Kellyanne Conway’s ghastly visage apparently materialized on Fox Business this morning and she was predictably parroting Trump’s hardline stance on trade.
“America first doesn’t mean America alone, but also means that we stop paying the bill for a lot of other people and participating in things that may not be in our best interests,” she mused, before suggesting that the WTO is on Trump’s shit list (as if we didn’t already know that).
“I think the World Trade Organization is another group that he’s said we should take a look at,” she noted, adding that she’ll “leave any announcements to him.”
Well thanks for that. It’s good to know that any momentous announcements on the future of global trade and commerce won’t come from Kellyanne-fucking-Conway.
Meanwhile, Axios is out with some further details on this, noting that Trump has “repeatedly told top White House officials he wants to withdraw the United States from the World Trade Organization.”
“He’s [threatened to withdraw] 100 times. It would totally [screw] us as a country,” one source who’s conferred with Trump on the WTO reportedly said, before paraphrasing (maybe) the President as follows:
We always get fucked by them [the WTO]. I don’t know why we’re in it. The WTO is designed by the rest of the world to screw the United States.
Clearly that’s bullshit, but you know, what do you expect? Here’s the reality, from The “Economic Report of the President”:
The efficacy of WTO dispute settlement mechanism remains an area of active debate. Davis (2012) finds that the United States gets better outcomes via formal WTO adjudication than negotiation, increasing the probability that the complaint will be resolved and decreasing the time it takes to remove the barrier in question. Mayeda (2017) finds that the United States has won 85.7 percent of the cases it has initiated before the WTO since 1995, compared with a global average of 84.4 percent.In contrast, China’s success rate is just 66.7 percent. Most U.S. WTO cases target China (21) and the European Communities (19). When the United States is the respondent, it still wins 25 percent of the time, a rate that is better than the global average rate of 16.6 percent (Mayeda 2017). In comparison, the EU and Japan have won 0 percent of the cases brought against them, while China has won only 5.3 percent of the time (Mayeda 2017). Nonetheless, because countries may initiate or decline to initiate cases based on their perceived probability of obtaining a favorable outcome in the WTO dispute process, comparisons of WTO dispute statements between countries should be taken with at least some skepticism.
And just who signed off on that report, the skeptics/Trump fans among you might well ask? Well, I’m glad you’re curious and I’m happy to answer that via the following screengrab from page 11):
How hilarious is that?
But despite that, Trump is still hell-bent on destroying the WTO because you know, “fuck multilateralism”.
And despite the fact that Trump has demonstrated time and time again that he not only relishes his reputation for being a lunatic, but is in fact prone to suggesting that it helps America in negotiations, some folks are clinging to the idea that he can’t possibly be that much of a lunatic.
“We think he’s nuts, but not that nuts,” a top trade lawyer in Washington told Axios.
Whatever you say, “top trade lawyer.” Recall this from April 6:
China, which is a great economic power, is considered a Developing Nation within the World Trade Organization. They therefore get tremendous perks and advantages, especially over the U.S. Does anybody think this is fair. We were badly represented. The WTO is unfair to U.S.
— Donald J. Trump (@realDonaldTrump) April 6, 2018
If you need a refresher on what all of this is likely to mean for the WTO, you’re encouraged to read “The Annotated History Of U.S. Trade And A Fantastic Interview With An Expert,” but here are some excerpts from the interview found in that post between Goldman’s Allison Nathan and Jennifer Hillman, a former member of the WTO’s Appellate Body who also served as a commissioner at the United States International Trade Commission and as general counsel at the Office of the United States Trade Representative:
Allison Nathan: Looking beyond tariffs, what jurisdiction does the WTO have over issues such as intellectual property (IP) protections? How does that influence US action against China under Section 301?
Jennifer Hillman: The WTO has jurisdiction over IP issues through the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which incorporates most of the major international agreements on patents, trademarks, trade secrets, copyrights, industrial designs, geographical indications, etc. However, some practices that the US takes issue with under Section 301, particularly mandatory technology transfer, doesn’t fall neatly within the TRIPS agreement. The question is whether or not the US has the right to be judge, jury, and executioner on these matters. Section 301 says the United States Trade Representative (USTR) can make a determination and take action accordingly; the WTO rules generally say that you should come to the WTO first. So there is a discrepancy here between US domestic law and WTO norms.
Allison Nathan: What WTO measures could China use to retaliate?
Jennifer Hillman: China could file a challenge at the WTO, arguing that the US unilaterally raising tariffs violates the WTO’s most-favored-nation principle, the idea that you can’t discriminate between WTO members. And China could seek to impose either anti-dumping, countervailing duty, or safeguard actions against the US. The only issue is whether China can make a case for these actions and how fast they can achieve a remedy. In the past, these types of challenges have taken months or even years to bring forward.
Allison Nathan: Are the WTO and other trade frameworks sufficient to address what the Trump Administration sees as unfairness in trade with China?
Jennifer Hillman: No. I may disagree with an awful lot of the President’s tactics, but on this point, he is correct. In part, I think nobody anticipated the pace, depth, and breadth of China’s growth and, more importantly, its market structure. When China joined the WTO, it agreed to do many things that other members thought were putting it on the path to becoming much more of a market economy. That obviously has not happened. In 2014, 136 of the 1,000 largest companies in the world were Chinese; 70 of those 136 were completely state-owned. And state ownership has meant production well beyond market demand. In steel, for example, China added almost 60mn metric tons of production capacity every year for more than a decade, at one point reaching a capacity of 1.2bn metric tons. US steel production at its peak in 1973 was 137mn metric tons; last year, it was 87mn. In a normal economy, many of China’s steel companies would have gone bankrupt.
WTO trading rules simply cannot get at the intricate relationship between the Chinese government and parts of the economy that appear market-oriented but in fact are not. Take, for example, SASAC, the State-Owned Assets Supervision and Administration Commission of the State Council. SASAC controls more than half of the Chinese companies on the Fortune 500 list. That is roughly equivalent to a single US government agency controlling General Electric, General Motors, Ford, Boeing, US Steel, DuPont, Verizon, Honeywell, and United Technologies. And then having that agency behave similarly to a private equity fund, hiring and firing management, deploying and transferring resources across all of these companies, and generating synergies among them. This is what makes the Chinese economy both incredibly exceptional and virtually impossible for the trading system to deal with. It’s difficult in such an opaque system to prove subsidies to the WTO. Even if you get the proof, what can you do about it? You might use a countervailing duty to keep those goods out of the US market, but it simply pushes them into other markets, suppressing prices. And it does nothing to dismantle the capacity that China has built to produce those goods in the first place. That’s where the trading system fails. If we had known in the late 1990s what we know now, the WTO probably would not have invited China into its ranks.
Allison Nathan: Some observers have argued that the Trump Administration’s disregard for the WTO marks the beginning of the end of the institution. Do you agree?
Jennifer Hillman: I think it’s too early to tell. At this point I’m not prepared to join those who are already mourning the end of the WTO. However, I do think Trump’s actions have the potential to destroy the organization. Specifically, the recent use of the national security exemption could prove quite damaging. Indeed, there are WTO rules under Article XXI that allow members to break their trading commitments for the sake of essential security interests relating to, for example, fissionable materials, trafficking in arms, or actions in time of war. My view is that the US tariffs on steel and aluminum do not fit under these exceptions. However, if the WTO agrees with the US, everybody in the world will be able to assert a national security defense to protect their markets. And if that happens, we will be walking away from a rules-based system.
On the other hand, if the WTO disagrees with the US, my fear is that Trump will just say he’s done with the WTO and withdraw. While that would make it very hard for the WTO to move forward, I still believe it could survive. And ultimately, I think the US position on trade will shift back to the norms. Just as more and more companies will likely press the US to join the Trans-Pacific Partnership (TPP) once it takes effect and our trading partners gain new access to Japan and other markets, I think that a taste of the discrimination against the US should it withdraw from the WTO will leave us wanting to come back.