In what would be an unprecedented move, President Donald Trump is set to explore ways to avoid the World Trade Organization (WTO) when settling trade disputes with China and other countries, the Financial Times is reporting.
Trump, who scorned international trade agencies and criticized U.S. agreements throughout his campaign has already pulled out of the Trans-Pacific-Partnership (TPP) and criticized the North American Free Trade Agreement (NAFTA), but this move would undermine an organization the U.S. helped set up in 1995. "The World Trade Organization is a disaster," Trump said during his 2016 campaign. (See also: Trump Administration Considers 20% Tax on Mexican Imports)
According to the Financial Times, the Trump administration is engaging legal experts to explore ways to enforce sanctions unilaterally against its major trading partners.
Disputing Settled Agreements
The WTO was signed into order by 123 different countries in 1995 with the aim to regulate trade agreements. It replaced the General Agreement on Tariffs and Trade (GATT). Under WTO rules member nations are forbidden to take any trade disputes unilaterally against another country, they are to bring them to the WTO for a resolution. Speaking to Foreign Policy, WTO trade expert Simon Lester said any move by the U.S. to explore unilateral sanctions could start a new wave of trade wars. "It could get us into some new and scary world of international economics we haven’t seen before," Lester said.
The tedious nature of the WTO dispute process will give Trump more reason to explore this unconventional move. Any dispute to the WTO is a legal process that requires comprehensive presentation of evidence, and the ruling is subject to appeal.
China, China, China
While Trump has threatened Mexico with extreme tariffs, called out Japan and Canada on trade policy, China is Trump's number one target.
With the advent of globalization, China has flourished. Extensive natural resources and cheap labor have seen the Chinese economy increase fivefold since the turn of the century, putting it on par with the U.S. as the biggest economy in the world, and as the Chinese economy grows, so does Trump's disdain. Throughout his campaign, Trump lambasted China, saying they were stealing jobs from the U.S. and devaluing its currency to benefit trade. "Look at what China is doing to our country," Trump said during his campaign. "They are using our country as a piggy bank to rebuild China." (See also: \White House Split on Currency Manipulation Tag)
Late in his term, President Barack Obama did undertake some measures to combat trade imbalances with China. In September, Obama charged Beijing with subsidizing Chinese wheat, rice, and corn growers, hindering U.S. producers. (See also: Is There a Trade War on the Horizon?)
The Bottom Line
An attempt to bypass the WTO would be a drastic measure and would likely set back international relations significantly. Growing protectionism in the U.S. could be the trigger for a period of hostile trade negotiations. However, any move by Trump and the Republicans could be challenged in court or go back through the WTO via a disputes tribunal.