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The Trade Guys
One Year After Liberation Day, Plus the E-Commerce Moratorium and New Chinese Investigations
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- [00:01]
Scott Miller
I'm Scott.
- [00:02]
Bill Reinsch
I'm Bill and we're the Trade Guys.
- [00:07]
Evan Brown
You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Evan Brown and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys. Thank you for listening to the Trade Guys. Today we mark the one year anniversary of Liberation Day and talk through all that has come after it. We also cover new PRC investigations into U.S. trade practices and the failure to renew the E commerce moratorium at the WTO's MC14 in Cameroon. All this and more on the Trade Guys. Well hello Trade Guys. It's great to be back with you all filling in for Alex this week and it has been quite a week. So let's start with the news out of Cameroon where the World Trade organization held its 14th ministerial conference. So Bill, you are the author of a pre report on this conference of what it might look like. Clearly they didn't read you very carefully. The global moratorium on e commerce tariffs which had been in place since 1998 failed to win support for renewal bringing us into uncharted waters. So Bill, what happened and what comes next?
- [01:20]
Bill Reinsch
Well, if anybody out there read my column two weeks ago turned out to be completely wrong, so ignore it. I'm going to have another one that will come out next week that be a postmortem that might be hopefully a bit more accurate. I suggested that it was a pretty low bar for what they were trying to accomplish. They started out two years ago with an ambitious agenda. They were going to try to make progress on agriculture, they were going to try to undertake reforms. They were going to extend the E commerce moratorium and they were going to finish the fisheries agreement. A lot of that got thrown overboard along the way. And when they finally got to Cameroon there were really two big issues which was a work plan for reform. Note that's not reform, that's a plan for talking about reform in the future, which itself was a pretty low bar. And the most important priority for the United States, which was actually substantive, was extending the moratorium on E commerce taxation, which is very important to our Internet service providers and other tech companies who would be paying a lot of taxes if it were not for the moratorium. This has been a US Priority for a long time. It's never been extended for more than two years at a time. It's a difficult fraught process between people that have opposed it because they want to collect the revenue and countries that oppose it because they want something else and are holding it hostage because they know it's a priority for developed countries. This time, what happened was there were two items on the agenda, and they both failed. They were linked. So if one went down, the other one went down as well, and that's what happened in this case. The United States wanted a permanent E commerce moratorium, which would save them from the torture of having to come back every two years and go through this again. They had some countries supporting that, but not a lot. I think the majority, by far the majority favored an extension and favored a longer extension than two years. And it appeared the night before the the end that they had settled on five years with a review after four to decide if they wanted to stop it after the fifth year. At that point, Brazil and Turkey announced that they couldn't accept more than two years, and the US Rejected that as nothing more than the status quo. So that was the end of that. There was no ministerial declaration. There were a few people like the Director General, trying to put a good spin on things, but basically they accomplished very little. They did accomplish a couple things I'll get to in a minute. Trying to figure out whom to blame is complicated. I think this is a case where there are a lot of people to blame, and at the moment, they're all blaming each other. So it's a little bit hard to sort it out. The proximate cause was Brazil and Turkey, primarily Brazil. And the ostensible reason, which nobody believes was not enough progress on agriculture. Nobody expected them to make much progress on agriculture. So to say that that was a problem is a little surprising. It is probably not, because Brazil really wants to impose an E commerce tax, because when they signed the Mercosur agreement with the eu, they agreed not to do that. So they've already committed themselves on the subject in the other direction. My own view, which is, of course speculation, is that this is a classic case of what goes around comes around. You know, Trump found himself in a position he doesn't like to be in, which is to have a multilateral organization being dependent on a multilateral organization to do something that he wants. And so basically, he was asking all these countries that he'd spent the last year insulting to come back and give him this favor because the US Would be the big winner. And Brazil, I think, got even and can't say I'm surprised. I think there were probably more than a few countries in the background with a small smile on their face. The Indians, which are usually the culprits in this, and have tried to block the extension for the last several ministerials were quiet this time, of course they're also trying to finish up a trade agreement with the United States in. It probably would not have been a good strategic move for them to be outspoken on this. And I think they were perfectly happy to have somebody else carry their water, which I think is exactly what happened. So the issue was punted to the WTO's General Counsel which is the committee of all of the members which will meet on both subjects. The reform plan