When President Trump announced that he would impose new rates on imports from countries around the world, he launched a frontal attack on the global free trade system created in the aftermath of the Second World War.
Mr. Trump's move, announced on Thursday and starts in April so quickly, represents a bet that the United States will get leverage by replacing global rates with his own rates, which are taxes on import.
The United States, the world's largest importer, have bought much more of the rest of the world for decades than it sells. Mr. Trump wants to change that and calculates that other countries, with more exports at stake, may be careful with revenge by increasing their own rates.
But instead many trading experts warn, Mr Trump's action could express a global shift to higher rates. That would be a major challenge for the World Trade Organization, which was founded in 1993 to coordinate global rates and trade rules.
Decisions from other countries to follow Mr Trump's example and set rates unilaterally can hinder trade, increasing the prices for everyone. The free trade promise of consumers buying the cheapest producers can be in danger.
“I would say that the WTO is toast, but it is now going to be how other members respond,” said Deborah Elms, the head of trade policy at the Hinrich Foundation, a research group in Singapore that is in favor of free trade. 'Do they stand up for the system? Or do they also ignore important principles, provisions and practices? “
How we got here: Gatt and the WTO
The most important agreement for international trade, even today, is the general agreement on rates and trade, or GATT.
Only 23 countries, including colonial powers such as Great Britain and France, signed that agreement in 1947. The signatories of the Pact agreed to charge the same rates to all other Member States – a crucial provision that Mr Trump is a challenge. Member countries have negotiated for years to lower these rates.
The most important of these multi -year negotiations was the Uruguay round, which led to an agreement in 1993 to further reduce rates. The negotiators, from 117 countries, have also set up the World Trade Organization to manage GATT rules and negotiations and to provide binding arbitration of disputes.
An American return against the WTO
At the start of President Trump's first term, he and his trade advisers expressed frustration about how the WTO arbitration panels had gone. They argued that the panels were reluctant to condemn export subsidies and other measures by countries such as China trying to strengthen their production sectors, contrary to the rules of free trade. And they complained that the panels often decided against the United States.
Mr. Trump blocked the naming from judges to the top body of the WTO for resolving disputes. That body was unable to meet if the conditions of the judges go and could no longer issue binding judgments.
Trade officers in Mr Trump's first term discussed whether they should rewrite the rates, but decided that this would be a step too far. The prospect of setting new rates for more than 4,000 import categories for US trade with more than 150 countries was too daunting.
But Mr. Trump is preparing to do exactly that and to destroy the most basic rules of Gatt by setting rates unilaterally. The US would correspond to the rates of other countries and then add further rates to compensate for subsidies and non-Tariff trade barriers in those countries. Mr. Trump particularly complained about added value taxes in Europe and very steep rates in developing countries.
Steep rates in developing countries
When Gatt was founded in 1947, only a handful of countries had industrialized their economies, and many of them were in ruins because of the Second World War. While colonial empires were called apart in numerous developing countries, leaders of the poor countries of the world were afraid that they might never have the chance to develop the production industry.
Developing countries were supposed to maintain high rates to limit the import of factory products. They also stated that they can subsidize their agricultural sectors to try to become self -sufficient in food.
Some of these developing countries, such as China and India, now belong to the world's greatest economies. But they have retained their status as developing countries under GATT rules, so that they can keep the rates much higher than in developed economies and agriculture seriously subsidize. Only in response to Trump's trade war in 2018 and 2019 did China began to voluntarily lower its rates, while retaining the world's largest agricultural subsidies.
Mr. Trump indicated that developing countries with high rates can be hit with equally high American rates. But developing countries, including China and India, claim that although their industrial sectors have grown enormously, their population is not yet rich. They still have a low average income per person and usually want to stay self -sufficient in food.
The dilemma now for Europe and most developing countries is that they have to lead hard surpluses with the United States to pay their large trade shortages with China. If they take revenge on President Trump's rates, they can activate a global trade war and immerse the WTO, which helped them for so long.
