President Trump’s Fair and Reciprocal Trade and Tariff Plan trashes US international trade commitments made over the past 78 years. It signals the rejection of the rules-based trade system and the return of the law of the jungle in global trade. Put another way- the gorillas in the room are breaking the furniture.

The Plan will not reduce the US trade deficit, enable the US to outcompete China, or make America great again. It will increase uncertainty for business, increase business and consumer costs, disrupt supply chains and destroy value.  The Plan will reducethe willingness of US trade partners to work with the US to address the realissue – that is the incompatibility of China’s growth model at scale, with theliberal economic order.

 The ‘Fair andReciprocal Plan’ states the Trump Administration will take a detailed look atall the measures imposed by US trade partners to identify non-reciprocaltrading arrangements. The review will examine trade partners’ tariffs, unfair,discriminatory and extraterritorial taxes, non-tariff barriers to trade, unfairor harmful acts, policies, or practices, subsidies, burdensome regulatoryrequirements, exchange rate policies and practices, wage suppression policies,and any other practice, written or unwritten, the Administration thinks isunfair or imposes a structural impediment. Officials will thencalculate the associated ‘harm’ to US business from these measures and proposeremedies in the form of a tariff. The tariff is supposed to ‘rebalance’ thetrade relationship – aka reduce the US’ trade deficit.

 For some, PresidentTrump’s reasons might sound perfectly reasonable. Why shouldn’t the US imposethe same tariffs on economies that impose tariffs on US goods. If a countrymakes it burdensome for a US company to operate in its market, why shouldn’tthe US impose a comparable burden on businesses from that country operating inthe US. As President Trump himself says ‘this is a simple system’.

 The crux of theproblem is President Trump’s Fair and Reciprocal Plan rests on hisinterpretation of what is ‘unfair’, ‘unbalanced’, ‘harmful’ and ‘burdensome’. Underthe Plan, whatever the Trump Administration decides is ‘unfair’, ‘unbalanced’,‘harmful’ and ‘burdensome’ – is ‘unfair’, ‘unbalanced’, ‘harmful’ and‘burdensome’. There are no standards applied here, which makes all policies andpractices maintained by US trade partners fair game.

 For 78 years, trade partners have tried to define what is ‘unfair’, ‘unbalanced’, ‘harmful’ and ‘burdensome’. The World Trade Organisation Agreement and the General Agreement on Tariffs and Trade before it, and the 615 existing other trade agreements have hundreds of thousands of pages dedicated to clarifying exactly this. Because it’s not simple. One country’s 'burdensome’ is another country’s pharmaceutical benefits scheme. Another country’s ‘unfair’ is one country’s foot and mouth biosecurity control. None of this is simple.

 The United States has turn edits back on this work. President Trump has ignored US commitments made at the WTO and in its trade agreements – including those in the Australia-UnitedStates Free Trade Agreement.

 One take on whyPresident Trump was given the mandate to take this path identifies China’s successfulexploitation of liberal trade policies and agreements as a key culprit.

 While solving the UStrade deficit, generating income to replace tax cuts, and rebuilding US manufacturing are stated goals – China is the real target here. China’s entry to the WTO was premised on the expectation market-based policies would inexorably elbow out state-led and state-centred economic policies. This didn’t happen. Instead, China’s international competitiveness was underpinned by state support. So WTO rules, designed in part to remove government-created trade obstacles and supports, pitted private companies against competitors that were the Chinese government. This wouldn’t have been a big issue if China was a small economy. China’s gaming of the system, and the fact it helped China outcompete the US, made it illogical for the US to keep investing in the WTO system.

 Supporters of the WTO argue the US should use the rules-based system. It should build coalitions in the WTO to pressure China to play by the rules, update rules that tie China’s hands, and reestablish the dispute settlement system to enforce compliance.

 Attempts to do so failed. Too many countries with too many competing interests, and too many opportunities to block decisions made progress glacial. Those that wanted to move more quickly turned to the Trans-Pacific Partnership. An agreement that targeted those points where China’s model grated most against liberal trade –state-owned enterprises, competition, investment restrictions. While this was happening, China’s export-led growth strategy enabled the cornering of the steel, critical minerals, solar panel, battery and EV markets.  It paid for new aircraft carriers and jets, expansion in the South China Sea, crackdowns in Hong Kong and encouraged international assertiveness.

 Work in the WTO, the OECD, the G20, APEC, the Quad, the new CPTPP, discussions in the Global Forum on Steel Excess Capacity, dumping duties, cooperation on critical minerals, tariffs on EVs, strategic investments in vulnerable countries, tightened foreign investment rules all sought to address the China challenge.

 President Biden’s Inflation Reduction Act and CHIPs and Science Act, the EU Green Deal and our own Future Made in Australia Act went further. These industry policies tried to fight fire with fire. In the same way the Chinese government directed industry to achieve national security objectives, so too were the US, EU and Australia. The Biden Administration’s ‘high fence, small yard’ sought to limit deviation from liberal trade policies to strategic sectors only. It was a policy aimed at China that tried to work with friends.

 President Trump is taking a different path. His Fair and Reciprocal Plan targets friends and foes alike. He’s dismantled the fence and is using access to the entire US market as his principal geostrategic tool.

 None of this will help the US outcompete China. It won’t encourage reform in China that might ease international tensions. China’s own domestic economic issues – housing oversupply, low consumption, local government debt – will have greater sway here than US policy.

 President Trump’s Fair and Reciprocal Plan is just smashing up the house on the assumption solutions are simple, America is exceptional and others will fall into line. What a waste.

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Prudence Gordon, Executive Director, ACITI

17 February 2025