.  First, the United States provides a security umbrella which has created the greatest era of peace mankind has ever known.  Second, the U.S. provides the dollar and Treasury securities, reserve assets which make possible the global trading and financial system which has supported the greatest era of prosperity mankind has ever known. 

He then explained the costs to the U.S. of providing these public goods:

Both of these are costly to us to provide.  On the defense side, our men and women in uniform take heroic risks to make our nation and the world safer, preserving our liberties generation after generation.  And we tax hardworking Americans mightily to finance global security.  On the financial side, the reserve function of the dollar has caused persistent currency distortions and contributed, along with other countries’ unfair barriers to trade, to unsustainable trade deficits.  These trade deficits have decimated our manufacturing sector and many working-class families and their communities, to facilitate non-Americans trading with each other.

Focusing on the financial side, he elaborated on how "our financial dominance comes at a cost":

While it is true that demand for dollars has kept our borrowing rates low, it has also kept currency markets distorted.  This process has placed undue burdens on our firms and workers, making their products and labor uncompetitive on the global stage, and forcing a decline of our manufacturing workforce by over a third since its peak and a reduction in our share of world manufacturing production of 40%.

At this point, given the high costs he laid out, you might think he would be making the case for the U.S. to stop providing these public goods. But instead, he wants the U.S. to keep doing it but get more compensation from others:

President Trump has made it clear that he will no longer stand for other nations free-riding on our blood, sweat, and tears, whether in national security or trade. ...

...

In my view, to continue providing these twin global public goods, there needs to be improved burden-sharing at the global level.  If other nations want to benefit from the U.S. geopolitical and financial umbrella, then they need to pull their weight, and pay their fair share. ...

The best outcome is one in which America continues to create global peace and prosperity and remain the reserve provider, and other countries not only participate in reaping the benefits, but they also participate in bearing the costs.  By improving burden sharing, we can enhance resilience, and preserve the global security and trading systems for many decades into the future.

Let me stop with the quotes for a moment and talk about some of what he has said so far.

Are the U.S. security umbrella and financial umbrella best described as "global public goods"? Or could they also be thought of as "policies that the U.S. government sees as being to its advantage and wants to continue doing"? I'm not totally sure about the right characterization, and I think opinions vary considerably around the world (and within the U.S. as well). There are a handful of countries that face specific security threats and thus have a strong desire for U.S. military support. But I think this is a minority, and in most countries opinions on these U.S. policies are pretty mixed. As a result, asking other countries to pay more for the U.S. to do these things may not be well received, as a fair number of people might prefer the U.S. stop doing them entirely.

I feel like the way the Trump administration is approaching this is to say: "These are some services we are providing, and you have to pay us what we think they are worth." But in terms of creating a stable international economic and security system, a better approach might be to ask: "Do you want us to provide these services? If so, let's talk about how the costs should be allocated." Because as things stand now, it comes across to many as if the U.S. government is doing something it believes is in its interest, and then asking for compensation.

Getting back to his remarks, he provides the following examples of the burden sharing he would like to see:

What forms can that burden sharing take?  There are many options, here are a few ideas:

- First, other countries can accept tariffs on their exports to the United States without retaliation, providing revenue to the U.S. Treasury to finance public goods provision.  Critically, retaliation will exacerbate rather than improve the distribution of burdens and make it even more difficult for us to finance global public goods.

- Second, they can stop unfair and harmful trading practices by opening their markets and buying more from America;

- Third, they can boost defense spending and procurement from the U.S., buying more U.S.-made goods, and taking strain off our servicemembers and creating jobs here;

- Fourth, they can invest in and install factories in America.  They won’t face tariffs if they make their stuff in this country;

- Fifth, they could simply write checks to Treasury that help us finance global public goods.

I have several questions/comments here.

On the idea that other countries should accept U.S. tariffs without retaliation, it's important for people in the U.S. to understand that other countries have domestic politics too. Looking weak in the face of U.S. economic demands could hurt a foreign government's standing with its people, and that's not good for the future prospects of the leaders of that government.

As to the unfair and harmful trading practices, sure, it would be great to address those, but other countries are going to want to address similar U.S. practices (there are loads of these). That's how normal trade negotiations and agreements work.

On boosting defense spending for U.S. goods, some U.S. allies are feeling conflicted about that right now as a result of certain of the Trump administration's foreign policy moves.

And as to foreign investment in U.S. factories, with China being a big target of the U.S. tariffs, the question arises as to whether Chinese companies can build factories in the U.S. My sense is that Trump himself might be OK with that. I'm not so sure that most top officials in the administration (or many members of Congress) would agree though.

Miran also offered the following thoughts on tariffs and trade deficits:

One reason the economic consensus on tariffs is so wrong is because nearly all of the models that economists use to study international trade assume either no trade deficits at all, or assume that deficits are short-lived and quickly self-correct through currency adjustments.  According to standard models, trade deficits will cause the dollar to weaken, which reduces imports and boosts exports, eventually wiping out the trade deficit.  If that happens, tariffs may be unnecessary, because trade will balance itself over time and, in this view, intervening with tariffs can only make things worse.

However, that view is at odds with reality.  The United States has run current account deficits now for five decades, and these have widened precipitously in recent years, going from about 2% of GDP in the first Trump Administration to a high of nearly 4% of GDP in the Biden Administration.  And this has happened all while the dollar has appreciated, not depreciated!

The long run is here, and the models are wrong.  One reason is that they fail to account for the U.S. provision of the global reserve currency.  Reserve status matters and, because demand for the dollar has been insatiable, it has been too strong for international flows to balance, even over five decades.

