United States, explained.
Shipping containers at the Port of Long Beach in Long Beach, California (Kyle Grillot/Bloomberg via Getty Images)
Only multilateral action will ensure trade’s full benefits flow to all countries.
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The Supreme Court ruling means we need international institutions more than everThe Supreme Court ruling means we need international institutions more than ever
The US Supreme Court decision has upheld that only Congress has the power to tax, ruling that the President cannot use the International Emergency Economic Powers Act (IEEPA) to impose tariffs . The decision takes off the table is the use of tariffs for the primary purpose of raising government revenue. But it does not remove the disruptive role that the US has been playing for global trade and investment. In response to the court, Donald Trump has already announced a 15% tariff on all countries, with Section 122 of the 1974 Trade Act giving the President the power to impose such measures for a maximum of 150 days.
Trump will no doubt look for new ways to impose lasting tariffs, including through national security justifications under section 232 as is currently applied to steel and some other products. Tariffs are his weapon of choice to coerce other countries into agreements that have included benefits for the Trump family as well as favouring some US businesses at a cost to US consumers and other US businesses. It is this coercion, as well as the uncertainty generated by a constantly changing US trade policy, that are reducing the power of trade and foreign investment as drivers of economic growth.
As the global environment changes so too the rules of the game need to evolve.
The majority of countries have not retaliated against US tariffs, and some have been induced to reduce their own protection. The Most Favoured Nation (MFN) requirement under World Trade Organisation (WTO) requires these tariff reductions to be applied to all trade partners, not just the United States. This MFN requirement allows importers to choose the lowest cost international supplier rather than being restricted to suppliers from the US. MFN is one of the WTO rules that the Trump administration wants to overturn.
While a collective sigh of relief no doubt went up at this Supreme Court decision, this is not the time to relax. Canadian Prime Minister Mark Carney’s speech at Davos was a call to middle powers to work together to push back on great powers use of economic relationships as weapons of coercion. As I have argued before, there are a host of international institutions that, while far from perfect, offer a platform to support such efforts. Yet since the pandemic and accusations made against the World Health Organisation, there has been a campaign promoted through right wing think tanks and podcasters to undermine support for international institutions. This campaign has been very effective in shaping the MAGA international agenda. In Australia One Nation has picked up much of the MAGA agenda, including their policy of taking Australia out of many multilateral institutions.
Countries do cede some sovereignty when they join a multinational institution because they agree to follow the rules of the institution. But they do so in exchange for the benefits that come from all members following the rules. Member countries should also be able to exert influence in changing those rules so that the institution remains fit for purpose. A common complaint from countries that have been termed the “Global South” is that the rules were made by developed countries in “the West”. Some have argued that this legacy is a reason to scrap the institutions. But neither MAGA nor these Global South advocates provide a sensible alternative. Trump’s Board of Peace, ostensibly for the reconstruction of Gaza, is hardly a sustainable model, relying as it does on Mr Trump, including as president for life.
While One Nation would like Australia to take its bat and ball and go home, Australians would be better served by continuing to play the game. As the global environment changes so too the rules of the game need to evolve. Alan Wolff at the Peterson Institute for International Economics has made a persuasive case that small powers really can create a new world trading order within the current WTO system. Australia has played a pivotal role in the past, bringing other countries on board with new rules in areas from agricultural trade to domestic services regulation.
With the Trump Administration looking for new ways to pursue a “might means right” trade and investment policy, small and medium countries need to band together to agree on rules that keep trade and foreign investment as engines of growth. Why not keep the international institutions, not least the WTO, as the playing field. It is easier to negotiate new rules if other players are on the same field.
About the author
Jenny Gordon
Dr Jenny Gordon is a Nonresident Fellow at the Lowy Institute and also a Honorary Professor at the Centre for Social Research and Methods at the Australian National University.
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