which as I said went down as well, and the moratorium at their meeting in May. I'm skeptical that that's going to go anywhere. Everybody's expressing optimism but the reality is, you know, these things go up to ministers because ministers are the people that are in the decision making position to decide what to do. Punting the thing back to the second team and by the way, not only the second team but the people who spent the last two years not being able to solve the problem I don't think is a sign that we're going to get very far. The US I think is implicitly acknowledged that because they announced today that or recording this on Liberation Day as we'll get to in a minute, that They've signed up 22 other countries to agree to honor the moratorium. Anyway. That's good, but there's 166 in the WTO. So 22 plus the United States is a good start, but it's not the whole way. Ambassador Greer said after the ministerial was over that the result probably means the United States will pursue its goals through other means. That's not a good sign for the organization and but it's what he announced today on the 22 signing up to continue the moratorium I think is a sign that that's what we'll be doing. Gathering coalitions of the willing. It would be nice to do that completely under the WTO umbrella. And in fact the United States to its credit, supported other coalitions of the willing even though it didn't participate in them. But it supported them and it supported their completion and their incorporation into the WTO rulebook. Unfortunately, India consistently blocked that from happening. And there was another one that was an accomplishment. 66 members announced an E Commerce agreement. This is not about taxation, it's about other E Commerce related issues. The US is not a party, but the US did not object to it. India would have objected to it being incorporated into the WTO documents. But what the 66 are doing is they're going ahead and signing it on their own. They've included the dispute settlement process. They're making it a real thing and I think we're going to see more of that going forward. We can't seem to get everybody on board at the same time in the same place on the same thing. So we're going to get groups. That's not the best plan, but it may be all we have at the moment.
- [07:41]
Scott Miller
When you look and consider action in concert is so difficult. It's as if failure has a thousand fathers and success is an orphan in this situation. I think in many ways you started off at a point that that is worth emphasizing, which is the short agenda, a two item agenda where they were mutually dependent on each other was a recipe for disaster. So I think they got the result that would be the most likely outcome. At the same time, the WTO tends to work best much as the old GATT worked best. When the big traders had issues that really wanted to resolve, people saw the organization or saw that table, that bargaining table as the place to go to solve the problems that they want it solved. And a short agenda says we really haven't figured out what it is this organization in its current guise at this current time, given everything else that's going on, put its best at and can it do it? We spent many, many years in the Doha Round with one of the big traders, China, really not needing anything from the other members. It sort of gave it the office in its secession program and was on the sidelines while other members, you know, tried to get something going. Since then the United States and Europe haven't been on the same page and it way predates the Trump administration. So I'm not sure what to make of this, but the failure is not at all surprising given the structure and the conditions and the membership walking.
- [09:04]
Bill Reinsch
In short historical digression for those of you that are interested in history, I actually looked up the quote about the Thousand Fathers and it goes back as far to the Romans, it goes back to Tacitus. But most recently it was John F. Kennedy after the failure of the Bay of Pigs. His quote was the opposite of what Scott said, although Scott's right about the ministerial. What Kennedy said was success has a thousand fathers, failure is an orphan. And then he took responsibility for the Bay of Pigs, which by the way, I think is the last time any US President ever admitted to making a mistake of any party. It's kind of discouraging. The honest thing to do is when you screw up is to stand up and say, well, I got that one Wrong. Kennedy did. But the success is the one with the fathers. In this case, Scott is exactly right. Failure has all the fathers, but also because there was no success. It also means, I think looking ahead, there's going to be, I think, a lot of reflection on what this means for the organization. And I think that, you know, organizations, international organizations don't implode, they don't go up in flames and everybody leaves. They tend over periods of time to become irrelevant and get replaced by others that are more efficient. That may or may not happen. In this case, it would be sad if it did happen because the replacement would almost certainly be not as efficient,
- [10:21]
Scott Miller
but certainly a popular club to join. For many years it was, well, it's
- [10:25]
Bill Reinsch
up to 166, 90 something, 98% of trade or something like that.
- [10:30]
Scott Miller
It's an important element and it was a great liberalizing force while members were acceding. So. But things are the way they are.
- [10:37]
Evan Brown
Well, I think it's time for us to acknowledge something of a trade guys holiday, which Bill alluded to earlier today. April 2, 2026 is the one year anniversary of Liberation Day when President Trump slapped his so called reciprocal tariffs on most of the world. So one year out. Scott, how do you look back at that day and how has the global economy changed as a result?
