On the 23rd March 2018, Trump enacted tariffs on steel and aluminium imported into the United States. This represents an anomaly and disturbance to the smooth flow of trade regulated by the World Trade Organisation. Trump’s actions have been described by the Council for Foreign Relations as the day “the World Trade Organisation died”. This blog will illustrate the issues of a weakened WTO, and the challenges ahead for this institution.
To initially consider the importance of a functioning WTO: China has responded to Trump's imposition of trade tariffs by implementing retaliatory tariffs on US imports. This reciprocation demonstrates the ease of escalation of trade disputes, and consequently, the importance of a rules-based trade body like the WTO. Indeed in the absence of the WTO, it is not difficult to imagine a return to 20th-century style trade wars. Most notable is the trade conflict ignited by the US Smoot-Hawley Tariff Act of 1930; a trade war argued to have exacerbated the hardships of the Great Depression.
Conversely, the problems of the WTO can be illustrated through the countermeasure of India. India has formally initiated a dispute in the WTO against the United States citing discrimination. The WTO dispute settlement mechanism attempts to resolve disputes initially through consultations, if this is unsuccessful, the Dispute Settlement Body (DSB) adjudicates.
If the United States loses before the DSB, it will most likely reject the ruling, resulting in a null and void dispute process. This points to an intrinsic and irremediable flaw of the WTO. The dispute mechanism - the fundamental pillar of the WTO - relies on the goodwill of economic superpowers. This goodwill is grounded in an understanding of mutual benefit and the shared goal of global economic prosperity. Trump’s tariffs demonstrate that trust in these ideas has been eroded. While officially Trump cites national security, he also cites an unfair trading relationship with China. It is alleged that China is flouting WTO rules, particularly in relation to intellectual property. As such, it is argued that the country is playing a zero-sum game that contradicts the spirit of mutual gain.
The WTO is vital to free and fair trade; this, in turn, promotes global economic growth and peace.
Whether or not all of the accusations against China are well-founded, the point is that the fragility of the WTO is exacerbated in a system of two economic superpowers. Where previously a harmony existed, crudely put, the key challenge for the WTO is restoring trust through a system perceived as fair by both sides - whether this is even possible, is a consideration at the core of whether a robust WTO can survive.
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