U.S. Effort to Depart WTO Gathers Momentum
Both political parties are demonizing the world trade body, but many experts warn that such a move could seriously set back U.S. power and prestige.
Frustration with hyperglobalization, China’s “economic imperialism,” and a seemingly broken world trading system is boiling over into serious calls for the United States to withdraw from the World Trade Organization (WTO)—which would have potentially disastrous implications for the country if carried out.
For the first time since 2005, lawmakers from both parties and both houses of Congress are pushing to pull the United States out of the trading body it helped create and which was the culmination of decades of postwar efforts to boost free trade and economic integration. By law, the United States has a chance to vote every five years on staying inside the WTO, but staying on board was such a no-brainer in recent years that no such resolution was even presented. But this year—powered by a rise in economic nationalism, growing concern about China, and frustration with two decades of paralysis at the WTO—the knives on Capitol Hill are out, to the delight of some of the trade hard-liners in the White House.
“The WTO has been a disaster for the United States,” said Rep. Peter DeFazio, an Oregon Democrat, who introduced House legislation to withdraw this month.
“No trade regime can last when it no longer serves the people of the countries who are part of it,” said Sen. Josh Hawley, a Missouri Republican, in a recent Senate floor speech after introducing his own resolution to leave. “Our interests and those of the WTO diverged long ago.”
It’s doubtful that the measures could secure enough votes for passage in either chamber, and a tight legislative calendar makes the push for withdrawal doubly hard to pull off. But the rush for the exit is still a serious indication of deep and growing dissatisfaction with how global trade has evolved, highlighted by the vulnerability of cross-border supply chains that have begun to come apart under the stress of the COVID-19 pandemic.
If the United States were to pull out of the system it helped build, the implications would be dire. Other countries would be able to discriminate against U.S. goods and services with no limits. Tariffs would almost certainly rise and export markets shrink. Meanwhile, others like China and the European Union would increasingly be in a position to write the rules of the future economy, from data protection and privacy to intellectual property and state subsidies.
“We’d have no rights, and we’d lose a seat at the table,” said Wendy Cutler, a former U.S. trade negotiator now at the Asia Society.
Why the big push now? For years, different aspects of the global trading system have stirred concern and at times anger in the United States and other countries; the WTO has essentially been stuck in place since the collapse of its last big negotiating round in 2008. For years, economists have debated the impact of the so-called “China shock” on U.S. jobs and manufacturing, and some evidence has shown that the competition from low-wage Chinese labor and the rapid movement of U.S. companies offshore hit the U.S. middle class harder than many economists expected. For years, Republicans have railed against international organizations—from the WTO to the International Criminal Court—that they see as encroaching on U.S. sovereignty.
Now, all those forces have come together in a kind of imperfect storm.
“I think the confluence of factors—the WTO’s credibility, China’s accession and all the outsourcing, and then the general animosity toward international organizations—they’re all in play,” Cutler said.
For proponents of withdrawal, like Hawley, it’s mostly about China taking advantage of an open global trading system to get a leg up on countries like the United States that mostly try to play by the rules.
“I think [China] is a principal factor” in the push to leave the WTO, Hawley told Foreign Policy in a recent interview. Beijing’s ability to claim special privileges inside the WTO as a so-called “developing” country, despite boasting the world’s second-largest economy, has powered its rise at the expense of countries like the United States, he said.
“This has really enabled the economic imperialism that we see China practicing, and that has become a direct threat to our economic security and to our national security,” he said. “We ought to withdraw from [the WTO], and we ought to work with like-minded nations and allied nations in order to create something better.”
Even defenders of the WTO and the current global trading system acknowledge that some of Hawley’s critiques are valid. When China finally joined the WTO in 2001 after years of knocking on the door, it made huge concessions and changed thousands of domestic laws to conform to global trade standards. But the high hopes that the United States and other countries had about the impact of WTO accession on China’s economic trajectory were bound to be disappointed. In addition, some have argued that the U.S. government, fearful of alienating Beijing, failed to use some of the WTO implements it could have in recent decades, such as anti-surge provisions to blunt Chinese dumping.
“The perception was, for the first few years, that things were going quite well, and then China did a total U-turn,” said Jennifer Hillman, an expert on trade at the Council on Foreign Relations and a former WTO Appellate Body judge. After years of tepid reform, the Chinese state took a bigger role in the economy, especially through state-owned enterprises, and the Chinese Communist Party took a more active role in driving corporate behavior. The notion that WTO membership would turn China into a more market-driven economy has foundered, she said.
“Clearly, the things that everybody thought were going to happen, and which were happening, that has gone in the opposite direction,” Hillman said.
Perhaps the biggest failing, she said, has been the WTO’s inability to rein in China’s use and abuse of state subsidies to give its firms a competitive advantage in all kinds of sectors, from steel and aluminum to telecommunications to clean energy.
Those failings have been coupled, in the eyes of U.S. critics, with other specific problems that mean the WTO has outlived its usefulness. The WTO started its last big negotiating round to draft updated rules for global commerce almost two decades ago—a round that ended with a whimper, and virtual paralysis, as unanimous agreement among the sprawling membership proved impossible. Even as the global economy and trade have undergone seismic shifts since the beginning of the century, the WTO’s playbook has remained stuck in the past.
