While the American cat is away, foreign regulatory mice are seizing the day. Donald Trump’s trade policy is focused on unilateral measures, opening the way up to bilateral disputes, not least of which with China. Meanwhile, the EU and other governments have quietly got on with extending their rules over the global economy.
Two events over the past two weeks underline the cost to the US of standing by while rule-setting goes on without them. First, Australia became the sixth of 11 countries in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership to ratify the deal, allowing it to go into effect. The deal started life as the Trans-Pacific Partnership and was pushed by previous US administrations, before Mr Trump pulled out on the apparent grounds that it was a large international trade deal and therefore he did not like it.
An immediate impact is that US farmers will face a competitive disadvantage selling into Japan, thanks to the tariff cuts now enjoyed by their Canadian and Australian rivals. Less immediate but more important for the long-run interests of US companies, if not consumers, is that rules on intellectual property lobbied for by America’s pharmaceutical industry were heavily watered down after the US left the pact.
The other cautionary tale was that Apple and Facebook have called on the US to enact similar privacy rules to those in the EU’s General Data Protection Regulation. Anything that a company such as Facebook says about privacy should be regarded with scepticism, but there is no doubt that GDPR is causing governments around the world to consider copying at least some of its approach.
The EU has continued to churn out one trade deal after another, the latest being signing a bilateral agreement with Japan and a long-awaited pact with Singapore. Much of the CPTPP retains the US stamp, but the EU already has bilateral deals with seven of the 11 countries involved and is negotiating with another two. The US’s recent changes to the trade deal with Canada and Mexico formerly known as Nafta did not prevent the EU quietly updating its bilateral deal with Mexico. In doing so it extended a policy loathed by the US — legal protection for “geographical indications”, or food names associated with particular regions.
And more pervasive, if lower profile, than the EU’s deliberate exporting of its rules through trade agreements is the established phenomenon of the “Brussels effect”. Countries often adopt EU rules, initially as the price for selling into the European market and subsequently for regulatory simplicity and predictability. The US complains bitterly about countries adopting overly strict or unscientific rules on chemicals and food, for example.
It may well have a point. But as long as Washington has absented itself from the business of rules-setting it can hardly be surprised.
Brussels is ruthless in setting its own rules and requiring trading partners to comply. The UK, currently locked in negotiations about financial services rules with the EU, has been forced to abandon unrealistic ideas of Brussels regarding British regulations as equivalent to its own and extending easy access to the European financial services market on that basis.
If and when the US tempers its unilateralist stance, it will recognise it has ceded ground to other countries in setting the rules by which its own companies will end up abiding. Whatever the outcome of the battles it has engaged in, including with China, the US will have done itself and its companies a profound disservice by its neglect of a central aspect of modern commerce.