My view is that there are two main reasons U.S. trade balances have not adjusted more during the longstanding period of U.S. trade deficits: (1) the relatively low U.S. savings rate, and (2) the role of the U.S. dollar as the reserve currency. He doesn't mention the first one, which I think is a big omission. On the second one, he makes clear that he wants the dollar to remain the reserve currency (during the Q & A, he said "dollar dominance is a great thing"), but it's clear that such a policy will limit the prospects for any adjustment taking place. Maybe he is saying that his "burden sharing" options can operate as an alternative way to reduce deficits, even with the dollar remaining as the reserve currency, but that has the problems noted above (among others). Or do they have in mind a plan to weaken the value of the dollar while keeping its role as the reserve currency? Would Trump be OK with that plan? I hope someone presses them on these questions.

Guest Post: Japan Signals a Possible Shift Away from the WTO Dispute Settlement System in Response to U.S. “Reciprocal Tariffs”

This is a guest post from Yoshimichi Ishikawa, Associate Professor, University of Shizuoka, Japan

For decades, Japan has adhered to the principle that trade disputes should be addressed strictly within the WTO dispute settlement framework. This long-standing position may now be facing a turning point.

On April 2, 2025, the United States announced a new “reciprocal tariff” scheme. In response, China swiftly declared its intention to impose retaliatory tariffs, while the EU and Canada signaled they were exploring similar measures. In Japan, recent polls show that 57% of respondents support imposing retaliatory tariffs. Against this backdrop, a noteworthy exchange in Japan’s Diet may signal a legal shift in the country's traditional approach to trade disputes.

During a session of the Financial Affairs Committee of Japan’s House of Representatives on April 4, a member of the ruling party asked Finance Minister Katsunobu Kato whether Japan could legally impose retaliatory tariffs against the United States. Minister Kato replied:

“Speaking generally about our tariff system… given that parts of the WTO’s dispute settlement procedures are currently not functioning, we believe that—while seeking to resolve disputes through the WTO to the extent possible—it is legally possible to impose retaliatory tariffs as stipulated under the Customs Tariff Act.” (emphasis added; original in Japanese, spoken at around 13:20 in this Diet committee video)

This statement is striking. Under Article 6 of Japan’s Customs Tariff Act, the imposition of retaliatory tariffs in response to WTO violations is permitted only after the approval of the WTO Dispute Settlement Body is obtained. This domestic provision reflects Japan’s alignment with Article 23 of the WTO Dispute Settlement Understanding (DSU), which obliges Members to address covered agreement violations exclusively through the WTO dispute settlement system. In line with this approach, Japan has only once implemented retaliatory tariffs—against the United States in 2004 in response to the Byrd Amendment—following WTO authorization.

Given this legal and policy background, Minister Kato’s use of the phrase “to the extent possible” implies that Japan may now consider imposing retaliatory tariffs without prior WTO authorization if its dispute settlement system remains paralyzed. This would mark a notable departure from Japan’s traditional stance, which has emphasized resolving trade disputes within the WTO framework and implicitly excluded the application of countermeasures under general international law (such as those contemplated in the Articles on State Responsibility).

While the Finance Minister’s remarks are significant, Japan cannot actually impose retaliatory tariffs without amending the Customs Tariff Act. In the absence of such reform, the statement risks being seen—as some domestic media have already suggested—as a political message aimed at the United States, rather than a concrete policy move (Kyoto News report, in Japanese).

What will truly matter is whether Japan moves to revise the law in the near future. That would signal not only how seriously it is weighing retaliation against the U.S. reciprocal tariffs, but also whether it is rethinking what has long been interpreted as its position: that WTO violations must be addressed exclusively within the WTO, without recourse to general international law.

It is also worth noting that Prime Minister Shigeru Ishiba has repeatedly downplayed the likelihood of retaliatory tariffs, and that during a phone call on April 8, President Trump and Prime Minister Ishiba agreed to appoint ministers in charge of the issue and to begin tariff negotiations. Thus, the actual imposition of retaliatory tariffs appears unlikely for now. Still, from the standpoint of both negotiation leverage and legal preparedness, it may be strategically important for Japan to revise the relevant provisions of its Customs Tariff Act—potentially by incorporating language such as “to the extent possible,” as suggested by the Finance Minister. Doing so would allow Japan to maintain the legal flexibility to impose retaliatory tariffs even in the absence of prior WTO authorization, particularly in situations where the WTO dispute settlement system is not functioning.

Andrew P. Vance Memorial Writing Competition Call for Papers

This is from the Customs and International Trade Bar Association (CITBA) and Georgetown Law School

 

The Customs and International Trade Bar Association (CITBA) and Georgetown Law School are pleased to announce 2024-2025 Andrew P. Vance Memorial writing Competition. The competition is welcoming papers with an in-depth analysis of a current issue relevant to customs and international trade law. Entrants must be currently enrolled in a J.D. or L.L.M. program at any of the nation’s law schools. Papers must be submitted here by June 2, 2025 at 11:59 p.m. ET.

Submissions should be typewritten, double-spaced on 8 ½ x 11-inch paper. The paper shall not exceed 40 pages in length, including footnotes. Papers must include footnotes, not endnotes. Papers should be in 12pt. Times New Roman font and have one-inch margins (right, left, top, and bottom).  Noncompliance with these requirements may affect evaluation or result in disqualification.  Please include the following on the cover sheet of your paper:

• Full name, address and telephone number
• Law school and year
• Date of submission of paper

Do not include any identifying information in the text of the paper itself.

A committee of practicing attorneys and professors with relevant expertise will judge the papers. The following factors will be considered:

• Legal analysis
• Thoroughness and depth of topic
• Evaluation of judicial precedents, statutes, and regulations
• Writing style
• Form and quality of citations
• Conformity with rules of competition

Two prizes will be awarded by CITBA:

• $1000.00 first prize
• $500.00 second prize

Guest Post: How to (legally) respond to the ‘reciprocal’ tariffs announced by the Trump administration?

