Let the WTO and all its agreements go already! We cannot salvage something that was built broken, and it’s time to…
by Carmen Dorobat via Mises
An article published this month by Chad Bown and Douglas Irwin (the latter one of the more consistent and effective defenders of free trade in academia) provides a rather disappointing view of the free trade ideal in scholarly circles. Their discussion highlights the confusion (or perhaps hypocrisy) that surrounds such debates at present. The recent article, published in Foreign Affairs (2019), builds on a 2018 Peterson Institute policy brief by the same authors. Both contributions discuss the effects of Trump’s approach to trade, of the potential U.S. withdrawal from the WTO, and of Trump’s overall economic nationalism—and are a disappointing display of misguided assumptions and a lot of handwringing.
In the policy brief, Bown and Irwin (2018, 2) base their analysis of the effects of U.S. leaving the WTO system on the following statement: “It would thus make sense to withdraw [from the WTO] only if the United States intended to raise tariffs against countries.” While this is likely true in this particular case, the statement purports to make the more general point that free trade can only be accomplished within a multilateral trade system. We have discussed this issue before many times, and showed that the WTO negotiation system has been highly ineffective, and indeed detrimental to global trade. In fact, almost 70% of overall trade liberalization since the 1980s has been unilateral (Sally 2008, 151), and studies show that unilateral reduction of trade barriers may actually beget reciprocal liberalization to a much greater extent than multilateral or bilateral negotiations (Bhagwati 2002).
Bown and Douglas follow up their earlier argument with the warning that “[the Trump administration] has taken deliberate steps to weaken the WTO—some of which will permanently damage the multilateral trading system” (Bown and Irwin, 2019, 125). Personally, I do not doubt that this is indeed Trump’s long game, as his administration thinks such a result will prove its courage and determination in foreign affairs. However, one wonders what is there left to damage of the WTO. To what are Bown and Irwin still clinging?
The first surprising aspect they seem persuaded by is the thin layer of propaganda covering the U.S. government’s commitment to free trade. This is unexpected for Irwin, whose two best-selling books (Free Trade Under Fire and Against the Tide) do a brilliant job of unmasking the true effects and the real reasons for governments’ centuries-old assault on free trade. Yet the authors balk at Trump openly using trade as a weapon if possible and caring nothing for the ensuing economic effects. Bown and Irwin (2019, 127) are shocked to hear that “The Trump administration recently stood alongside Russia to argue that merely invoking national security is enough to defeat any WTO challenge to a trade barrier.” They add: “This runs counter to 75 years of practice as well as to what U.S. negotiators argued when they created the global trading system in the 1940s.”
Irwin’s own research from before the Trump era (e.g. Peddling Protectionism) shows that that “the years of practice” and the promises made by the U.S. since 1940 did not represent a principled framework guiding government trade policy, but simply a pragmatic calculation of the way in which the U.S. could manipulate global trade more easily. Trump’s view is that it can be done now directly from the Oval Office. In either case, the goal of all U.S. administrations has never been free trade, nor “leading by example,” but managing trade to the benefit of their particular interest groups and larger political goals. Why Bown and Irwin are baffled by this is baffling to me in turn, and quite disappointing.
Secondly, they still regard the WTO dispute settlement system as a forum which “countries big and small, rich and poor have relied on to prevent trade skirmishes from turning into trade wars”. While the dispute settlement “is not perfect” (2009, 131), it can be salvaged. Yet mountains of evidence point to a WTO dispute settlement that has been used precisely to inflict more damage than a simple trade skirmish would have produced. Some have actually suggested that through this system, China’s lack of cooperation with the WTO can be punished with legitimate, WTO-approved retaliatory tariffs. Yet only last week Beijing began “seeking $2.4 billion in retaliatory sanctions against Washington for non-compliance with a WTO ruling in a tariff dispute against the US tracing back in the Obama era” (Forbes, Oct 22). A system run by governments to solve government-created problems in global commerce never had any chance of being effective—nor was it intended to do anything else but provide another lever for protectionist measures.
Bown and Irwin’s wishful thinking becomes unbearable when they bemoan the fact that through Trump’s tariffs on steel, “the administration jeopardized the welfare of 3.2 million American farmers to help 140,000 U.S. steelworkers” (Bown and Irwin 2019, 128). This is again true, but could we not rewrite every trade policy, save for free unhampered trade, in exactly such terms? Every multilateral trade agreement, signed especially since the beginning of the Doha Round, resulted in increasing the welfare of a select group of producers while slapping non-tariffs barriers on a host of other market participants. Every time a government interfered in world trade (or the domestic economy, for that matter), it diminished the welfare of one group of the population to the benefit of a small interest group.
Lastly, the two authors argue that trade deficits and the loss of certain industries — key issues Trump worries about—have little to do with specific trade agreements and more to do with some underlying economic cause. They remain vague on this point, but regardless, their proposal is to maintain the trade agreements — fearing, if not, “substituting government intervention for market forces” (2019, 130). They also recommend tackling the underlying causes of such outcomes domestically. How? Of course, by substituting government intervention for domestic market forces. The inconsistency in their arguments is most evident in this case.
As a disappointed reader, I find I can only exclaim: Let the WTO and all its agreements go already! We cannot salvage something that was built broken. And it’s time to stop gasping and shaking our heads in disbelief when one president or other goes on to do something outrageous when it comes to free trade. Let us instead talk about our only way out: how do we keep governments out of global trade altogether?