- [11:00]
Scott Miller
Well, the first thing I would say is I'm certainly glad they did it a day later instead of a day earlier because having the liberation d anniversaries on April Fool's Day would seem to be just too rich for the trade guys at least. In any case, look, this was a big disruption to the system and I'd say a couple things about it. First, it definitely made importing goods to the United States more expensive and more difficult. And the more difficult part is the unexpected and probably more substantial criticism. It did those things. It was a purposeful move. It was intended as the first step to both settle some scores, that is to remedy past injustices, but also to embark on a program of essentially reviving and re industrializing the U.S. economy, you know, from the top down, essentially. So this was the intent. It was haphazardly applied depending on the origin of the goods you were importing and the type of goods you were importing changed very rapidly and gave companies both the importers themselves and the consumers of those imported goods. Everybody had their hands full just trying to figure out what this costs to bring in today versus yesterday. How can I manage my customers, how can I manage my suppliers? So it did increase the degree of difficulty. What Liberation day and the tariffs did not do was crash the economy, start a recession and many, many of the things that prominent economists and prominent newspapers editorial pages predicted. So it was tough for companies and expensive for companies. And ultimately by the time the tariffs work their way through to the finished goods, expensive for consumers, it depends how you look at that. But certainly the amount of revenue collected by the treasury in tariff revenue is high enough that somebody had to pay it and it's likely the final consumer. You can go debate that at leisure. But what didn't happen, it was a recession. Some of the things expected to increase, like manufacturing output, actually declined year on year. So I think to step back from it, what I would say at the end of year one is first, all the trade economists who forecast a disaster should repent and say why they failed. I think the simplest reason they failed is the program was implemented in a way that did not provoke retaliation. And I actually agree with many of the early forecasts which were based on what happened at say in the 1930s with Smoot Hawley, where the United States acted and our trading partners reacted by applying tariffs and retaliating at similar levels, which slowed trade down dramatically. And that could have had a catastrophic impact, but didn't. But there may be other reasons and it's a great time when you realize your model of the universe didn't work quite the way you thought it would. So I think there's a project list there for the people who are most skeptical of it. Second, I think the administration could have done a much better job both communicating about and implementing what they really want to do. Most of the administration does not want tariffs. What they want is to re industrialize the economy, by and large, re industrializing the US Economy, that is building more things here, rental, raising the level of manufacturing output in the United States. Tariffs is a piece. But the more important issues are investment issues. And investment has often first, longer term impacts, longer term decision cycles, because it takes a long time to decide to build a facility somewhere and then to actually build it and put it into production. But also what you need in terms of tariffs for strong investment may or may not be high tariffs. In fact, if you're importing equipment, if you're importing materials, making those materials more expensive by tariffs makes the investment less wise, not more wise to the investor. So I think that tariffs have become a big part of the Trump economic agenda. It's not clear how they want to move forward from here. They've got to deal with the Supreme Court's decision. They've got to deal with the reaction of trading partners. They've got to implement and somehow make substantive all the bilateral negotiations they've had. So there's a big agenda. But for me, what I hope we'll be able to say a year from now is we have a clearer idea of what the whole program is for re industrialization. It can't just be tariffs.
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Evan Brown
Bill, how do you react to that?
- [15:32]
Bill Reinsch
I'm in general agreement with Scott. I think all the predictions of a year ago turned out to be wrong. The doom economists were wrong. We're not in a recession. The golden age of prosperity. Trump is brilliant predictions also turned out to be wrong. We're not growing enormously. The most interesting element I think is that the metrics that I think he's looking for, which is increased in manufacturing jobs, that didn't happen. In fact, we have fewer manufacturing jobs now around 90,000 fewer than we had a year ago. 2025 growth was okay, but it was not great. Inbound investment went up, but it didn't go up as much as it had the previous year. So it's a mixed bag. We are not heading into, well, who knows about the war. The war may change everything, but based on the tariffs, we're not heading into disaster. But neither are we headed into paradise. It's more of the same to me. The reasons Scott has had a really interesting one that I hadn't thought about, which is that although I think it's very important, which is they were done in a way that did not provoke retaliation. I'm not sure that that was the plan, but it certainly turned out that way.
- [16:43]
Scott Miller
And that result helped diminish the amount of economic harm as I saw it.