This is a guest post from Antoine Comont, Ph.D Candidate at Laval University and the University of Bordeaux

If respecting international law is a virtue that still makes sense to you, the question for each of the countries affected by the tariffs announced yesterday by the administration is how to justify any retaliation.

The first idea would be to use the WTO DSS to request authorization to suspend certain obligations (Article 22 of the DSU). However, given the scale of the customs duties imposed by the United States, the slowness of the procedures could well cause irreparable damage to the economies of the various countries targeted. Added to this is the fact that the WTO's Appellate Body is currently blocked, and the United States could, in particular, allow the proceedings initiated against it in the appeal phase to lapse without any final decision being taken, thus depriving the complaining Members of their right to request suspensions of concessions or other obligations.

The second idea would therefore be to use the dispute settlement procedures provided for in any regional or bilateral agreements that countries may have concluded with the United States. However, you would be particularly limited as to the extent of the obligations you could suspend. On the one hand, you could suspend the concessions you have granted to the United States under your agreement. On the other hand, as the reciprocal tariffs announced by the United States are particularly significant, you could be led to suspend certain concessions that you have granted to the United States under your bilateral agreement, but also the WTO agreements.

The third idea would be to adopt unilateral countermeasures in a bid to avoid lengthy procedures. In either case, the United States could challenge your measures before the WTO's DSB because they nullify or impair certain advantages acquired under Article I and II of the GATT or any other WTO agreement[i]. However, you will not be able to justify your measures because the United States has previously violated its obligations under the WTO agreements. This would be contrary to the DSB's exclusive jurisdiction under Article 23 of the DSU, which prohibits the use of unilateral measures or any measure that has not been expressly authorized by it.

Given the unprecedented scale and violence of the tariffs applied by the United States, is there any way of responding immediately without infringing international law? In general international law, retaliatory measures are certainly unfriendly measures, but they are not incompatible with any international obligation. Conversely, countermeasures are measures incompatible with certain international obligations but justified by the fact that they are a reprisal for a previous violation of international law[ii].

Under WTO law, compensation (mutually agreed) or suspension of obligations granted by the DSB are retaliatory measures and are specifically authorized by Article 22 of the DSU. At the same time, we found that the per se prohibition of countermeasures is the subject of consistent jurisprudence by the DSB. The panel also made the following statement about Section 301:

« Article 23.1 is not concerned only with specific instances of violation. It prescribes a general duty of a dual nature. First, it imposes on all Members to "have recourse to" the multilateral process set out in the DSU when they seek the redress of a WTO inconsistency. In these circumstances, Members have to have recourse to the DSU dispute settlement system to the exclusion of any other system, in particular a system of unilateral enforcement of WTO rights and obligations. This, what one could call "exclusive dispute resolution clause", is an important new element of Members' rights and obligations under the DSU. Second, Article 23.1 also prescribes that Members, when they have recourse to the dispute settlement system in the DSU, have to "abide by" the rules and procedures set out in the DSU. This second obligation under Article 23.1 is of a confirmatory nature: when having recourse to the DSU Members must abide by all DSU rules and procedures. »[iii]

We are therefore also of the opinion that only sanctions authorized by the DSB and expressly provided for in the Memorandum can be implemented. This implies the prohibition of any unilateral sanction or reprisal.

It therefore seems clear that the WTO's dispute settlement rules and procedures are no longer suited to the context of the generalised trade war launched by the US. So let us see what options can still be mobilized to address the needs of WTO Members.

I. Excluded Legal Grounds

A. Self-defence

In public international law, self-defence is grounded in Article 51 of the UN Charter.

Article 51

Nothing in the present Charter shall impair the inherent right of individual or collective self-defence if an armed attack occurs against a Member of the United Nations, until the Security Council has taken measures necessary to maintain international peace and security. Measures taken by Members in the exercise of this right of self-defence shall be immediately reported to the Security Council and shall not in any way affect the authority and responsibility of the Security Council under the present Charter to take at any time such action as it deems necessary in order to maintain or restore international peace and security.

In order to lawfully exercise a right to self-defence under Article 51 of the UN Charter, three criteria must be fulfilled: (1) there must be an armed attack, (2) it must be necessary to use force in the exercise self-defence, and (3) the use of force in self-defence must be proportional.

To date, no court has upheld the invocation of self-defence in response to economic coercive measures. The term ‘armed’ excludes any economic dimension, and while legal scholars remain divided on its scope, no case addressed this matter yet. Historically, the International Court of Justice has consistently interpreted self-defense as having a military connotation, far removed from the economic and commercial reality of U.S. actions so far.

Even if a special group welcomes this argument, the second difficulty with self-defence is that recourse to it would at the same time justify recourse to Article XXI of the GATT by the United States, since this would mean recognizing the existence of serious international tensions.

B. Vienna Convention on the law of treaties, Article 62

Article 62 of the Vienna Convention on the law of treaties is related to the « fundamental change of circumstances ».

Article 62

Fundamental change of circumstances

1. A fundamental change of circumstances which has occurred with regard to those existing at the time of the conclusion of a treaty, and which was not foreseen by the parties, may not be invoked as a ground for terminating or withdrawing from the treaty unless:

(a) the existence of those circumstances constituted an essential basis of the consent of the parties to be bound by the treaty; and

(b) the effect of the change is radically to transform the extent of obligations still to be performed under the treaty.

2. A fundamental change of circumstances may not be invoked as a ground for terminating or withdrawing from a treaty:

(a) if the treaty establishes a boundary; or

(b) if the fundamental change is the result of a breach by the party invoking it either of an obligation under the treaty or of any other international obligation owed to any other party to the treaty.

3. If, under the foregoing paragraphs, a party may invoke a fundamental change of circumstances as a ground for terminating or withdrawing from a treaty it may also invoke the change as a ground for suspending the operation of the treaty.

