Taking a flawed system and wrecking it altogether won’t strengthen the global economy
The World Trade Organization's new ruling that US tariffs on imports from China broke international trade rules will have no little or no practical effect, not least because Donald Trump's administration has gutted the system for enforcing those rules. Nonetheless, the finding is worth pausing to consider. It marks another step in the president's effort to dismantle the rule-based global trading order — an assault that has already harmed the US and its partners, and that will only do more damage as time goes on.
China had sought the ruling after the US imposed so-called Section 301 tariffs in 2018 in response to Beijing's dubious trade policies, including forced transfer of foreign technology and theft of intellectual property. The WTO says that the US failed to adequately explain or justify the measures, as the rules demand. But there'll be no consequences. The US will either ignore the finding altogether, or lodge an appeal with a WTO panel that it has paralyzed by blocking the appointment of new appellate members. And China has already raised its own tariffs in retaliation — also in violation of the rules.
The significance of the news lies more with US Trade Representative Robert Lighthizer's account of what happened. He said it proves him right: The WTO's rules are no use, and the organization has failed to rise to the Chinese challenge. "This panel report confirms what the Trump administration has been saying for four years: The WTO is completely inadequate to stop China's harmful technology practices," he said.
Actually, most governments and trade-policy experts agree that the WTO's rules need reform, and that China's distinctive "state capitalist" model of development has put the system under stress it was not meant to handle. The question is, why isn't the administration leading like-minded governments in designing these changes? Why has it chosen, instead, to alienate would-be allies and simply wreck the system altogether?
Flawed as the global trading order might be, it was designed and built by the US and its friends in pursuit of mutual economic advantage — and it succeeded better than anybody had dared hope. For decades, expanding international trade powered global economic growth. Every country that participated saw rising incomes, improved living standards and a better quality of life.
To be sure, growth is disruptive, and policy in the US and elsewhere failed for too long to attend to the costs that economic change imposed on many workers and their communities. But the best way to address that challenge is with more effective social insurance and help in adapting to change. Against a background of rapid growth and rising incomes, supported by expanding trade and competition, policies like that are affordable. Otherwise, they aren't.
The rule-based trading system, and the organization that presides over it, is eminently reformable. With effective US leadership, trade could be revived and the global economy could be strengthened. Trump and his officials have settled for mere vandalism — and as the system caves in, they point to the damage and say, "See, we told you it would come down."
Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement.