Could the US trade war lead to lower global tariffs? - Standard Chartered

The optimism that US trade policies may lead to lower global tariffs is misplaced. The WTO under Trump is symptomatic of a wider crisis for multilateralism. Countries will face challenges lowering tariff rates given WTO MFN requirements. FTA negotiations and implementation can take years, extending the period of uncertainty, Standard Chartered's economists Madhur Jha and Philippe Dauba-Pantanacce note.

From multilateral to bilateral

"Clients are increasingly asking whether US trade policies could actually benefit global trade by lowering tariff levels significantly across the board. We think such optimism is misplaced; rather, the risk is of an extended period of uncertainty that is detrimental for the global economy. The trade war launched by the US administration has been presented with various rationales and objectives, but it is part of a deeper theme that underpins Trump's approach to trade and foreign affairs: he and his administration are deeply skeptical of, if not outright opposed to, the concept of multilateralism. They have described the multilateral system as extracting undue concessions from the US, favoring unfair practices and infringing on US sovereignty. The US has paused its contributions to the WTO after undermining its Appellate Body for years."

"The desire to avoid punitive US tariffs is likely to see partner countries try to lower tariff levels for the US. However, WTO membership implies that these lower tariffs should also be extended to other WTO trade partners on a Most-Favoured-Nation (MFN) basis. This is unlikely to be palatable to most economies for various reasons. The alternative is for these economies to try to negotiate free trade agreements (FTAs) with the US. The Trump administration has said that more than 130 countries have indicated a willingness to negotiate FTAs. However, past trade negotiations suggest that this can take a long time. It has taken on average 18 months for the US to sign an FTA and 45 months to implement any agreement. In the interim, uncertainty is likely to prove a significant drag on growth."