Regarding the commentaries provided by the ILC on the draft articles on Responsibility of States, it can be considered equivalent to the excuse of necessity (see below)[iv]. Even if it can be argued that US tariffs would fundamentally change the initial circumstances that led to counter-measures, we do not believe it would be appropriate to base the justification for our response on this ground.

On the one hand, recourse to Article 62 of the VCLT marks the premise of the denunciation of the WTO Agreement vis-à-vis the United States, which is certainly not desirable.

On the other hand, even though paragraph 3 authorizes the suspension of an agreement, there are questions[v] as to whether this suspension must imperatively apply to all agreements or whether it can merely be partial.

II. The plea of « necessity » (État de nÉcessitÉ) or the « excuse of necessity »

A. What is the « plea of necessity »

In accordance with the ILC, « the term “necessity” (état de nécessité) is used to denote those exceptional cases where the only way a State can safeguard an essential interest threatened by a grave and imminent peril is, for the time being, not to perform some other international obligation of lesser weight or urgency ».

This is a customary principle of public international law widely established in case law[vi]. Since then, an initiative to codify the state of necessity is contained in article 25 of the ILC's draft articles on State responsibility :

Article 25

Necessity

1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act:

(a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and

(b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole.

2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if:

(a) the international obligation in question excludes the possibility of invoking necessity; or

(b) the State has contributed to the situation of necessity.

Regarding on the level and scope of the tariffs that will be applied by the United States, we can conceive that without government action, the economy of WTO Members would find themselves in a situation of grave and imminent peril (in the meaning of article 25.1 (a)) and that it is ‘necessary’ in their nation's interests to act as quickly as possible without waiting for the DSB to authorize the adoption of sanctions.

B. What is not the « plea of necessity »

It seems to us that it is interesting to specify what a “plea of necessity” is not, insofar as such a justification requires, in our opinion, terminological clarification.

The “plea of necessity” is not a retaliation or countermeasure. Such measures are designed to sanction breaches of international law that have already occurred (in the WTO context, to sanction measures that are incompatible with the WTO agreements). The plea of necessity makes it possible to respond not to measures, but to exceptional circumstances, to a serious and imminent peril facing the economy of WTO Members. In this regard, we believe that it is possible for the government to legally justify its additional tariffs as, regardless of the blatant inconsistency of the US tariffs, it is no longer a matter of adopting a sanction, but of facing up to a grave and imminent peril.

C. The application of the plea of necessity in trade law

Our argument is that the tariffs applied by the US create circumstances that render necessary for other Members to safeguard their essential interests against a grave and imminent peril.

The question is whether or not general principles and customary rules of public international law apply in the specific field of international economic law[vii]. There is no doubt the plea of necessity finds its place in WTO Law.

One of the four conditions of validity of the plea is that necessity may not be invoked by a State as a ground for precluding wrongfulness of an act if the circumvented international obligation excludes the possibility of invoking necessity.

WTO Law does not exclude the possibility of invoking the plea of necessity. But the only dilemma is to determine whether certain provisions of the WTO Agreements (Article XXI, Safeguards Agreement...) constitute a form of lex specialis that would derogate from the general principle, as these provisions are somewhat in the same spirit: temporarily protecting essential interests against the effects of trade.

On that point, we consider the plea of necessity is different from the national security exception found notably in GATT Article XXI and GATS Article XIV bis. The security exception can be invoked by a trading State if its “essential security interests” are at stake. In WTO Law, it is generally left to every Member to define what it considers to be its essential security interests. But, as the panel in Russia-Traffic in Transit (2019) stated:

The discretion of a Member to designate particular concerns as ‘essential security interests’ is limited by its obligation to interpret and apply Article XXI(b)(iii) in good faith[viii].

Article XXI must not be an instrument to circumvent trade obligations. The Panel in the Russia- Transit case insisted that a Member should re-label trade interests in ‘essential security interests’. As Van den Bossche and Zdouc brilliantly summarize:

(…) the further an ‘emergency in international relations’ is removed from armed conflict or a breakdown of law and order, the greater the specificity required in the articulation of the ‘essential security interests’ at issue[ix].

To use the plea of necessity, a State must satisfy the conditions developed by customary international law and codified in Article 25 of the ILC's draft articles on State responsibility. These conditions are different from those set under Article XXI of the GATT and Article XIV bis of the GATS. So we do not consider that the national security exception constitutes a lex specialis vis-à-vis the excuse of necessity. However the situation remain unclear regarding the Safeguards Agreement.

Concluding Remarks and Communication Tools

The plea of necessity appears to us to be the best legal instrument.

It must be emphasized that pleading necessity should not be seen as a response to the measures taken by the United States, but rather to the situation in which the economy would find itself. It would therefore not be a question of taking reprisals or countermeasures against the United States. Here, the high level of the duties applied and their scope, which are, unprecedented in the history of the GATT/WTO, make it necessary for WTO Members to rescue their economies, which are facing a grave and imminent peril.

Moreover, building the political narrative around necessity is fairly straightforward for citizens and policy-makers to understand. This approach also offers a completely new legal argument that has never been argued in WTO law. This approach seems to offer a sufficiently solid political narrative and legal argument to preserve Member's devotion to a rules-based multilateral trading system.

NB : Joost Pauwelyn has also explored other ideas.

 

[i] This is what the United States did concerning the measures taken by Canada in response to the American tariffs on steel and aluminum in 2018. See Canada - Additional Duties on Certain Products from the United States - Request for the establishment of a panel by the United States WT/DS557/2.

[ii] ILC, p128

[iii] US – Section 301 Trade Act, WT/DS152/R para 7.43See also, US – Countervailing measures on certain EC products, WT/DS212/AB/R para 6.37 and EC – Commercial Vessels, WT/DS301/R para 7.198.

