THE DEATH OF THE WORLD TRADE ORGANIZATION

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by Cailen Rodriguez
Staff Writer

In early March 2018, the United States announced a new plan to increase steel import tariffs to 25% and aluminum import tariffs to 10% for all countries. As justification for the move, Trump touts a flimsy national security pretext under the Trade Expansion Act of 1962 which hasn’t been used in 30 years. Doing this undermines the framework of the World Trade Organization and the progress made during the Uruguay Round of multilateral trade negotiations between 1986 and 1994. Trump claims to be revitalizing the interests of domestic producers; however, Trump’s “SMART TRADE” move will likely become a burden passed onto the consumer, which in turn will affect both the steel and aluminum industry, in addition to other industries, adversely. This will result in thousands of jobs lost. History would predict this outcome, as well. In 1929, under the noland0298-fig1Smoot-Hawley Act, the U.S. increased tariffs on imports, which led to retaliation from Europe and resulted in a trade war. The Kindleberger spiral depicts the effects this had on the global economy. Between 1929, when the tariffs were levied by the U.S., and 1933, international trade fell by two-thirds, contributing not only to the Great Depression, but to World War 2 and the rise of Hitler as well. More recently, “studies have found that George W. Bush’s tariffs on steel in 2002 destroyed more American jobs than they save.”[1] All things considered, Trump’s new tariffs should be heeded with caution.

In addition, Trump has threatened to “levy punitive tariffs on an additional $100 billion in Chinese imports, and China’s vow[ed] to fight the United States ‘at any cost’.”[2] This has led some to speculate that this move may be a platform for a U.S.-China trade confrontation, which the Trump administration has long and explicitly signaled. In the past, the U.S. has complained about dumping from other countries, especially China. Proponents of the tariffs cry that such a direct approach may yield greater success than past attempts, citing that problems with China have been piling up for years and WTO rules have thus far been inadequate.

Moreover, close allies including Canada, Mexico, and South Korea[3] will be hit the hardest by these tariffs, although exemptions have been made the latter has been granted a permanent exemption as part of a revised free trade pact. Trump has graciously noted that other partners are eligible to negotiate with the U.S. for exclusion. Still, many countries are not happy about this. In particular, Japan is one U.S. ally upset by the sudden betrayal. Richard Weiner, a representative of the world’s second and Japan’s largest steel producer, Nippon Steel & Sumitomo Metal Corp., said “the imposition of tariffs on Japan while giving exemptions to other close U.S. allies was ‘incomprehensible’… [and] ‘it seems like the president is pursuing a policy based on perceived slights and ancient grievances rather than economic reality.’”[4]  Likewise, immediately after the tariff announcement, the E.U. threatened to respond in kind. Furthermore, the E.U. Trade Commissioner has laid out a 3-pronged response and has marked which products it will target in retaliation should the U.S. tariffs hit the European Union. The E.U. said it will challenge the tariffs by filing a dispute with the WTO. So far, the White House has stated that it’s made agreements with Argentina, Australia and Brazil in regards to trade-related concessions; however, avoiding a showdown with the E.U., the White House has announced it will extend exemptions for another “final” 30-days.

The problem is, the tariffs will have a direct effect in undermining the framework of the World Trade Organization. If the WTO rules against the United States, it risks alienating one of its most prominent members. It would also strike a blow to one of its most important pillars: the sovereignty of its members. In any case, the European Union may be authorized to retaliate in kind against U.S. exports, or in the more immediate future, request compensation for any damages the tariffs have on their economies in order to re-balance market access. Moreover, if the U.S. ignores the ruling, it will catalyze other countries to defy international norms. On the other hand, if the United States wins, it will open the floodgates for other countries to resurrect tariffs under a similar pretense, thereby undermining the international trading regime forever. Regardless, the tariff war will not be settled within the structure of WTO rules, marking an atypical outcome of the last quarter century.

 

[1] “President Donald Trump Wants Tariffs on Steel and Aluminium.” The Economist, The Economist Newspaper, 2 Mar. 2018.

[2] Alden, Edward. “Who Will Walk Trump Back from This Trade War? The President Doesn’t Care about the Damage He’s Doing, but Others Must.” Nydailynews.com, 6 Apr. 2018.

[3] “Factbox: Top Steel Exporters to the United States.” Reuters, Thomson Reuters, 2 Mar.

[4] Mufson, Steven, and Damian Paletta. “Trump Delays Steel and Aluminum Tariffs for Canada, Mexico and European Union, Pulling Back on Major Trade Threat.” The Washington Post, WP Company, 30 Apr. 2018

Images by:

Donald Trump Twitter. “Scoopnest.” Scoopnest, KCTV5 News.
Kindleberger

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