President Donald Trump and his trade advisers have often threatened to withdraw from the World Trade Organization (WTO). Now Senator Josh Hawley (R-MO) has introduced a joint resolution of Congress to do just that. The measure has no chance of passage. For one thing, the chairman of the Senate Finance Committee, Charles Grassley, is opposed, and lawmakers on all sides recognize the potential for more economic disruption in the middle of the biggest economic crisis since the Great Depression.
But even in defeat, the WTO withdrawal resolution might be seen as a victory for Senator Hawley and his political mentor in the White House. The overt attack on the WTO complements Trump’s efforts to pressure other WTO countries to bend the organization to Washington’s demands; it also reinforces the China bashing theme of Trump’s reelection campaign.
Like Trump, Hawley sees the rules-based WTO system as an obstacle to American sovereignty. His charge sheet against the WTO reflects White House talking points: US negotiators paid too much in past negotiations and got too little in return; competitive traders like China unfairly exploit rules to help poor developing countries; and the system for settling disputes is flawed with rulings that impinge on US rights and expand US obligations beyond what was agreed at the negotiating table. There is a kernel of truth in these broad allegations, but much of it is hyperbole. In almost every instance, the solution lies in formulating better rules and closing existing loopholes. And that requires cooperation from US allies, all of whom support the WTO.
Hawley’s critique is also a proxy for attacking China. In a New York Times op-ed he accused China of maintaining “protectionist workarounds” and stealing American intellectual property, which the United States could not contest because of restrictive WTO obligations. These complaints echo those of US trade officials, who in recent years have sought new WTO agreements to blunt subsidies to state-owned enterprises, regulate digital trade, and ban forced technology transfer. Efforts to build such agreements have been obstructed in recent years by US trade restrictions against the very allies the United States needs to construct those new trading rules. If passed, Hawley’s resolution would exacerbate the problem and leave a giant vacuum in the global trading system that China would gladly fill.
Hawley wants to abolish the WTO, which is absurd on its face. The WTO is a membership organization that would continue without the United States, just like the Trans-Pacific Partnership (TPP) has despite US withdrawal when Trump took office. In each case, the losers are US exporters, who would face greater discrimination in markets around the world. One already sees signs of similar action in the WTO: US officials disabled the WTO Appellate Body to put pressure on other WTO members to accept US demands for reform of WTO dispute settlement procedures. In its place, China, the European Union, and 17 other WTO members have instituted a parallel process to appeal dispute rulings that do not involve the United States.
In place of the WTO, Senator Hawley believes that US negotiators can get better deals by scrapping past agreements and negotiating new bilateral pacts “in concert with other free nations.” That is also the Trump mantra. To date, however, Trump’s trade pacts have produced meager results:
- The new US-Mexico-Canada trade agreement (USMCA) is a mixture of the old North American Free Trade Agreement (NAFTA); TPP innovations on labor, environment, and digital trade; and new restrictions on autos and government procurement. A 3.25 percent increase in the dairy quota for US exports to Canada is one of the few trade opening measures. Overall, studies by the US International Trade Commission (USITC) and C.D. Howe Institute, as well as the Peterson Institute for International Economics (PIIE), project the USMCA will cause small net losses in US output and employment.
- The US-Japan deal, phase 1, largely recoups benefits for US farm exporters that were thrown away when President Trump dropped out of the TPP and mirrors obligations adopted in the USMCA digital trade deal.
- The US-Korea FTA rewrite did nothing of significance commercially except to force Korea to accept new US national security restrictions that limit Korean steel exports.
- The US-China trade deal, phase 1, with Chinese commitments to purchase $200 billion of US products over two years based on 2017 US export levels, was never feasible and now seems destined to fall short. Promised large sales to China of US farm and energy products will likely go unfulfilled. What remain are US penalty tariffs on two-thirds of Chinese exports to the United States, which impose heavy burdens on US companies.
These deals have barely done anything to improve US access to foreign markets compared with previous pacts. Indeed, foreign retaliation against US exports in response to US protectionist trade measures has badly hurt US farm and other exports. Increased US trade protection has raised production costs for US manufacturers reliant on foreign inputs. All told, President Trump’s efforts to rebalance trade have had a perverse impact on US output and international competitiveness. He doled out increased subsidies for US farmers (paid by US taxpayers from trade war tariffs), but his disruptive policies have tarnished reputations and cost market share in key Asian markets. Senator Hawley should ask Missouri’s farmers and auto companies if they are better off now than they were in the pre-Trump era.
Senator Hawley is right in arguing that the “United States must seek new arrangements and new rules, in concert with other free nations….” But US allies will hardly welcome disruptions to their trade and investment that inevitably result from the reshoring of supply chains to the United States, which he and the White House advocate.
To be sure, supply chains will be recalibrated given US-China frictions and new disruptions arising from the COVID-19 pandemic. But this is a job for companies as they build more redundancy into production networks and rethink stockpiling and distribution channels for vital supplies. The White House does not have the requisite expertise to reconfigure supply chains and should avoid policies that needlessly complicate them.
As a student of history, Senator Hawley should revisit the major conferences in the 1940s that molded postwar international economic institutions. He will discover that the multilateral trading system is based on American values, law, and practice and designed by American architects. Yes, the WTO needs updating. But the United States, as it has done throughout the postwar era, should be leading that effort instead of obstructing it. With responsible US leadership, our allies will follow.
To read the full blog post on Peterson Institute for International Economics (PIIE) website, please click here