This year’s election season is full of talk about restricting trade — both Hillary Clinton and Donald Trump have criticized the Trans-Pacific Partnership (TPP), which would liberalize trade between the United States and 11 other Pacific Rim countries.
Trump also took a swipe at the World Trade Organization (WTO), telling NBC’s Chuck Todd that he would consider pulling out of the organization because it is a “disaster.”
So why does the United States need the WTO, anyway? Here are a few key points:
1) How does the WTO work? The WTO regulates more than 98 percent of global trade flows among its 164 member countries. Its job is to monitor international trade rules, reduce trade barriers, and settle disputes. Established on Jan. 1, 1995, the WTO replaced the General Agreement on Tariffs and Trade (GATT), which had regulated interstate commerce since 1948.
WTO members must give each other “most-favored-nation” (MFN) status, which means a nondiscriminatory low tariff rate. So the 35 percent tariff on Mexican imports and 45 percent tariff on Chinese imports Donald Trump proposed would be a “flagrant violation” of WTO rules, according to Stanford legal scholar Alan O. Sykes.
2) Does the WTO boost trade? Yes — the WTO has succeeded in increasing trade among its members. Allison Carnegie at Columbia finds that the WTO provides an especially strong boost for trade flows between countries that are not allied geopolitically, and between nations that are different from each other in terms of geopolitical power or regime type.
Recent research suggests there are additional WTO benefits, including reduced export volatility. Christina Davis at Princeton shows that international institutions like the WTO have helped reduce agricultural tariffs, which are notoriously economically inefficient and politically difficult to eliminate.
3) Are there specific benefits for the United States?
U.S. exporters sell more of their goods overseas because WTO rules require nations to keep trade barriers low for other member states. For example, the original WTO agreement provided U.S. exporters greater access to European and Japanese agricultural markets. And one study finds that the U.S. government gets better results by using the WTO’s trade dispute settlement system instead of negotiating with other countries directly.
[interstitial_link url=”https://www.washingtonpost.com/news/monkey-cage/wp/2016/07/26/the-u-s-filed-a-wto-dispute-to-save-jobs-by-increasing-imports-from-china-heres-why-the-wto-helps-u-s-companies/”]The U.S. filed a WTO dispute to save jobs — by increasing imports from China. Here’s why.[/interstitial_link]
4) Does the WTO cause U.S. job losses?
Trump has blamed the WTO, and especially China’s entry to the WTO, for the loss of U.S. manufacturing jobs. Economists Justin Pierce and Peter Schott do find some correlation between China’s WTO entry in December 2001 and the loss of U.S. jobs in the medical equipment and apparel sectors. But WTO Director-General Roberto Azevedo notes a number of studies show that most U.S. job losses actually resulted from changes in technology or efficiency.
And China’s entry into the WTO benefited American consumers by decreasing the prices of manufactured goods. Ultimately, the U.S. may face a trade-off between protecting U.S. manufacturing jobs and enabling consumers to save money by purchasing cheap imports from trading partners like China.
5) Does the WTO manage trade disputes fairly?
WTO members agree to settle their trade disagreements within the organization’s trade dispute settlement system, which is designed to be unbiased. But evidence suggests that the WTO system may favor U.S. and European Union exporters. One paper finds WTO dispute settlement panels actually moderated the scope of judgments against the E.U. and the United States — the organization’s most powerful members. Moreover, the United States has pushed to keep the WTO panel more pro-American.
[interstitial_link url=”https://www.washingtonpost.com/news/monkey-cage/wp/2016/06/06/the-u-s-is-trying-to-block-the-reappointment-of-a-wto-judge-here-are-3-things-to-know/?tid=a_inl”]The U.S. is causing a major controversy in the World Trade Organization. Here’s what’s happening.[/interstitial_link]
6) What are the biggest challenges to the WTO? Maintaining an “open” global trading system hasn’t been easy. Countries around the world imposed more than 2,500 trade restrictions after the onset of the global financial crisis in October 2008 — and three-quarters of these restrictions remained in place at the end of 2015.
For the first time in decades, protectionism has outpaced liberalization. Between November 2013 and May 2014, Group of 20 countries undertook 112 protectionist acts, while moving forward on just 98 measures to liberalize trade. Protectionist measures like trade-distorting subsidies contributed to the 2015 fall in volume and value of the global trade in goods and services.
In another setback to the WTO, the most recent round of multilateral trade talks (the Doha Round) failed to reduce existing trade barriers and eliminate agricultural subsidies. Journalist Paul Blustein argues that the “failure of … the Doha Round … dealt a serious blow to the organization’s credibility.”
7) Can countries leave the WTO? Article XV of the WTO agreement spells out the exit process — a country must submit written notice of its withdrawal to the WTO Director-General, and this notice will go into effect six months later.
The United States originally joined the WTO through the Uruguay Round Agreements Act, which passed the House and Senate with overwhelming support in 1994. Under Section 125 of this law, the United States Trade Representative (USTR) is obligated to submit a report to Congress every five years about the positives and negatives of American involvement in the WTO. After the USTR submits its report, any member of Congress can introduce a joint resolution calling for withdrawal from the WTO, which would have to pass both the House and the Senate, and be signed by the president.
8) Hypothetically speaking, how would the U.S. economy fare without the WTO? U.S. exporters would lose preferential access to many global markets if the U.S. pulled its WTO membership — and American consumers would likely see higher prices of many imported goods. The United States has free trade agreements with 20 countries, but these agreements cover only 40 percent of American trade.
[interstitial_link url=”https://www.washingtonpost.com/news/monkey-cage/wp/2016/05/23/restricting-trade-may-be-popular-but-it-would-have-many-bad-consequences/”]A lot of people want to restrict free trade. But that would have serious trade-offs.[/interstitial_link]
Trade has become an increasingly important part of the U.S. economy over the last few decades. In 1960, trade represented about 9 percent of American GDP; in 2015, trade was nearly 30 percent of U.S. GDP. Given the current importance of interstate exchange for the U.S. economy, rescinding WTO membership could have huge effects on American workers and consumers.
A U.S. withdrawal from the WTO would likely mean increased protectionism around the world. Economist Douglas A. Irwin explains, “When the United States imposed the Smoot-Hawley Tariff in 1930, it helped set off a worldwide movement toward higher tariffs … the combined effect was a deeper global economic slump.” If history is a good indicator, a U withdrawal from the WTO would be a severe shock not only to the United States, but also to the multilateral trading system, and to the global economy as a whole.
Bryan Schonfeld is a PhD student in politics at Princeton University, focusing on international organizations and international political economy. He has previously published pieces in the Huffington Post, USA Today, the New York Daily News, the Jerusalem Post and the Times of Israel.