[iv] ILC, p 83

[v] Such questions were raised before a WTO Panel to which it didn’t respond, see US – Section 301 Trade Act, WT/DS152/R para 4.74.

[vi] See for instance, Gabcíkovo-Nagymaros Project (see footnote 27 above), pp. 40– 41, paras. 51–52 ; Fisheries Jurisdiction (Spain v. Canada), Jurisdiction of the Court, Judgment, I.C.J. Reports 1998, p. 432 ; Russian Indemnity case UNRIAA, vol. XI (Sales No. 61.V.4), p. 421, at p. 443 (1912)… For a more detailed list of relevant case law, see ICL page 80 et seq.

[vii] Andimariam. Chapter 10

[viii] Para. 7.132

[ix] Van Den Bossche and Zdouc (2022), p. 678

Collective Economic Security

Collective Economic Security

By Mona Paulsen (LSE Law) and Dan Ciuriak (C.D. Howe (Senior Fellow))

With a flurry of pomp and circumstance, the second Trump administration has reset United States trade with its trading partners. Based on U.S. laws that afford wide Executive discretion towards trade actions owing to concerns of unfairness, security interests, and a declared national emergency in the United States, the new Executive Order rewrites trade relationships owing to a “lack of reciprocity” and “disparate tariff rates and non-tariff barriers.”

For good measure, the new reciprocal tariff plan cautions that should any trading partner “retaliate” in response, they would face punishment in the form of an even higher or expanded scope of tariffs. Conversely, should any partner take “sufficiently” “significant steps to remedy” the alleged lack of reciprocity in their trade arrangements, they would see rewards in lower duties or a narrowed scope of existing duties.

Even though this is a dramatic shift in U.S. trade policy – it is only the beginning. Beyond the announcement of the new U.S. tariff policy remains an unspoken discretionary law that appears to be guiding the new tariff rates, namely a law that accords significant discretion to the President. The tariff rate calculations based on trade deficits with a country and then multiplied by 0.5 were necessary to keep the potential 100 per cent tariff implied by the formula (for trade deficits cannot exceed total imports) to 50 per cent. Without mention, this is the legal limit of Section 338 of Tariff Act of 1930, a never-before-used blunt tool which authorises the President to impose tariffs on duties of up to 50 per cent of the value of products, wholly or in part the growth or product of a foreign country, when the President finds that a foreign country imposes, directly or indirectly, “any unreasonable charge, exaction, regulation, or limitation” on, or discriminates, “directly or indirectly, by law or regulation or practice,” against U.S. commerce. It remains to be seen whether the President will invoke this law in the future. However, with this authority, the President could expand restrictions based on findings of discrimination and assessment of what is in the public interest of the United States.

We argue that it is time for governments to look beyond global economic governance strictly on U.S. terms. This new plan seeks to reset all multilateral trade arrangements on a bilateral, quasi-bartered basis. For most U.S. trading partners that had access to preferential schemes – for example, least developed countries in Africa under the AGOA scheme – such preferential access is now gone. The same is true for countries with bilateral free trade agreements with the United States such as Australia and Korea. For Canada and Mexico, preferential rates remain so long as the products are USMCA-compliant. Even with the carveout for USMCA-compliant products, the fact remains that Canadian and Mexican exports to the United States remain at risk of arbitrary tariffs as long as the state of emergence related to fentanyl drug smuggling remains in force. Moreover, there are consequences from trade diversion as third countries apply retaliatory tariffs on the United States. U.S. goods will seek the path of least resistance, and that will be to Canada and Mexico.  The trade war will come to everyone, one way or the other.

What can governments do? Unite.

Small open economies (SOEs) depend on the rules-based trading system for growth and economic security. They are disproportionately vulnerable to economic coercion, divide-and-conquer tactics, and blocking actions to prevent progress on multilateral issues that the large, quasi-closed economies (LQCEs) may be disinclined to support. Moreover, their size difference means their ability to sanction strategic acts of economic coercion/warfare is limited, leaving them to rely on safeguard measures in response.

In a forthcoming paper, we propose that a small open economy caucus (SOEC) be formed within the World Trade Organization (WTO). In that paper, we will explain how the SOEC would preserve WTO rules for their mutual interactions (including acceptance of the alternative appellate system) and would move forward on developing a rules-based approach to harmonise regulatory and administrative approaches to addressing economic security.

But, as a first order of business, once convened, the SOEC must immediately address the reset caused by the United States. The disproportionate, arbitrary actions taken by the United States violate the most fundamental WTO commitment to offer trading partners “most favoured nation” (MFN) treatment, a rule which limits harmful trade diversion. 

In simple terms, the United States wants governments to negotiate separately to strike deals in which it always has the upper hand.  But in fact, WTO membership binds all economies together. Should the United States wish to renegotiate its tariffs, it can do so under WTO rules that provide for a mutual reduction in the value of trade concessions. Under Article XXVIII of the General Agreement on Tariffs and Trade 1994 (GATT), a Member seeking to withdraw tariff concessions must consult with any other Member with a “substantial interest” in such a concession. While it is true that failure to come to agreement in negotiation does not bar a Member from withdrawing concessions, our point is that collective response is inherently a core part of the multilateral trading system. All changes to tariff schedules require a certification procedure that encourages Members to come together to deliberate upon (and voice opposition to) modifications as impacting the overall balance of concessions. Under the WTO scheme, all Members with an interest in such renegotiation have the opportunity to participate because all Members have committed to share in the creation of ‘reciprocal and mutually advantageous arrangements’ – which means that a negotiation with one is a negotiation with all.  This understanding is built into the WTO arrangements to which the United States agreed. And this feature must be safeguarded to preserve the predictability and security of the multilateral trading system.

