Following the close of a second quarter that will be best remembered by President Trump's vacillations on trade, Axios has dropped a Sunday night bombshell that may spook markets hoping for a respite from the daily escalating trade war rhetoric as the second half of the year begins: White House reporter Jonathan Swan has obtained a copy of a draft bill, purportedly ordered by Trump himself, that would allow the US to "walk away" from its commitments to the World Trade Organization.
If passed, the bill (entitled the "United States Fair and Reciprocal Tariff Act") would effectively blow up the WTO, an organization that the US helped create back in the 90s, by allowing Trump to unilaterally ignore the two most important principles:
The "Most Favored Nation" (MFN) principle that countries can't set different tariff rates for different countries outside of free trade agreements;
"Bound tariff rates" — the tariff ceilings that each WTO country has already agreed to in previous negotiations.
"It would be the equivalent of walking away from the WTO and our commitments there without us actually notifying our withdrawal," one anonymous source reportedly told Axios.
The bill asks Congress to hand over to Trump unilateral power to ignore WTO rules and negotiate unilateral trade agreements.
The leak of the draft bill follows another WTO-related scoop from Axios, published last week, where Swan reported that Trump has repeatedly badgered his aides about pulling the US out of the WTO, which the president has famously criticized as a "disaster".
The bill's chances of making it through Congress are extremely low. However, if Trump has taught us anything about his trade agenda, it's never say never.
- "The good news is Congress would never give this authority to the president," the source added, describing the bill as "insane."
- "It's not implementable at the border," given it would create potentially tens of thousands of new tariff rates on products. "And it would completely remove us from the set of global trade rules."
Trump was reportedly briefed on the draft in late May. Most of the individuals who were involved in the drafting of the bill assumed it would be "dead on arrival" - that is, all but Trump advisor Peter Navarro, who repeatedly encouraged Trump's anti-free-trade positions. The White House, the US Trade Representative and the Department of Commerce were consulted during the drafting of the bill.
While the bill might be able to find enough support to pass in the extremely pro-Trump House, Republican proponents of free trade in the Senate would likely balk at the prospect of trashing the existing free trade order, while Democrats would be reluctant to hand more unilateral authority to the president.
It's also worth noting that Congress is already trying to roll back Trump's steel and aluminum tariffs in the form of a bipartisan bill authored by Republican Sens. Bob Corker and Pat Toomey and Democratic Sen. Michael Bennet.
- In a White House meeting to discuss the bill earlier this year, Legislative Affairs Director Marc Short bluntly told Navarro the bill was "dead on arrival" and would receive zero support on Capitol Hill, according to sources familiar with the exchange.
- Navarro replied to Short that he thought the bill would get plenty of support, particularly from Democrats, but Short told Navarro he didn't think Democrats were in much of a mood to hand over more authority to Trump.
White House spokeswoman Lindsay Walters acknowledged that the bill was genuine, but cautioned that the public shouldn't take it too seriously - after all, Trump's frustrations with the WTO are already widely known.
- But Walters signaled that we shouldn't take this bill as anything like a done deal. "The only way this would be news is if this were actual legislation that the administration was preparing to rollout, but it’s not," she said.
- "Principals have not even met to review any text of legislation on reciprocal trade."
- Between the lines: Note the specificity of Walters' quote above. Trump directly requested this legislation and was verbally briefed on it in May. But he hasn't met with the principals to review the text.
The report sent US futures lower off the gate as trade tensions once again reared their ugly head, although the BTFDers promptly emerged, and with their traditional non-challance and disregard for risk or news, quickly sent futures back to unchanged.
Dismantling the WTO risks sparking a global trade war, which could have some very serious consequences.
Read the draft bill below: