It’s hard these days to muster much interest in the World Trade Organization. Locked for years in rounds of negotiations leading nowhere, the body seems to have outlived its usefulness. Another big gathering of trade ministers ended in deadlock in Buenos Aires last week. You might wonder: Why bother?
The answer is that liberal trade, second only to capitalism, is the most powerful engine of economic prosperity the world has ever seen — and governments could use the WTO to advance living standards across the globe. Led by the U.S., that’s what they did in the decades after 1945. Without an international commitment to free trade, though, the institution is doomed to irrelevance.
The core principle of the WTO, and its predecessor the General Agreement on Tariffs and Trade, is reciprocity. In simple terms, this approach aims to make free trade politically feasible. Country A would be better off if it lowered its import tariffs unilaterally, goes the theory — but that change meets less resistance if Country B lowers its tariffs as well.
This formula was enormously successful in the GATT’s first decades, mainly because the U.S. was eager to lead the world in that direction. In more recent years, the conviction that free trade is good has weakened.
Increasingly, governments are regressing to mercantilism — the fallacy that a country gains from trade only if its exports exceed its imports. In addition, once the GATT and WTO had succeeded in bringing tariffs down, trade liberalization became more complicated and more politically fraught — more to do with regulatory obstacles than taxes at the border.
Where it matters most, political support for liberal trade has fallen to its lowest point in years. The U.S. still leads — but now in the wrong direction. President Donald Trump embraces mercantilism in its purest and dumbest form: “exports good, imports bad.” U.S. Trade Representative Robert Lighthizer began the Buenos Aires meeting by calling the WTO’s role into question. The U.S. blocked a declaration asserting the value of trade in development and is holding up the appointment of judges to the body’s dispute-settlement courts.
Meanwhile, governments in the rest of the world are pressing forward with bilateral and regional agreements, as opposed to the global deals that the WTO could advance. Depending on the details, regional pacts like the Trans-Pacific Partnership can be enormously valuable, but they aren’t the gold standard of multilateral liberal trade.
Don’t blame the WTO for its paralysis. It could still be a powerful instrument for governments that believe in international competition. Without that conviction — and without the engagement and leadership of the U.S. — it’s bound to fail.
Source: Bloomberg Editorial