A corollary of this is that an attack on one is in reality an attack on all. Already, the highly differentiated tariffs imposed unilaterally by the United States imply a significant amount of trade diversion towards the source countries that face only 10% tariffs in the United States. At the same time, a differentiated response internationally to the U.S. tariffs means a significant amount of deflection of U.S. exports towards non-retaliating economies, which could force them in turn to put up safeguards to avoid having their domestic economies flooded by U.S. exports, which as noted will be searching for the path of least resistance.  No economy is isolated – firms have developed complex production networks that cross geographical and digital divides. Members must proceed to coordinate and consider collective economic development objectives in this light.

In short, we argue that, in the interest of preserving the multilateral trading system, a collective response to the U.S. reciprocal tariff is essential and, moreover, consistent with the spirit of the single undertaking that formed the WTO. The SOEC could immediately convene to cooperate on collective action – first as between themselves to address the United States’ actions and then a united front to consult with the United States thereafter. A coordinated response would represent a deviation from MFN, but such a deviation is necessary to limit the damage to global trade – the ambition of the caucus would be to open trade and to act collectively to contribute to a balanced, equitable, and expanding world economy. Should any Member seek to meet this commitment, they would be welcome to join. The SOEC would be breaking MFN to preserve it in the future.

A Few Answers To My Questions about Trump's Reciprocal Tariffs

Last week, I asked a lot of questions related to what we might expect from Trump's "reciprocal tariffs." Now we have a few answers in the Executive Order and a fact sheet from yesterday. Let's go through them.

Which statutes will they use as the basis for the tariffs? Clark Packard and Scott Lincicome of Cato describe the main possibilities here: IEEPA, Section 232, Section 301, Section 338, and Section 122.

They went with IEEPA for these tariffs, but I will note that I heard a lot of talk about Sections 338 and 122 as possibilities here. If the IEEPA tariffs are challenged successfully in court, the administration has these other statutes to fall back on.

When exactly will the tariffs be imposed? IEEPA tariffs can come pretty quickly, while tariffs under certain other statutes could require a longer process (although some tariffs might be imposed under already completed processes). To what extent will the April 2 announcement be used as the basis for a negotiation rather than the immediate imposition of tariffs?

In terms of the timing, this is from the White House fact sheet:

• Using his IEEPA authority, President Trump will impose a 10% tariff on all countries.
  • This will take effect April 5, 2025 at 12:01 a.m. EDT.
• President Trump will impose an individualized reciprocal higher tariff on the countries with which the United States has the largest trade deficits. All other countries will continue to be subject to the original 10% tariff baseline.
  • This will take effect April 9, 2025 at 12:01 a.m. EDT.

The tariffs will happen pretty quickly, and if there's going to be a negotiation, it had better start soon.

What methodology will they use for the calculation of a reciprocal tariff rate to be applied to each trading partner? Coming up with a credible methodology is going to be a big challenge.

See USTR's explanation here for how they got to their tariff numbers. As I said in the question, "[c]oming up with a credible methodology is going to be a big challenge." If what they were trying to do was make U.S. tariffs/non-tariff barriers "reciprocal" with those of foreign countries, I don't think they've achieved that. They describe their approach as a "proxy" methodology, and they never actually carry out a comparison of U.S. tariffs/non-tariff barriers with individual foreign country tariffs/non-tariff barriers to see if there is reciprocity. Maybe if this goes to court they can put together an additional analysis to present, but what they have now seems insufficient.

Will the reciprocal tariffs include a sectoral component? It seems clear that tariffs are coming on autos and various other sectors, but is that part of the reciprocal tariff package, or will it be separate?

I think this is a clear no, with carveouts for specific sectors from these "reciprocal" tariffs, although I've seen some people raise interpretive questions about this part of the EO.

Which countries will be hit the hardest? Treasury Secretary Scott Bessent recently referred to the "Dirty 15," meaning the countries that have the highest tariffs/barriers and large trade imbalances with the U.S.

You can see the EO Annex I list of countries hit with tariffs above 10% here. At the top are Lesotho at 50%, Cambodia at 49%, Laos at 48%, Madagascar at 47%, Vietnam at 46%, and Myanmar at 45%. Not exactly what I was expecting.

Which governments will retaliate and in what amounts? The reaction by other governments will depend on their domestic politics as well as their strategizing about how to get to the best outcome. Will any of the retaliation go beyond tariffs, and do creative things such as weakening intellectual property protections? And will products/services from Elon Musk and other Trump allies be targeted?

The retaliation questions are still open. It's worth noting here that the Trump administration is warning against retaliation:

Sec. 4.  Modification Authority.  ...

(b)  Should any trading partner retaliate against the United States in response to this action through import duties on U.S. exports or other measures, I may further modify the HTSUS to increase or expand in scope the duties imposed under this order to ensure the efficacy of this action. 

But no doubt there's going to be some retaliation. Further U.S. escalation in response to any retaliation could make the economic impact of all this much worse.

Will any countries make concessions in the hopes of being subject to lower U.S. tariffs? If so, how meaningful will these concessions be in terms of actual value to U.S. companies? Will they be designed to look meaningful without actually doing much, or will there be real opportunities for U.S. exporters? 

Some countries may try to offer something up, and the Trump administration seems open to it:

Sec. 4.  Modification Authority.  ...

(c)  Should any trading partner take significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters, I may further modify the HTSUS to decrease or limit in scope the duties imposed under this order.

Will these concessions be carried out through formal trade deals? If so, what will these deals look like? Will there be an enforcement mechanism? 

Seems possible, but who knows.