- [16:48]
Bill Reinsch
Well, yes, because most of the projections from the doomer side of the Economist were based on a calculation that included the increased price of inputs to American consumers and manufacturers and also the effect of retaliation on our exporters. And and that didn't happen. So the impact was smaller. It was also smaller because of stockpiling from smart companies who saw this coming and built their inventories up and advanced. It was also smaller because they didn't really go into effect until August, even though April 2nd was Liberation Day. August was when they began. Not all of them, but most of them went into effect. They went in at a significantly lower level than what was originally announced. And there have been a growing number of exceptions all along the way. I think that Bloomberg did an analysis that just came out in the last day or two that calculated of the only 43% of US imports since, well, 43% of US imports since liberation Day are free of any of the Trump tariffs. So there's a lot of slack in the system, if you will, that diminish the impact. Now that may change going forward. One, stockpiled inventories run out. It remains to be seen what Plan B, which is the pile of 301s and 232s and maybe other measures that we talked about in the past when those are implemented, I think our collective prediction is that he'll try to get all that done before the 10% runs out, which is July 24th. When those go into place, I'm predicting they'll be pretty much the same as the agreements that were negotiated, but they could be more, they could be less. So the impact may change. But I think that the key element here is that while it has not been as bad as everybody feared, I don't think that it has moved him closer to his basic goal of re industrializing the country.
- [18:49]
Scott Miller
Right. That's a much longer term project and it's complex and detailed and, and some of what you do might be tariffs, but that's not the whole story.
- [18:58]
Bill Reinsch
Well, exactly. Making an investment here, building a plant here, is a decision that involves a whole bunch of variables, not just the tariff variable. And even if you decide to go forward, it takes time. You know, and I think one of the assumptions by a lot of people, including I think some people in the administration, was we're going to do this, you know, and then in three months all these factories are going to be here. Well, it's not going to be three months, it's not even going to be three years, it's going to be longer than that. And we can look back on this in 10 years and say yes, there was an impact or no there wasn't, but it's going to take that long to really figure that out.
- [19:30]
Evan Brown
Well, Bill, you mentioned the, the pile of 301s we've embarked on post the IPA decision, and we're starting to see some reaction to those 301s. So China last Friday announced two investigations into US trade practices. What is the significance of these investigations? Do we actually expect new tariffs from China on the U.S. well, you know,
- [19:51]
Bill Reinsch
today we have a cliche for every topic. You know, what goes around comes around. The Kennedy quote, the China cliche is the more things change, the more they stay the same. And what you've got here is an interesting case of what the Chinese almost always do, which is tit for tat retaliation. When the United States rolled Out its pile of 301s, it had two categories, overcapacity and forced labor. China is on both lists. The first is a list of 15. The second is a list of 60. China is on both lists. China, I think, no surprise, announced just a few days later that it has created two unfair trade practice investigations against the United States, conveniently pretty much matching the two the United States has put in place that will affect the Chinese. Now, it's been a little bit difficult trying to figure out exactly what it is that the Chinese are investigating. What they've said is that the United States is disrupting global supply chains by its restrictions on Chinese imports, which are obvious, that there are restrictions, and also through our export controls on high tech products, which have been something the Chinese have complained about vigorously for the last, going back into the Biden administration and restrictions on investments. The other investigation looks at trade barriers that we've erected or allegedly erected to renewable energy products. So green goods. You know, it's the second or third day of the investigations. I think I can safely predict that while the United States is going to find the Chinese guilty on both counts and the Chinese are going to find us guilty on both counts, and we
- [21:35]
Scott Miller
will have done a bad, bad thing by the time it's all said and done.
- [21:39]
Bill Reinsch
Whether these are real investigations or not, we'll never know. But it doesn't matter because the outcome, I think, is preordained. They will probably wait to see what we do, and then they will do something that is roughly the same.
- [21:51]
Scott Miller
Yes, there was a similar announcement by the US which has a somewhat homespun title, which is they're going to form a Board of Trade to discuss these issues, which I thought was just like, are you going to meet at the Cracker Barrel? I mean, this is way too sophisticated for Waffle House, but you need a place that hosts like Rotary Club meetings to have the Board of Trade meet. But it turns out they appear to have just renamed what every administration has done, which is find some senior officials who can talk to the Chinese senior officials and clear some brush out of the way, make some things happen. We had the Strategic and Economic Dialogue and the Strategic Economic Dialogue and the
- [22:36]
Bill Reinsch
Joint Commission on Commerce and Trade.
