When President Trump ended the 24-year-old World Trade Organization (WTO) dispute resolution court by refusing to name two replacement judges, the move has launched a new era of fair trade.
Axios called the Dec. 11 demise of the WTO Appellate Body as a big win for Donald “Tariff Man” Trump who would now be “free to impose whatever tariffs he likes, without fear that the WTO might find them to be illegal.” Within 24 hours, the U.S. Congress agreed to a new NAFTA trade deal and China cut a deal for a U.S. trade war truce.
The World Trade Organization (WTO) treaty signed by 164 nations transferred final authority over trade disagreements between nations to a multilateral trade dispute settlement organization with an Appellate Body that could issue legally binding edicts.
Candidate Trump in a July 24, 2016 interview on “Meet the Press” told host Chuck Todd that he would “impose tariffs—in the range of 15 percent to 35 percent—on companies like Indiana-based Carrier, which is moving its operations to Mexico.” When Todd told him that “the import-tariff plan wouldn’t pass muster at the WTO,” Trump replied, “Then we’re going to renegotiate or we’re going to pull out. These trade deals are a disaster. You know, the World Trade Organization is a disaster.”
Despite China’s GDP growth since 1995—the world’s second largest economy—and about 100 other treaty signatories are able to still designate themselves as “developing” nations to receive “special and differential treatment” that include extended periods to comply with negotiated commitments to open domestic markets to foreign competition.
The WTO Appellate Body has also tended to rule that America’s use of traditional trade adjustment tools, such as assessing countervailing duties against nations accused of flooding U.S. markets and harming American manufacturers, are illegal. China and other WTO advocates want the Appellate Body to continue serving as the equivalent of a trade Supreme Court where judges interpret trade law and create legal precedents.
Trump promised voters that he would send the job of killing the WTO treaty to the “ash heap of history.” Just months after his inauguration, Trump appointed Robert Lighthizer as United States trade representative. As the former Deputy U.S. Trade Representative under President Ronald Reagan in the 1980s, he had been a fierce critic of how the WTO’s dispute resolution process constrained America’s ability to protect its workers. Lighthizer during his confirmation told the Senate Finance Committee that WTO had morphed “from a negotiation forum to a litigation forum.”
Lighthizer believes that the WTO is fatally flawed because it was designed before the parties understood how much the internet would disrupt commerce and how China would come to dominate global manufacturing. Since his appointment, Lighthizer has targeted the WTO Appellate Body with a campaign of criticizing its rulings and ignoring its authority.
China and other parties filed seven WTO trade dispute cases against the United States last year to reverse Trump’s order of slapping import tariffs on foreign steel and aluminum to protect the U.S. industrial base on national security grounds.
But with the Trump administration refusing to support the required “consensus” necessary to extend or appoint two new justices by Dec. 10, the Appellate Body under the WTO treaty is now unable to “hear” trade cases or issue unilaterally binding edicts.
Former U.S. Trade Representative Carla A. Hills, who served under President George H.W. Bush when WTO was launched as an initiative toward the “New World Order,” told Axios that “we’ve delivered a debilitating hit” to the WTO. She argues that “plurilateral arrangements” like the Trans Pacific Partnership and the China-dominated Regional Comprehensive Economic Partnership will now move forward without U.S. participation.
Senior Fellow for Trade at the Council on Foreign Relations Jennifer Hillman told Foreign Policy magazine: “When you listen to the rhetoric from the Trump administration, they argue that the United States is better off in a power-based, law of the jungle system.”
Trump’s added trade clout after defanging of the WTO on Dec. 11 appears to be a factor in a series of quick moving developments.
The U.S. Congressional Democrats on Dec. 11 agreed to end their 16-month stonewalling of a renegotiation of the North American Free Trade Agreement that Trump has blasted as the “worst trade deal ever.”
Trump on Dec. 12 tweeted: “Getting VERY close to a BIG DEAL with China. They want it, and so do we!” The tentative “phase one” agreement according to Politico, codifies that China will be required to significantly increase its purchases of U.S. agricultural goods, open its financial services sector and enact new protections against intellectual property theft.
The White House has stated that the United States-Mexico-Canada Agreement, which is expected to be signed before the end of the year, will set the American standard for future trade negotiations to “create more reciprocal trade that grows the economy, supports high-paying jobs for American workers, and protects American intellectual property.”
Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.