U.S. Allies Shift Trade Priorities as Trump Rolls Out 'America First'

Eleven Pacific Rim nations agreed to forge a new trade bloc that excludes the U.S. on Tuesday, as President Donald Trump signed an order to block certain cheap Asian imports, illustrating the battle lines of a new global trade climate.

The announcements underscore Mr. Trump's challenge as he prepares to defend his new "America First" trade policy in a speech on Friday to the champions of globalism at the World Economic Forum in Davos, Switzerland.

U.S. officials say that as they escalate more aggressive trade policies in the coming weeks, they will also try to persuade skeptical allies that their actions are intended to improve the international economic system, not to destroy it. The underlying message: the U.S. is neither retreating from trading partners nor fighting them.

"A strong U.S. economy benefits the world, having fair and reciprocal trading relationships help the world, and the U.S. is engaged in trying to help the global economy through reforms like that," said a White House trade official. "That's a message you're going to see us using more frequently in the near future."

It will be hard to convince allies that "America First" goes beyond isolationism and protectionism. The risk is that other countries retaliate against American producers with their own sanctions and step up new trade accords without the U.S.

"Now in some parts of the world, there is a move toward protectionism," Toshimitsu Motegi, the Japanese economy minister said in Tokyo, announcing the agreement of the Trans-Pacific Partnership, redrafted for 11 members after Mr. Trump pulled the U.S. out a year ago. "TPP-11 is a major engine to overcome such a phenomenon."

The emerging Trump trade policy involves three main components, each advanced in different forms this week.

The first is ramping up trade enforcement actions, like the broad, steep tariffs announced Monday aimed at protecting U.S. makers of solar panels and washing machines. Administration officials say more such protections are coming, with studies under way for action on steel and aluminum. The U.S. will also probe weighing action against an array of Chinese goods and investments in retaliation for China allegedly pressuring U.S. companies to turn over valuable intellectual property.

"You'll see what's going to take place over the next number of months," Mr. Trump said during an Oval Office ceremony held Tuesday to sign the solar and washer actions.

The second is either shunning trade pacts negotiated by previous administrations, like TPP, or rewriting them. A large delegation of American trade negotiators is in Montreal this week to press Canada and Mexico for concessions to "rebalance" the North American Free Trade Agreement in ways aimed at steering manufacturing from Mexico back to the U.S.

Mr. Trump's chief trade negotiator, Robert Lighthizer, has indicated that if his counterparts don't show sufficient compromise in this round, Mr. Trump will be more inclined to pull the U.S. out of the quarter-century-old pact. "Nafta is moving along pretty well," Mr. Trump said Tuesday, but added: "I happen to be of the opinion that if it doesn't work out, we'll terminate it."

The third element is to shake up the World Trade Organization, the overseer of the global trading system since 1995. Trump officials say the Geneva body too often rules against U.S. interests, and doesn't do enough to rein in China's state-driven trading system. To make its point, the U.S. is blocking appointments the WTO's court responsible for arbitrating trade disputes between members, a move that risks gumming up the world commercial legal system.

In a tense meeting of world trade officials in Geneva on Monday, Mexico introduced a proposal backed by nearly 60 members demanding the U.S. end its filibuster. Eighteen delegates -- including those from Canada, Europe, and China -- spoke to support the proposal, one warning of "major consequences" for the WTO. The U.S. representative refused to yield.

As the administration advances those three goals, officials are honing their message for how they plan to explain those significant shifts in American international economic policy to allies and trading partners. One theme: "We're not turning away from the system, we're saying the system needs to be reformed to survive," the White House trade official said. "And if anything, we are the ones to save the system from itself."

"There won't be a trade war," Mr. Trump declared Tuesday.

Indeed, many trading partners are sympathetic to one aspect of the Trump administration's criticism: that the WTO doesn't do enough to counter Beijing's government-driven industrial policy. That policy has helped fuel Chinese exports and growing market shares that have destroyed vital industries abroad, from steel to semiconductors. Both the European Union and Japan have recently joined with the U.S. in efforts to get the WTO to more directly pressure China.

But the U.S. challenge is to avoid alienating those countries as Washington either hits them with new trade barriers or rejects longstanding trade arrangements with them. None have so far taken up Mr. Trump on his offer to negotiate new bilateral deals, and many, including the TPP participants, have chosen to strike new deals elsewhere.

Since Mr. Trump's inauguration, the European Union has accelerated a campaign to sign new free-trade agreements around the world, seeking to fill what it sees as a new void in advancing market-opening agreements.

While U.S-EU talks launched under President Barack Obama have stalled under Mr. Trump, the EU last year implemented new pacts with Japan and Canada. The EU this year is seeking to build on that by clinching deals to slash tariffs and open new markets from Mexico to Chile. The EU is also negotiating a trade deal with the Mercosur bloc comprising Argentina, Brazil, Paraguay and Uruguay.

Meantime, both Canada and Mexico signed onto the new TPP pact, with some officials seeing it as a hedge to open non-American markets if Nafta collapses.

The U.S. withdrawal from TPP and its hard-edge negotiating over Nafta have "prompted governments and stakeholders across the region to reassess their reliance on American economic leadership and the U.S. market," the Asia Society Policy Institute wrote in a recent report. U.S. allies, the report added, are "hard at work developing contingency plans for... advancing trade and investment liberalization without the United States."

--Emre Peker in Brussels contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com

(END) Dow Jones Newswires

January 23, 2018 16:22 ET (21:22 GMT)