When President Trump announced he would impose new tariffs on imports from countries around the world, he launched a head-on attack on the world's free trade system created in the aftermath of World War II.
Trump's move was announced Thursday, and is expected to start soon in April, indicating that the US will gain leverage by replacing global tariffs with its own import tax.
The world's largest importer, the United States has been buying far more than it sells from other parts of the world for decades. Trump wants to change that and calculates that other countries may be cautious about retaliating by raising their own tariffs as more exports are in danger. Masu.
But instead, many trade experts have warned that Trump's actions could predict a global shift towards higher tariffs. This will pose a major challenge to the World Trade Organization, which was established in 1993 to coordinate global tariffs and trade rules.
Following Trump's example, other countries' decisions to set tariffs unilaterally can interfere with trade and raise prices for everyone. The promise of free trade from consumers buying from the lowest-cost producers can be at risk.
“I think the WTO is a toast, but what's important now is the reaction of other members,” said Deborah Elms, director of trade policy at the Hinrich Foundation, a Singapore research group that supports free trade. . “Are they standing up for the system? Or do they ignore important principles, regulations and practices?”
How to Come Here: Gut and WTO
The main agreements governing international trade today are general contracts, or GATT.
Only 23 countries, including colonial forces such as Britain and France, signed the agreement in 1947. The PACT signatories agreed to charge the same duties from all other member states. This is an important provision that Trump is challenging. Member States have negotiated for years to reduce these tariffs.
The most important of these multi-year negotiations was the Uruguay Round, which led to an agreement in 1993 to further reduce tariffs. Negotiators from 117 countries have established the World Trade Organization to administer GATT rules and negotiations and to provide binding arbitration of the disputes.
America's rebellion against the WTO
At the start of President Trump's first term, he and his trade advisers expressed dissatisfaction with how the WTO arbitration panel worked. They argued that the panel was reluctant to condemn export subsidies and other measures by countries like China that sought to strengthen the manufacturing sector in violation of free trade rules. They then complained that the panel often made a decision against the US.
Trump blocked the judge's naming to WTO top body to resolve the dispute. As the judge's terms expired, the body was no longer able to meet and issued binding verdicts.
Trade officials for Trump's first term debated whether to rewrite tariff charges, but decided that would be a step ahead. The prospect of setting new tariffs on more than 4,000 import categories to trade with over 150 countries was far too difficult.
But Trump is preparing to do just that, overturning Gat's most basic rules by setting tariffs unilaterally. The US coincides with other countries' tariffs and then adds more tariffs to offset subsidies and non-tariff trade barriers in those countries. Trump has particularly complained about the Value Added Tax in Europe and the extremely sudden tariffs in developing countries.
Slow tariffs in developing countries
When GATT was founded in 1947, only a handful of countries industrialized their economies, many of which were abandoned due to World War II. With the colonial empire split into many developing countries, leaders of the world's poor countries worried that they might not have the opportunity to develop manufacturing.
Developing countries have insisted on maintaining high tariffs to limit imports of factory goods. They also insisted that they would be allowed to subsidize the agricultural sector to become self-sufficient in food.
Some of these developing countries, such as China and India, are currently one of the largest economies in the world. However, they maintain their status as developing countries under the rules of GATT, maintaining much higher tariffs than developing countries and are able to subsidize agriculture significantly. In response to Trump's trade wars in 2018 and 2019, China began voluntarily cutting its tariffs while maintaining the world's largest agricultural subsidies.
Trump has shown that developing countries with high tariffs could be hit by equally high American tariffs. However, developing countries, including China and India, have argued that despite their industrial sectors, their population is not yet wealthy. They still have a low average income per capita and want to remain mostly self-sufficient in their food.
The dilemma for Europe and most developing countries now is that they need to desperately operate the trade surplus with the US to provide a massive trade deficit with China. If they retaliate against President Trump's tariffs, they could launch a world trade war and destiny for the WTO.
