The World Trade Organization nears a breaking point over U.S. tariffs against China

[beijingwalker]

The World Trade Organization nears a breaking point over U.S. tariffs against China​

JANUARY 6, 2023, 2:03 PM

U.S. President Joe Biden delivers remarks on developing infrastructure jobs in the East Room of the White House in Washington on Nov. 2, 2022. OLIVER CONTRERAS/GETTY IMAGES

The United States, which was central to the establishment of the global trading system 75 years ago, is challenging it these days. Last month, the World Trade Organization (WTO) declared that some of the tariffs imposed by the Trump administration, which U.S. President Joe Biden has kept in place, are illegitimate, according to the WTO’s own rules.

The Biden administration responded essentially by saying it considers the tariffs to be justified on national security grounds. Conveniently, the appellate body at the WTO that would be tasked with adjudicating the dispute is unable to do its job because the United States has refused to appoint judges that would allow it to function. This comes as Europe is also upset at the United States for subsidies and the 2022 Inflation Reduction Act, which Europe claims are also in violation of the WTO. That may lead to other retaliatory tariffs—essentially the kind of trade war the WTO was designed to prevent.

Is the United States intentionally trying to sabotage the WTO? Is China the real culprit, as Washington suggests? And who defines what free trade means in the first place? Those are a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity.

For the full conversation, look for Ones and Tooze wherever you get your podcasts.

Cameron Abadi: Is there a case to be made that the United States is intentionally trying to sabotage the WTO? And if so, what are the stakes?

Adam Tooze: We’re really at a kind of historical transition point. And I think many people thought that the attack on the WTO by the Trump administration was an aberration. I think that was always a misunderstanding. [Former U.S. President Donald] Trump himself was, you know, in a fundamental sense, non-WTO conforming. His understanding of trade was just not compatible with the sophisticated notions of reciprocity and the legality that the WTO embodies.


What’s very striking is how far the Biden administration has, in fact, adopted that, when the WTO ruled that the tariffs that the United States imposed on steel were egregiously in breach of all of its norms. These are the Section 232 measures on steel and aluminum. The United States has, in fact, revoked the measures it took against Canada and Europe but has kept those against China firmly in place. And when asked to state its position, it did so in astonishingly blunt terms. It said these WTO panel reports only reinforced the need to fundamentally reform the WTO dispute settlement system. So the Biden administration’s position is that the judgment against it confirms its view that the WTO is broken because the WTO has proven ineffective at stopping severe and persistent nonmarket excess capacity from the People’s Republic of China and others.

It’s really extraordinary. They’re basically saying, “Look, we will not back down. We regard this as a matter of existential interest and of national security interest.” That blows the whole system up. And not only is the United States refusing to accept this judgment, but it is also basically paralyzing the dispute settlement system. So this is really quite a fundamental breach. And steel and aluminum are really the least of it. You know, the most fundamental measures are clearly those the U.S. has taken in the microchip arena where it’s engaged not just in general purpose protectionist measures but really surgical strikes on the industrial capacity of China in general and particular Chinese firms in particular—Huawei, of course, being the most extraordinary example of this.

CA: At the center of this are these tariffs that the Trump administration put into effect, which have been in effect for a handful of years. Has trade empirically diminished since they have been in place? Have they had a measurable effect on the total volume of trade that the United States is involved in, and have they also had an effect on inflation?

AT: The tariffs have worked. They have had an effect but mainly in the form of trade displacement. So what’s happened is that trade has shifted from the Sino-American route to other routes, and the most important of those is probably the connection to Vietnam, which has seen a substantial increase in trade with the United States. And the important thing to know about that is that much of the trade that is now routed through Vietnam is still with Chinese companies, but it’s now coming out of Vietnam rather than China.

Adam Tooze: Washington Is Undermining the Trade System It Helped Build

The World Trade Organization nears a breaking point over U.S. tariffs against China.

foreignpolicy.com

 

[beijingwalker]

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