Trade conflict: World Trade Organisation's primacy must be restored

The World Trade Organisation (WTO) has agreed to hear complaints from a range of countries over United States’ steel and aluminium tariffs, as well as complaints from Washington over retaliatory duties. The August trade body’s Dispute Settlement Body(DBS) will establish panels to review US President Donald Trump's decision to hit a long line of countries with tariffs of 25 per cent on steel and 10 per cent on aluminium. In more senses than one, this is unalloyed good news. 

The reasons pertain to the very nature of the WTO, the international trade and economics architecture which accrued from long and painful deliberations and negotiations post the Second World War and the extent global governance architecture and their survival.

It may be pointed out here that Donald Trump in his schemata and diagnosis of what plagued America, has opted for a narrow mercantilism and the protectionism that it entails, to “make America great again(MAGA). This approach as axiomatically entailed a confrontational stance not only with countries as diverse as China, Mexico, Canada and the European Union but also constitutes an assault on the intergovernmental and global governance architecture in place.
 
The WTO, whose precursor was the General Agreement on Trade and Tariffs (GATT), has been a positive enabler of and for global trade, so much so that after the inception of the GATT and the then WTO world trade demonstrated a stupendous increase, even more than world output. 

While economists continue to debate, contend and even quibble over the contribution of freer trade to economic growth and development, it has been empirically demonstrated that over the past six decades or so, there has been an unprecedented decline in global poverty rates. This decline has been attributed to the freeing of trade in goods and, to an extent, services. The WTO and its precursor have been central to these sanguine developments. However, there has also been a corresponding increase in inequality in many countries, especially in the Western world, including the United States. The reasons accrue not merely from the nature of trade and trade opening but the political economy and inadequate policy grids to deal with freer trade and its immediate consequences.

The WTO not only brought freed trade but also brought countries closer and enmeshed these into a complex interdependence paradigm which has been held to be an antidote to political conflicts and even war. But, enter Trump, and his version of trade and trade policy, there has been a veritable assault not only on international relations and world order in place after the Second Great War but also on intergovernmental organizations like the WTO. If Trump succeeds in decimating this order, world politics and economics will devolve into a zero-sum game where states and nations will seek to take advantage over other states, among other things. This zero-sum competition will have spillover political consequences with global and local conflicts looming on the horizon. 

The corollary effect would also be felt on globalisation (which has already been impeded) and will be supplanted by deglobalisation. Added up, the world will be actually poorer, in the expansive sense and definition of the term. Even the United States will not be immune to negative structural winds from deglobalisation and shrinkage of world trade. While there might be immediate “windfalls” to reap, in the long term, the country will also be stung.
 
With no one to turn to for dispute resolution, the zero-sum conflict between constituent states of the international system, would not merely fracture the international trading system but also its apex bodies like the WTO, leading to anarchy in the economic, trade and financial domains. 

However, now with the putative activism of the WTO’s  Dispute Settlement Body (DSB), there are reasons for hope. The world trade architecture might be salvaged and its institutions might occupy “pride of place” over visceral and reflexive mercantilism and protectionism. In the ultimate analysis, as history demonstrates, trade cannot entirely be the solvent of political conflicts but it can, to a large extent, dissipate these. The Japanese trading state might serve as a classic example of trade and trade policy ameliorating the worst instincts of a given nation.

Alarmingly, if the WTO does not step up or is actually ignored, the zero-sum economic competition could take an uglier form and shape, with political divisions and conflicts supplanting these. Saving the WTO and making it central to trade and its concomitants is then not only an economic imperative but also a political and a moral one.

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)