Foreign Policy Research Institute A Nation Must Think Before it Acts What Do Trump’s Tariffs Mean for the World Trade Organization?
What Do Trump’s Tariffs Mean for the World Trade Organization?

What Do Trump’s Tariffs Mean for the World Trade Organization?

It’s not unusual for U.S. politicians on the campaign trail to decry free trade. Most voters will be happy to hear that they can blame other countries for their own economic problems. And most politicians know that it’s safe to talk tough on trade before an election, but then they quietly reverse course once in office. Republicans, of course, usually don’t have to distance themselves from market liberalization; their constituencies usually favor free trade and preferential trade agreements.

But now, we have an announcement of major tariffs being imposed on imports of steel and aluminum by President Donald Trump—tariffs from which NAFTA members Canada and Mexico will be exempt, leaving the most vulnerable parties as the European Union, South Korea, and Brazil. This announcement has led to a scramble for bilateral talks, as countries rush to set up meetings in DC in the hopes of procuring a place on the exemption list.

Of course, the World Trade Organization (WTO) is meant to prevent these situations: both the unilateral raising of tariffs and the need for countries to strike side deals. The WTO, and its predecessor the GATT, came into existence for three primary reasons. The first was to ensure that its member states enjoyed the same preferential status in terms of their exports. Second, it gives countries a forum to discuss and prevent potential disagreements in terms of trade, so that matters could be resolved without resorting to unilateral tariff increases. Third, it provides formal adjudication if countries can’t settle their disputes amicably.

The announcement of the steel and aluminum tariffs, and the subsequent flurry of possible exemptions, already shook the first two of these pillars of the WTO. Although raising tariffs can at times be permissible under WTO rules, the scale and suddenness of these tariff increases is unusual. Furthermore, if countries race to strike private deals with one another, it undermines the whole point of a multilateral system of negotiations existing to produce consistent trade rules.

Do Trump’s tariffs and the international community’s response spell the end of the WTO and of the multilateral regime for global and liberalized trade? Or is it just further evidence that the system was already in decline?

After all, when the organization was founded in 1995, WTO members meant to move forward quickly to negotiate a new round of trade liberalization, with an ambitious schedule that was meant to level the playing field between developing countries and the rich world. But even its first attempt to set the agenda, in 1999, was stillborn, and subsequent efforts have stalled after a negotiating impasse. Additionally, although the WTO is meant to be the dominant institution in terms of trade rules, there are now around 600 preferential trade agreements (PTAs) notified to the organization. Although these PTAs are permissible under WTO rules, they create a maelstrom of overlapping rules, schedules of liberalization, and dispute settlement mechanisms that complicate the global regime for trade. Furthermore, if trade negotiators are focused on carving out preferential deals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the new moniker for the Trans-Pacific Partnership after the U.S. withdrew), it diverts their efforts from crafting a more inclusive global playing field for trade under WTO auspices.

But the third pillar of the WTO—dispute settlement—is probably the most vibrant part of the organization. Countries have brought over 500 cases to the WTO since the organization’s inception. The U.S. has brought over 115 complaints to the WTO; it has been the target of disputes in another 136; and it has sat as a third party to 142 cases. 

And while delegates from some countries affected by the steel and aluminum tariffs rush to Washington for meetings, others are likely gathering legal counsel to explore the option of bringing a complaint against the U.S. to the WTO’s court.

So even if the WTO cannot prevent the tariff increases and the bilateral talks, dispute settlement is meant to at least provide a backstop to countries’ actions in the global system of trade. But this process is lengthy and slow, and will probably not kick in until after countries, companies, and consumers have already felt the pain of rising prices.