Preparing for a World Without the World Trade Organization

The World Trade Organization is dying. We’ll miss it when it’s gone, for many reasons. But one stands out in particular: The WTO helps keep national leaders from doing economically harmful things for domestic political reasons. Without that constraint, we can expect governments to take more and more actions that are politically popular but harmful to both their national economies and to the global economy.

The decision last week by a WTO dispute settlement panel that ruled against the Trump administration’s tariffs on China is a sign of what’s in store. The president’s China trade policy has been a colossal failure—Linette Lopez of Business Insider called it “an unmitigated, farcical disaster.” The U.S. trade deficit with China that once so concerned Trump is now back at the record levels of 2008. China’s purchases of American goods are falling far short of its pledges under Trump’s cherished “phase one” trade deal. And Beijing is backing farther away from structural reform in favor of state-led development. For that, U.S. consumers and manufacturers are paying tariffs of as high as 25 percent on most Chinese imports, while U.S. farmers still face retaliatory tariffs in China and are being bailed out yet again by the government.

With that sorry record, the WTO panel ruling could have been a godsend, allowing the United States to retreat and reconsider without losing face. Instead, U.S. Trade Representative Robert Lighthizer slammed the ruling, saying it was just more proof that “the WTO is completely inadequate to stop China’s harmful technology practices.” He promised that the administration “will not let China use the WTO to take advantage of American workers, businesses, farmers and ranchers.” And since the Trump administration has neutered the WTO appeals court by blocking new appointments, the administration can ignore the ruling without consequence.

Previous American presidents better understood the value of the WTO in constraining their own worst impulses. Prior to the Trump tariffs, one of the more cynical misuses of trade policy by the United States was the George W. Bush administration’s tariffs on steel imports in 2002, loosely justified under the WTO “safeguards” rules. Bush administration officials were quite candid at the time in acknowledging that the tariffs were a political move, both to shore up support in Congress for its liberalized trade agenda, and to help the president in electorally important states like Pennsylvania and Ohio. But the tariffs took a big toll on steel-using industries; many more jobs were lost in those industries due to higher tariffs than were added in steelmaking. When a WTO dispute panel ruled 21 months later that the tariffs violated WTO rules, clearing the way for tariff retaliation by the European Union and others, Bush quickly removed the tariffs.

A world without binding WTO rules is going to be much more problematic for the next president. While Trump promised that his tariffs on both China and U.S. allies like Canada and the European Union would help lead a manufacturing revival, there are fewer U.S. manufacturing jobs today than when he took office. His Democratic rival, Joe Biden, is promising to create 5 million new manufacturing jobs. But if he wins the White House, Biden will be saddled with a continued economic drag from the tariffs and no ready way to get rid of them without looking soft on China. Unlike Bush, the WTO will not be coming to his rescue.

Without the WTO, we can expect governments to take more and more actions that are politically popular but harmful to both their national economies and to the global economy.

U.S. proponents of weakening or withdrawing from international organizations and agreements complain that they are tying the country’s hands. They have a point—smaller countries are certain that they benefit from the rules-based trading system, because it ties the hands of the strong as well as the weak. Smaller economies like Mexico, South Korea, Brazil, Indonesia and Thailand have all had regular recourse to WTO dispute settlement. Powerful countries like the United States and China have been the largest users of that system, but they are constantly tempted to go it alone, calculating that their sheer weight allows them to get their way more often than not.

What critics of international arrangements ignore is that they also strengthen the ability of leaders to rise above short-term political pressures. A U.S. government committed to meeting emission targets under the Paris Agreement, for example, would be better equipped to push back against entreaties from fossil fuel producers and their allies in Congress—no small blessing in this summer of hurricanes and runaway wildfires. In his classic study of international economic policy, Harvard political scientist Robert Putnam argued that international agreements often allow leaders to pursue what they see as sensible long-term policies that would have been blocked by domestic interests if not for those international commitments.

Even if Trump is defeated in November, the costs of a post-WTO world are likely to grow. Advanced economies, for example, are moving into a subsidies arms race in which many billions of dollars will be spent to entice companies to “reshore” production from China and elsewhere. The limitations under the WTO’s agreement on subsidies, already weak to begin with, are now being utterly disregarded. Both Biden and Trump are promising stepped-up use of “Buy American” laws that discriminate against foreign companies for many sorts of government purchases. The WTO and other trade agreements limit such actions, but with the constraints gone, other countries will have little choice but to do the same and favor their own companies. The limits on farm subsidies—so painfully negotiated between the United States and the EU during the Uruguay Round of multilateral talks that led to the creation of the WTO—are being tossed aside. That will hurt both taxpayers in advanced economies and farmers in developing countries, who are forced to compete without any similar financial support from their governments.

Critics of the WTO from both the right and left have assailed it as undemocratic and argued that countries should be freer to use subsidies, tariffs and other import restrictions to pursue their domestic economic goals. That argument has some truth to it: The whole purpose of the WTO, after all, is to tie the hands of member countries and prevent them from doing things that are harmful to their trading partners. But the WTO has also always been far more beholden to its most powerful member states than the critics acknowledged.

As America’s founders understood, unencumbered democracy is not usually a good thing. A better arrangement is one in which elected leaders must constantly balance their obligations—to current voters, future generations and, yes, even to other countries. The weakening of international institutions like the WTO pulls away that third pillar, leaving far-sighted leaders with fewer ways to resist short-sighted demands. The results will be economically harmful, in the United States and far beyond.

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