Can the WTO survive Trump?

Countries hit by Trump's impending “reciprocal” tariffs face a dilemma – between cutting bilateral deals or standing firm and saving the multilateral trading system.

The World Trade Organization (WTO) quietly marked a major anniversary on 10 April. Behind closed doors, trade representatives, business leaders and government officials from its 166 member states gathered to celebrate 30 years since the global trade body came into existence in January 1995.

But the mood at the day-long event, titled The Spirit of Marrakech, was less jubilant than it was in April 1994, when ministers signed the landmark agreement in the Moroccan city that gave the deal its name. Any optimism countries shared that day for a new multilateral, rules-based trading system has been clouded over by a fog of protectionism – and, since January, bulldozed by Donald Trump’s brazen policies to upend global trade.

The United States president argues that his sweeping tariffs will reinvigorate manufacturing and protect jobs at home. But the consequences for the global economy are huge. Last Wednesday, the WTO warned that tariffs, along with the heightened uncertainty they create for businesses, will cause global trade to shrink this year after initially forecasting a healthy growth. Its estimates are based on current tariffs, including a 10 per cent baseline tax on virtually all US imports from around the world that kicked in on 5 April. But if his far higher “reciprocal” tariffs on dozens of countries are reinstated – Trump announced a 90-day pause on 9 April – then the slump could be even worse.

“Tariffs are only part of the story,” said Johannes Boehm, a professor of international economics at the Geneva Graduate Institute. “Uncertainty about tariffs or concerns that they may be raised in the future are shaping trade relations as much as the actual changes in tariffs.”

The stakes for the WTO’s future are also teeteringly high. Economists warn that Trump’s attempts to bypass the organisation and bargain bilaterally with dozens of countries – in breach of the “most favoured nation” rule meant to ensure all member states share the same trade advantages – risk unravelling the multilateral system the organisation was established to uphold.

How countries decide to respond will be pivotal for the world trade body’s future, Robert Staiger, a US economist and professor at Dartmouth College specialised in international trade policy, told Geneva Solutions. “Donald Trump doesn’t want to bargain multilaterally, he wants to exercise power by bargaining bilaterally,” he said, likening the president’s actions to tactics being used to intimidate law firms and universities in the US, which he has threatened with funding freezes if they don’t comply with his demands.

“If he succeeds, then that basically destroys the rules-based trading system, at least from the perspective of the US. Because once countries start cutting deals with the US, they're going to start cutting bilateral deals with each other, and the whole world becomes a big bilateral tariff bargaining mess,” Staiger said.

What next for the WTO?
WTO director general Dr Ngozi Okonjo-Iweala has also sounded the alarm on Trump’s latest moves, warning last Wednesday that a reinstatement of reciprocal tariffs could have “severe consequences”, especially for least developed countries, five of which, including Bangladesh, Cambodia and Angola, face among the highest levies.

But while some WTO observers see Trump’s actions as another nail in the coffin for the WTO, for the Nigerian former finance minister, who’s already shown an unnerving ability to keep a cool head while steering the organisation through turbulent times, the current crisis is an opportunity not to be wasted.

“While this crisis situation for global trade has reminded many governments why they value the stable and predictable market conditions the WTO helps provide, they also see it as an opportunity to improve the WTO and to reposition it to meet new challenges,” she said. “Our rules were never meant to be set in stone for 30 years.”

Talks on implementing major reforms at the Geneva-based trade body, including overhauling its paralysed appellate body – the source of one of the US’s biggest contentions –, have been underway for several years but have not yielded any breakthroughs so far. The current turmoil could be the impetus it needs, Staiger suggested.

He believes countries should resist the urge to cut a deal with Trump, which would further derail the trading system, and instead take coordinated action in the form of another multilateral round of trade negotiations, which would also allow the WTO to address legitimate concerns that the US and other countries have raised. The last to take place, the Doha Round, fizzled out in 2011 after failing to achieve major reforms. But Staiger argued that the current crisis implicates all countries and could help propel results this time around, as it did in 1947 after World War Two when the General Agreement on Trade and Tariffs, the precursor to the WTO, was created after several rounds of talks.

Boehm echoed the call for member states to take coordinated action. “Countries that share common economic interests and maybe even common values need to stand together and coordinate the response to Trump's actions,” he said, stressing that in bilateral talks, “the US almost always has better cards”.

Action behind WTO walls
Over at the WTO’s offices, Saudi Arabia’s ambassador Saqer Abdullah Almoqbel, the new chair of its decision-making body, the General Council, is holding informal consultations with member states on the impact of tariffs and the trade organisation’s role after countries raised their concerns.

Some are understood to have called for a special General Council meeting, or even an extraordinary ministerial meeting ahead of next year's event in Cameroon, to discuss these concerns, but trade sources Geneva Solutions spoke to didn’t see it “gaining a lot of traction, at least not imminently”.

The same Western trade delegate was not hopeful of a broader plan for a coordinated response to US tariffs. Some countries have already opened negotiations with Trump, with Japan among the first.

Meanwhile, another Geneva diplomat, who also asked not to be named, said there were signs that US economic rival China was trying to capitalise on the situation by rallying WTO members to respond to the US while further positioning itself as a responsible multilateral player. They pointed to a recent $500,000 pledge by Beijing to the WTO’s least developed countries accessions programme, presented by the director-general of China’s commerce ministry who flew to Geneva for the anniversary celebrations.

Earlier this month China filed a request with the WTO to investigate the impact of Trump’s tariffs after being hit with a 145 per cent levy. It retaliated by raising tariffs on US goods to 125 per cent, in the escalating trade war between the two countries that is running parallel to the US’s actions to reset trade terms with the rest of the world.

Elsewhere, other countries have also tried to take a stance within the confines of the WTO. Switzerland and Singapore, along with 34 other countries, circulated a statement at a trade meeting on 9 April to express their support for the global body and deplore “the rise of protectionism”. Others including New Zealand and the European Union are also reaching out to certain groups of countries.

With or without the US
What position the US will take towards the WTO – whether it could decide to leave the organisation altogether – is still unclear. Like other international organisations, its US funding has been frozen and the organisation has been forced to embark on a review of its staffing costs.

A bill going through Congress to decide whether the US should continue its membership to the WTO is “nothing new” and is voted on every five years, said Okonjo-Iweala, adding that she had been in touch with Washington a month ago and was looking forward to the US sending “one of its best diplomats”, trade lawyer Joseph Balloon, as representative to the WTO, once approved by US Senate.

If there’s a lesson from the current trade crisis, it’s that member states need to diversify, she added. “The US has a point when it says too many countries are dependent on its market, or that production of some critical inputs are too concentrated in certain sectors and geographies.”

For nations dependent on trade with the US and now faced with tariff threats, it creates essentially a prisoner’s dilemma, said Staiger, where countries face the difficult choice between standing up to Trump or – fearful that others won’t and of the near-term repercussions for their economies – succumbing to a deal.

However, the former is the only choice that will guarantee the global trading system survives. If the US – which represents 15 per cent of world trade leaves – that would be a bleak scenario. “But that’s better than if Trump succeeds in destroying the rules-based system, which is a risk if he succeeds in his bargaining tariff ploy.”

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