“The expectation was that there would be continued negotiations to open all markets, and that would lead to more tariff cuts and new rules, and that didn’t happen, and the agenda froze because many countries wouldn’t take on responsibilities,” Cutler said. “No one thought these would be the rules prevailing 20 years later.”
That frustration is coupled with a particularly American anger at the WTO’s dispute settlement system, which critics like Hawley (and the Trump administration) see as stacked against the United States. For years, U.S. administrations of both parties have taken issue with the way the WTO interprets global trading rules in its judicial rulings—leading many U.S. trade experts to argue that bureaucrats are unfairly snatching away U.S. trade prerogatives. That frustration came to a head late last year, when the Trump administration essentially killed the WTO’s Appellate Body, the organization’s crown jewel, paralyzing the trade organization’s ability to adjudicate trade disputes between countries.
But the WTO, for its critics, has also become a proxy for all the ills of runaway globalization, which those critics blame for the loss of millions of manufacturing jobs and huge changes to the manufacturing sector, in particular. U.S. President Donald Trump, who savaged the WTO on the campaign trail and has repeatedly criticized the organization, has sought since taking office to bring jobs back to the United States through a mixture of sticks and carrots—though with little success so far. Hawley, in his Senate speech, called the 164-nation organization a “symbol of an economic order whose Wilsonian ambitions have cost this country dearly.”
The U.S. broadsides against the WTO come at a challenging time. The WTO’s director-general, Roberto Azevêdo, just announced that he is quitting a year early, setting off the search for a new head of the WTO who could salvage the organization’s central role at governing global trade at a time of rising protectionism and trade barriers around the world.
But if the groundswell of opposition to the WTO is understandable, the implications of a U.S. withdrawal would be grim, not only for the world but for U.S. prestige and power. Proponents like Hawley say leaving the organization would free the United States to pursue its own unfettered trade policies, free from the oversight of an “activist” WTO judiciary, and to create a new global trade architecture explicitly meant to push back against Chinese abuses. In his view, the United States could simultaneously undermine the global trading order, pursue “America First” policies to boost U.S. trading prospects, and convince other countries to join that effort.
Many experts think that’s a difficult circle to square. “It’s not realistic to think if we blew up the WTO that we could put it back together” in some form, said Thomas Duesterberg, a former George H.W. Bush administration official now at the Hudson Institute. “There is too much tension right now, especially with the COVID economic crisis, too much unwillingness to cooperate.”
Especially telling is the rediscovered interest in a partnership of like-minded countries to create a new trade grouping that could push back against China. Trump administration officials talk of creating just such an economic partnership, and Hawley specifically mentioned joining forces with countries like Japan, Vietnam, and Australia to counter Chinese trade abuses. But that was the whole point of the Barack Obama-era Trans-Pacific Partnership (TPP), an 11-country grouping meant to write the rules of trade for a huge chunk of the global economy—but not including China. Trump pulled out of the TPP his first week in office and decided to confront China one-on-one in a lingering trade war that has left him largely isolated and gotten him almost nowhere.
“This presumption that the U.S. leads and everyone else follows … U.S. leadership is premised on putting forward rules that other countries can buy into and requires consistency and predictability,” said Joshua Meltzer, a trade expert at the Brookings Institution and a former Australian trade negotiator. “That’s one of the harms of pulling out of the TPP—a lot of countries really went out on a limb, and it really raises a huge question mark, because they’d be extremely cautious about going down a similar path with the United States again.”
And U.S. abdication from the WTO would, instead of isolating China and making it easier to fight back against its trade abuses, end up ceding ground to Beijing—much as the Trump administration’s withdrawal from other areas of international engagement, from the Paris climate accord to the World Health Organization, has created an opening for China to increase its global influence.
“If the United States pulls out, then the WTO becomes China-dominated,” Meltzer said. “This is still the key multilateral trading institution—you don’t want to leave that to China.”
And that’s without even counting the immediate and short-term cost of leaving the umbrella organization that regulates about 95 percent of all global trade—trade that amounts to an annual $2 trillion boon for the U.S. economy. Outside of the WTO’s rules that regulate tariffs and trade behavior, the United States would essentially be in the jungle. Other countries could levy tariffs on U.S. goods for any reason or ban trade altogether—with no real recourse other than tit-for-tat retaliation.
“If we are not a member, then the rest of the world can unequivocally discriminate against U.S. goods and services just because they’re American,” Hillman said.
She recalled the Trump administration’s assurances that no countries would dare retaliate when it slapped tariffs on friends and allies on questionable grounds of national security—and then every country immediately retaliated with tariffs of their own. Leaving the WTO might fulfill the wish of some Trump trade officials to move from a rules-based system to one grounded in pure economic power, but that’s a risky move—especially when China has made clear it can and will use trade as a geopolitical weapon.
“In a globalized economy, the notion that you are better off with a power-based system is empirically wrong,” Hillman said.
Robbie Gramer contributed to this article.