WTO's Lonely Battle Against Trade War
I opened the curtain that my mom had tightly drawn across my window. A warm, red hue immediately hit my face as I looked down at thousands of flames flooding the wide street in front of the Gangnam station. The chilling scene of the “candlelight demonstration” protesting the recently instated 2008 Korea-US Free Trade Agreement left a lasting imprint in my head, proving protectionism’s power to unite and drive people towards violence and panic.
In the increasingly globalizing economy, free trade agreements that allow countries to focus on goods they have comparative advantage in result in effective utilization of resources and collective economic growth. A series of trade wars with strong protectionist sentiments, however, is now shaking up the basic foundation of the world economy.
Some argue that if the trade war between the G2 gets prolonged, China will lose because trade accounts for 40% of the Chinese economy. Others claim that the US will eventually be at a disadvantage because American consumers will not be able to purchase cheaper made-in-China goods. Nonetheless, we live in a world where the question of who will win or lose is simply meaningless. With tariffs and consumer prices spiked up, both the US and Chinese economy will slow down, a situation leading to a stock market crash (as is projected in 2019), and harm the global economy.
“Trade wars are good, and easy to win,” @realDonaldTrump proclaimed on March 2, 2018. The reality is not that simple. For instance, Trump’s steel and aluminum tariffs levied against Canada, the EU, Mexico, and Turkey were put up to encourage US industries to use domestic steel and aluminum (1). In response, Canada promptly set out retaliatory/rebalancing tariffs against the US. The economy will soon spiral down this path of eye-for-an-eye battles and leave the world in deep recession. The World Trade Organization (WTO) is responsible for pressing the brake on the global economy sliding down a steep slope to the edge of a cliff.
The WTO already has a formal dispute settlement process, but it is painfully slow and can take anywhere from 18 months to over a decade (2). Even if the judges ultimately rule that a tariff is illegal, the remedy would come long after the tariff had already crashed the market.
In order to steer the economy away from protectionism and redirect towards free trade ideals, the WTO needs to find means of expediting the dispute settlement process. Once a possible disobedience of the trade agreement gets reported, the WTO should first stop the debatable tariff until the settlement committee rules that the General Agreement on Tariffs and Trade (GATT) allows the tariff.
The WTO should also rewrite the GATT in order to make clauses less open to each country’s interpretation by providing a detailed list of exceptions when free trade can be revoked. For instance, the WTO currently allows a country to set tariffs for “national security” reasons (5). Trump argues the US needs robust steel and aluminum industries to reinforce domestic production of national defense requirements while the EU counters that the tariffs are more about protecting US companies, not national security.
A longer term approach to the WTO trade regulation would be to develop a new system of discussion that involves all 164 member states. The unrepresentative Green Room discussion system of only 20 to 40 countries does not uphold the WTO’s mission of decision-making through consensus building (4). Free trade involves all countries, and it shouldn’t be just the G2 or even the G20 talking.
An article in the Economist last month had a very interesting way of explaining the obnoxiousness of present day trade wars. In ancient Rome, merchants and mercenaries served the same God, Mercury, because for them, trade and war were one, united concept. This belief continued to the 18th century in the form of European mercantilism. History has repeatedly witnessed the bloody end of countries fighting for gold and silver, yet we somehow still have not learned that the words “trade” and “war” should not belong together. Let the WTO facilitate international trade peacefully, rapidly, practically and efficiently.