Will the reciprocal tariffs get tied in with non-trade issues such as security? For example, will foreign defense spending be brought into the mix? Of course, part of the foreign defense spending issue is trade related, as a lot of foreign defense spending involves buying from U.S. companies. Thus, foreign defense spending could either be brought in as a concession (through buying more U.S. products) or retaliation (through buying less). Also on defense spending, will the U.S. authorize the sale of military technology that it had not previously allowed, as part of broader deals with specific countries? And will certain countries shift away from reliance on U.S. military equipment, due to concerns about the direction of U.S. foreign and trade policy? 

The administration does mention alignment on "national security" in the EO, so security definitely seems tied in here.

Will there be lawsuits in U.S. courts against the reciprocal tariffs? If the calculation methodology looks arbitrary, that could be an important part of any legal challenge.

Lawsuits seems inevitable. As set out in the EO, the Trump administration's claim of a "national emergency" was based on the following:

Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; inhibited our ability to scale advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries.  Large and persistent annual U.S. goods trade deficits are caused in substantial part by a lack of reciprocity in our bilateral trade relationships.  This situation is evidenced by disparate tariff rates and non-tariff barriers that make it harder for U.S. manufacturers to sell their products in foreign markets.  It is also evidenced by the economic policies of key U.S. trading partners insofar as they suppress domestic wages and consumption, and thereby demand for U.S. exports, while artificially increasing the competitiveness of their goods in global markets.  These conditions have given rise to the national emergency that this order is intended to abate and resolve.

I'm no IEEPA law expert, but I see plenty of arguments people can try here. For one thing, the view that a goods trade deficit constitutes a "national emergency" is a pretty big stretch. And even if it were an emergency, tariffs as the response don't make much sense. To address the overall deficit, you would want to focus on macroeconomic issues such as savings rates or currency levels, and while those are mentioned in the EO, they aren't addressed in a way that could deal with the trade deficit. And if you are worried about trade in manufactured goods in particular, as the administration seems to be, there are plenty of better ways to shift your economy away from services or agriculture or energy and towards manufacturing. It's also worth noting that the fact sheet says "annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base," but there's pretty clearly no cause and effect here. And finally, taking an approach that tries to address trade deficits on a bilateral basis is extremely misguided.

Will the targeted countries file WTO/FTA complaints? Of course, the U.S. can appeal any adverse WTO panel report into the void, but governments may see value in bringing a WTO case for various reasons. And some of the affected countries have FTAs with the U.S., so they have that as an alternative as well.

You would think the answer will be yes, with lots and lots of complaints coming. But we'll see how governments decide to approach this.

Will affected countries step up their efforts to negotiate deeper trade deals with each other?

Possibly, although they may be a bit distracted by having to deal with the U.S. tariffs in the short term.

How will the stock market react? And what will be the broader impact on the U.S. economy? And how will Trump react to the stock market reaction and to the impact on the economy? It feels like the Trump administration has been testing the waters with its tariffs, seeing how the market and the economy react to its initial moves. My best guess is there are limits to what the administration can tolerate in terms of a negative economic reaction, and if things get too bad they may pull back a bit, but we'll see.

The stock market impact could be pretty bad. On the plus side, if you've been waiting for a market dip to get in, this may be your chance! With regard to Trump's reaction, is there some point at which he rethinks these tariffs? I suggested it could happen, but I'm not all that certain about it.

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There's one other thing I want to address. The EO says:

The post-war international economic system was based upon three incorrect assumptions:  first, that if the United States led the world in liberalizing tariff and non-tariff barriers the rest of the world would follow; second, that such liberalization would ultimately result in more economic convergence and increased domestic consumption among U.S. trading partners converging towards the share in the United States; and third, that as a result, the United States would not accrue large and persistent goods trade deficits. 

I have three points here:

• The Trump administration has not presented evidence that the U.S. leads the world in liberalizing tariff and non-tariff barriers. The U.S. has lots of these barriers, and I'm not sure where it would come out in a serious comparison with other developed countries.
• I'm not sure anyone expected "increased domestic consumption among U.S. trading partners converging towards the share in the United States," and in fact I think many people see U.S. consumption as higher than it probably should be.
• As to any assumptions about the U.S. and goods trade deficits, I think this result was driven in significant part by U.S. policies, which could be adjusted by the U.S. but have not been.

On the point about consumption, the EO also says:

... non-tariff barriers include the domestic economic policies and practices of our trading partners, including currency practices and value-added taxes, and their associated market distortions, that suppress domestic consumption and boost exports to the United States.  This lack of reciprocity is apparent in the fact that the share of consumption to Gross Domestic Product (GDP) in the United States is about 68 percent, but it is much lower in others like Ireland (27 percent), Singapore (31 percent), China (39 percent), South Korea (49 percent), and Germany (50 percent).

I hear complaints from various people about differentials in savings rates across countries, but it's hard to understand their point. The U.S. is always on the high end, yet somehow the people arguing this issue seem to take the view that the U.S. is the normal one and others are "cheating" somehow. It is not clear to me how they come to this conclusion.

Call for Papers: Law and Economic Development

This is from the ASIL International Economic Law interest group:

The University of Hawai'i at Mānoa, William S. Richardson School of Law and the Law and Development Institute are co-hosting a conference in December 2025 in Honolulu, Hawai'i. The conference theme is "Law and Economic Development," and the call for papers is available here. Abstract submissions are due May 1, 2025. 

Guest Post: How to retaliate against looming Trump tariffs

This is a guest post from Simon Schropp (BRG and George Washington University) and Kornel Mahlstein (Sidley Austin LLP)

Eight weeks into the Trump Administration it appears that the “Trump tariffs” on America’s closest allies are not mere posture.  Treasury Secretary Scott Bessent announced on March 18 that the Trump Administration plans to slap extra tariffs on goods imported from about 15 percent of nations with which the United States has run a persistent trade deficit—a group with the catchy moniker “Dirty 15”.  These discriminatory tariffs, billed as “Reciprocal tariffs” by the White House, are expected to come into force on April 2.  While the Trump Administration has not officially released a list of the Dirty 15 yet, political insiders have indicated that it will most certainly include the European Union (EU), next to Australia, Brazil, Canada, China, India, Japan, South Korea, Mexico, Russia, and Vietnam.

