Following the close of a second quarter that will be best remembered by President Trump’s vacillations on trade, Axios has dropped a Sunday night bombshell that may spook markets hoping for a respite from the daily escalating trade war rhetoric as the second half of the year begins: White House reporter Jonathan Swan has obtained a copy of a draft bill, purportedly ordered by Trump himself, that would allow the US to “walk away” from its commitments to the World Trade Organization.
If passed, the bill (entitled the “United States Fair and Reciprocal Tariff Act”) would effectively blow up the WTO, an organization that the US helped create back in the 90s, by allowing Trump to unilaterally ignore the two most important principles:
The “Most Favored Nation” (MFN) principle that countries can’t set different tariff rates for different countries outside of free trade agreements;
“Bound tariff rates” — the tariff ceilings that each WTO country has already agreed to in previous negotiations.
“It would be the equivalent of walking away from the WTO and our commitments there without us actually notifying our withdrawal,” one anonymous source reportedly told Axios.
The bill asks Congress to hand over to Trump unilateral power to ignore WTO rules and negotiate unilateral trade agreements.
The leak of the draft bill follows another WTO-related scoop from Axios, published last week, where Swan reported that Trump has repeatedly badgered his aides about pulling the US out of the WTO, which the president has famously criticized as a “disaster”.
The bill’s chances of making it through Congress are extremely low. However, if Trump has taught us anything about his trade agenda, it’s never say never.
Trump was reportedly briefed on the draft in late May. Most of the individuals who were involved in the drafting of the bill assumed it would be “dead on arrival” – that is, all but Trump advisor Peter Navarro, who repeatedly encouraged Trump’s anti-free-trade positions. The White House, the US Trade Representative and the Department of Commerce were consulted during the drafting of the bill.
While the bill might be able to find enough support to pass in the extremely pro-Trump House, Republican proponents of free trade in the Senate would likely balk at the prospect of trashing the existing free trade order, while Democrats would be reluctant to hand more unilateral authority to the president.
It’s also worth noting that Congress is already trying to roll back Trump’s steel and aluminum tariffs in the form of a bipartisan bill authored by Republican Sens. Bob Corker and Pat Toomey and Democratic Sen. Michael Bennet.
White House spokeswoman Lindsay Walters acknowledged that the bill was genuine, but cautioned that the public shouldn’t take it too seriously – after all, Trump’s frustrations with the WTO are already widely known.
The report sent US futures lower off the gate as trade tensions once again reared their ugly head, although the BTFDers promptly emerged, and with their traditional non-challance and disregard for risk or news, quickly sent futures back to unchanged.
Dismantling the WTO risks sparking a global trade war, which could have some very serious consequences.
Read the draft bill below:
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