- [22:38]
Scott Miller
Jcp. That's right, Joint Commission on Commerce and Trade. All sort of much higher minded than the Board of Trade. But that's fine.
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Bill Reinsch
They're all the same. That's the dirty little secret.
- [22:47]
Scott Miller
Yes, the same idea.
- [22:49]
Bill Reinsch
Old wine, new bottles. You know, Although I have to say, when I was in the Clinton administration, that was when they had the jcct, and it actually turned out unexpectedly to be a useful thing in the sense that companies would be invited to participate and they would come in and bring in their complaints. And there was no shortage, even at the time, of complaints about Chinese practices. But what they discovered was that the Chinese Minister of Commerce at the time, Lu Yi, who was one of the few women to rise that high in the Chinese system, actually paid attention in the meeting. And if a particular complaint intrigued her, she would actually go back to Beijing and do something about it.
- [23:32]
Scott Miller
The key was, you have every senior official in the room. It wasn't delegated to staff, and they were raising genuine issues. So that made it work.
- [23:42]
Bill Reinsch
And then it grew because companies realized, hey, we can come to this meeting and we can complain, and we actually have a shot at getting relief. You know, it's not just pro forma. You know, you don't win every single time, but somebody wins and some number of people win, and so we need to participate. And it got bigger and grew more, I think, throughout Clinton's term as people began to understand it really can be a useful vehicle for problem solving. Even in the Biden administration, which I don't think they had a name for it, but they kind of broke tradition. Well, Trump 1.0 didn't have a name for his either. But there's always, you know, dialogue at senior levels. And Biden actually started two interesting ones via Treasury Secretary Yellen on very specific issues. And one of them was about overcapacity. And I had the opportunity to meet with the guy who was running it. It was done at the sub cabinet level. And it was interesting because it didn't accomplish much, but it ended up being an economist to economist dialogue, where the US Economists would go and meet with basically their Chinese economist counterparts and talk about what was going on in the Chinese economy and about overcapacity and what impact it was having. And from the US Perspective, not just why it was bad for us, but why it was bad for them, which was the bigger point. And I think it came to an end, of course, after Biden left office. But I think the verdict seemed to be them. They actually were making progress on getting mutual understanding of the problem, and then they hit a wall, because then the obvious question from the Chinese was, okay, we understand overcapacity is an issue. What do you think we should do about it? And at that point, the US Has a standard answer to that question, and it's the same answer that it's had for the last 30 years. Deregulate your economy, make it a true market economy, stop your subsidization, let incompetent
- [25:45]
Scott Miller
companies go broke, let fail companies go
- [25:47]
Bill Reinsch
out of business, Let the market work. And I think for the Chinese economists, that was not something they'd been trained in, number one. But more importantly, I think they realized that given the current Chinese political leadership, it would not be a good career move in China to advocate that. And so nothing ever happened except that I think they understood each other well. And I think both sides probably came to the conclusion that if both sides, politicians, listened to their own economists, we'd probably be better off. And neither side was doing that.
- [26:20]
Scott Miller
Well, there's hope for that. Banquet room at the Applebee's on Wednesday nights. Maybe the Board of Trade can be the first when to start their meetings there.
- [26:28]
Bill Reinsch
Well, it's a funny name, and I think we're right to make a joke of that because. But it's not.
- [26:34]
Scott Miller
It's not a crazy thing to do.
- [26:35]
Bill Reinsch
The concept. It's not a crazy thing to do. And the concept does have some promise. The question will be whether they actually carry it out. And one difference this time around compared to earlier iterations, I think will be the Chinese will come in with a lengthy list of complaints of their own. For the jcct, this was all kind of new to the Chinese, and they were almost entirely in listening mode, which was good for us. We could talk, they would listen, and then maybe something would happen. I think going forward, they're going to be in talking mode as well as we. They've got a lot of things they don't like, and we're unlikely to fix them, but, you know, it'll be a good dialogue.
- [27:15]
Evan Brown
Well, I think that's a great place to close. Always a pleasure, guys, and a happy or sad liberation day to all who are observing. Thanks, guys.
- [27:23]
Bill Reinsch
Thank you. You've been listening to the Trey Guys, a CSIS podcast. For more audio content, visit csis.orgpodcasts thanks for tuning in.