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analysis

Globe and Mail reporter Barrie McKenna.The Globe and Mail

Donald Trump has been more talk than action when it comes to trade – so far.

Sure, he's pulled the United States out of the 12-country Trans-Pacific Partnership and signalled his intent to renegotiate the North American free-trade agreement.

But it's not yet clear how the U.S. President's vow to radically overhaul the country's trade stance will play out.

Mr. Trump offered a hint at the new approach recently when the United States and China struck a 10-point trade agreement that opens up the two countries' respective markets for a short list of products, including American beef and liquefied natural gas, and Chinese banks and chicken.

On the surface, it's not a big deal. And it won't do much to ease China's massive trade surplus with the United States.

But it's the first manifestation of the Trump administration's stated goal of getting reciprocal market access, country-by-country, instead of working though multilateral trade channels, such as NAFTA or the World Trade Organization.

Indeed, reciprocal has become Mr. Trump's new favourite word.

"I love the word 'reciprocal,' because we don't have too many reciprocal trading partnerships," he said last month after a meeting at the White House with Italian Prime Minister Paolo Gentiloni.

He's partly right. The United States has among the lowest average tariffs in the WTO, at 3.5 per cent. In China, the average is 10 per cent, and in the European Union, 5 per cent.

The global trading system has also made the United States one of the wealthiest and most competitive markets in the world, with low prices for consumers.

And while reciprocity seems like a reasonable strategy, it would be a repudiation of more than 80 years of U.S. trade policy. The most-favoured nation, or MFN, principle is the cornerstone of the WTO agreement, and before that the General Agreement on Tariffs and Trade (GATT). What it means is that you can't grant a special favour, such as a tariff cut, to one country, without extending it to every other WTO member. There are a few exceptions, including concessions made to poor countries or special rights granted to fellow members of a free-trade agreement, such as NAFTA.

The MFN concept, first embraced by U.S. President Franklin Roosevelt in the 1930s, was designed to make trade negotiations easier. Trading partners could feel safe that they wouldn't be blindsided by another country with a slightly lower tariff.

It has also benefited latecomers to the WTO, such as China, which automatically secured the tariff rates applied to other members when it joined in 2001.

The MFN principle also means that the U.S. cannot simply raise its tariffs against countries that have higher ones.

But that is exactly what Mr. Trump has threatened to do. Charge high tariffs on U.S. products and prepare yourself for a counterpunch.

The Trump administration laid out its new view of the world in its 2017 Trade Policy Agenda, released in March. The document makes the case that WTO, NAFTA and other trade deals are failing to hold countries accountable for the bargains they make.

"It is time for a more aggressive approach," the document states. "The Trump administration will use all possible leverage to encourage other countries to give U.S. producers fair, reciprocal access to their markets."

Mr. Trump has said that trade deals "have to be fair, and somewhat reciprocal, if not fully reciprocal."

Commerce Secretary Wilbur Ross has been even more explicit, saying the MFN principle stands in the way of the United States getting "anything like a reciprocal agreement."

Canadians are quite rightly preoccupied with the renegotiation of NAFTA.

But Mr. Trump is girding for a much bigger fight with the WTO, whose 164 member countries account for virtually all global trade.

And that's bad news for the kind of rules-based trading regime that smaller countries such as Canada depend on.

It's one thing for the United States to cajole China and others into opening their markets.

But bullying China or other countries under the threat of tariffs is more likely to lead to more protectionism, not less, if countries retaliate.

Even more dangerous is the message it sends to everyone when the world's No. 1 economy is no longer playing by the established rules of the road.

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