How Washington Killed the World Trade Organization — Barrons.com
2024-12-12
Category: economic

By Benn Steil and Elisabeth Harding
About the authors: Benn Steil is director of international economics at the Council on Foreign Relations and author, most recently, of The World That Wasn't: Henry Wallace and the Fate of the American Century . Elisabeth Harding is an analyst at CFR.
The imminent return of President-elect Donald Trump to the White House has raised the specter of new trade wars. Trump has threatened 60% tariffs on China, 25% on Canada and Mexico, and 20% on the European Union. A new OECD report has warned, not surprisingly, of the risks to global growth from "further moves toward protectionism." Chinese president Xi Jinping was more forthright: "The world," he said, "has entered a new period of turmoil and change. Unilateralism and protectionism are spreading, [and] the fragmentation of the world economy has intensified."
Trump's first term set global trade policy on a protectionist path; his return will merely speed the journey. Nowhere is this protectionist shift more striking than in the behavior of member states in the World Trade Organization. Governments around the world responded to Trump's first-term tariffs on steel, aluminum, washing machines, solar panels, and anything produced in China, by raising trade barriers of their own. In mimicry of Trump, they also insulated themselves from legal challenge by invoking the needs of "national security." And even if Trump were now to back down from his more extreme tariff threats, the world won't unlearn the lesson he taught about the protectionist power conferred by the word "security."
The rules of the global trading regime were established by the treaties that created the General Agreement on Tariffs and Trade in 1947 and its successor, the World Trade Organization, in 1995. Article XXI of the GATT allows a member to take "any action which it considers necessary for the protection of its essential security interests." For most of the GATT/WTO's first 70 years, this "get out of jail free" card was rarely played. Members recognized the potential for abuse — and the consequent threat to a multilateral trading regime on which they all relied for economic growth. This history is documented in a forthcoming book by former WTO official Petros Mavroidis.
The Trump administration's 2017 National Security Strategy, however, declared that "economic security is national security." Washington thereafter began filing ever more WTO "Technical Barriers to Trade" notifications that invoke the national-security exception. TBT filings are the required mechanism to inform other members of trade-impacting policy actions.
Since 2017, the United States has filed 30 such notifications. But it is hardly alone. Among others, Mexico has filed 14, Switzerland 12, Brazil 10, and Saudi Arabia 8. As shown in the figure above, national-security notifications have surged since 2019, rising sharply almost year by year. They reached an all-time high of 95 in 2024.
Importantly, the WTO only addresses claims of immunity when members bring cases to be reviewed by its dispute settlement mechanism. The European Union, Canada, China, India, Mexico, Norway, Russia, Switzerland, and Turkey all brought cases against the United States for its steel and aluminum tariffs in 2018. The Trump administration argued that these trade barriers were vital to U.S. defense and, critically, that the WTO had no power to adjudicate what was and wasn't necessary to assure such defense.
To enforce its view, the Trump administration used its veto power at the WTO to block all appointments or reappointments to the seven-member dispute-settlement Appellate Body. By 2019, there was no longer a quorum of three to hear appeals of panel decisions. This blockage effectively ended the enforceability of the dispute settlement mechanism. Without a functioning Appellate Body, an offending country can prevail simply by appealing a panel decision into the void left by the absence of judges.
Though the Biden administration modified Trump's steel tariffs, it maintained Trump's stance against the WTO's justiciability of national-security interests. It pledged to continue exercising U.S. veto power in the appointment of judges to the Appellate Body so long as the WTO continued to assert authority to review such cases.
The legal heart of the multilateral trading system thus remains in abeyance, with the authority of the WTO progressively undermined as each appeal of a panel decision effectively negates it. Unfortunately, this isn't an issue on which the WTO can seize the principled high ground. If it fights national-security claims, it highlights its own inadequacy. If it rubber-stamps them, it either appears to greenlight protectionism or, in some cases, even aggression. Ukraine's 2016 case against Russia's blockage of Ukrainian goods transiting through its territory failed in dispute settlement on the grounds that there existed a state of "war or other emergency in international relations" — despite it being Russia which created the "emergency." The decision could therefore be said to encourage aggression to justify invoking the national-security exception.
Other proposed solutions undermine the primary purposes of the WTO: the reduction of trade barriers and the maintenance of reliable rules. The Biden administration suggested that an aggrieved member could bring "nonviolation nullification and impairment" cases against those invoking national security. Such complaints would allege, even absent a technical violation of WTO rules, that another member's actions denied it benefits which it had the right to expect under WTO/GATT agreements. The complainant could then pursue "restitution" (typically counter-barriers) without the WTO passing judgment on the validity of the defendant's national-security claims. NVNI claims, however, entail a high burden of proof and, typically, years of litigation.
So is the WTO even salvageable at this point? We think not. The growing use and abuse of the national-security trump card, combined with Washington's dismantling of dispute settlement, have effectively reduced the WTO to the status of a self-censoring, single-issue think tank.
This is hardly all Washington's fault. Beijing's escalating mercantilism and diplomatic belligerence, made all the more significant by the growing weight of its economy within the global one, guaranteed a backlash. But Washington's abandonment of the proposed Trans-Pacific Partnership and trans-Atlantic Trade and Investment Partnership, together with Trump's threat to blow up his own United States-Mexico-Canada Agreement, mark a lamentable departure from the economic leadership shown in the early Cold War years, when it embraced alliances rather than shun them.
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