The EU appears inclined to retaliate against the looming imposition of the Trump tariffs against its exports, most likely by invoking its new Anti Coercion Instrument.[1]  Practical questions for the EU Commission will then include the following:  (i) what is the most appropriate (set of) countermeasure(s)?; (ii) how should countermeasure(s) be calibrated?; and, (iii) which U.S. imports should be targeted?

If past is prologue, the EU will engage in “tit-for-tat” punishment, i.e., reciprocate with additional tariffs on U.S. goods imports.  One does not have to be an economist to comprehend that blanket retaliation covering all imported U.S. products and sectors is not productive:  There are U.S. imports that the EU desperately needs, and an imposition of additional tariffs may cause more economic self-harm than it causes pain to the United States.  It would thus behoove the EU to devise retaliatory action such that it inflicts the highest pain on the U.S. economy, while at the same time causing the least self-harm to EU welfare.

We apply a sector-by-sector partial equilibrium model co-developed by the authors.[2] The model covers roughly 5,300 sectors (product groups), categorized along the six-digit level of the Harmonized System (HS).  It allows us to simulate, among others, welfare gains and losses experienced by both the U.S. and the EU economies resulting from retaliatory EU tariffs on U.S. imports.  Lacking further detail, we assume that the EU would impose an even 25 percent tariff on U.S. products in all selected sectors.

Three tables below present a sample of our results.  Table 1 contains a list of the 25 sectors in which retaliatory EU tariffs would inflict the highest welfare losses on the United States. Table 2 provides the top-25 ranking of sectors in which EU tariff retaliation would generate the highest welfare gains for the EU through improvement of the EU’s terms of trade (TOT).[3]  And, combining the results of the first two tables, Table 3 presents the top-25 sectors in which the balance of pain inflicted on the U.S. economy and self-harm to the EU is particularly favorable (calculated here as the maximum distance between EU gains and U.S. losses). 

Table 1: Sectors in which EU tariff retaliation generates highest welfare losses to U.S

Sources: UN WITS (latest available bilateral trade-flow data).
Notes: EU tariffs of 25% are assumed; welfare gains/losses are measured as the sum of terms-of-trade gains/losses, efficiency losses from inefficiently low import/export levels, and losses from inefficient resource allocation; for more information on model methodology, see Latipov et al. (2022; 2023).

 

Table 2: Sectors in which EU tariff retaliation generates the highest welfare gains to EU

Sources: UN WITS (latest available bilateral trade-flow data).
Notes: See notes accompanying Table 1.

 

Table 3: Sectors in which the balance of harm to the U.S. economy and self-harm to the EU economy is most favorable

Sources: UN WITS (latest available bilateral trade-flow data).  
Notes: see accompanying notes to Table 1 and 2; “maximum distance” is calculated as the sum of welfare gains to the EU and welfare losses to the United States (in absolute terms).

 

While our cut-off point of 25 product groups is arbitrary, the tables illustrate the considerable potential that smart retaliation in only a few selected industries could unleash:  For example, Table 1 shows that with retaliation in only 25 selected sectors (that, together, are responsible for roughly 46 percent of all U.S. imports), the EU could cause 54 percent of all achievable U.S. welfare losses, while at the same time securing 62 percent of achievable terms-of-trade gains. 

We appreciate that many factors other than Union-wide welfare—such as strategic, political, environmental, or public-health considerations—play into the Commission’s decision whether and how to retaliate in a particular sector or the other.  Our objective here was simply to highlight one economic perspective on tariff retaliation.

The analysis presented above can easily be extended.  For example, one may be interested in lists featuring the bottom-50 industries, i.e., those sectors in which the EU should avoid any retaliation, simply because higher EU retaliation would cause no, or negligible, economic harm to the United States, and/or distressing levels of economic self-harm to the EU.  One could also imagine that the EU would also want to take into consideration tariff pass-through rates (see column (2)) so as to avoid situations in which EU consumers bear an outsized burden of the tariff incidence that retaliation would entail.  Moreover, instead of focusing on welfare measured in absolute dollar/euro values, one may equally consider optimizing percentage changes in welfare (see columns (7) and (9)).  Next, we assumed that the EU levies a 25 percent import tariff on every sector selected for retaliation.  An interesting modeling scenario is one in which the EU imposes “optimal” tariffs, i.e., tariff levels that maximize the EU’s terms-of-trade gains, individually for every selected sector.  Lastly, the same sector-by-sector analysis performed here from the perspective of the EU can now also be executed for any other country on the “Dirty 15” list.

 

[1] The ACI gives the EU a wide range of possible countermeasures against countries engaging in economic coercion, the imposition of additional tariffs being only one of the options.

[2] See Latipov, O.; C. Lau; K. Mahlstein; S. Schropp (2022); “The economic effects of potential EU tariff sanctions on Russia – a sectoral approach”, Intereconomics, Vol. 57(5) pp., 294-305; and Latipov, O.; C. Lau; K. Mahlstein; S. Schropp (2023); “Quantifying the Impact of the Latest US Tariff Sanctions on Russia: A Sectoral Analysis”, Journal of World Trade Vol. 57(1): 55–124.

[3] In some sectors, the EU as importer has a degree of market power vis-à-vis the United States, forcing U.S. exporters to absorb a share of the EU’s tariff incidence by lowering export prices.  This improves the EU’s TOT (i.e., the relative price at which the two economies exchange goods and services), and it does so to the same degree that it worsens the U.S. TOT – constituting a pure net wealth transfer from the United States to the EU.

 

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