The weekly trade report with L.C.
Sen. Josh Hawley (R-MO) introduced a joint resolution in the Senate to withdraw the US from the WTO. This followed his publication of an op-ed in the New York Times on May 5th titled, “The WTO Should Be Abolished.”
Hawley, who was elected two years ago and is the youngest member of the Senate, is appealing to the Trump voter base as a nationalist/populist/anti-globalist critical of the US-China relationship. Although the president has threatened to withdraw from the WTO and US Trade Representative (USTR) Robert Lighthizer has been highly critical of the institution, the administration has not gone as far as Hawley. It has not taken action to exit the WTO or try to abolish it, though its blocking of the Appellate Body has crippled the WTO dispute settlement system function.
Announcement
Hawley’s office announced the resolution on May 7th:
Today Sen. Josh Hawley (R-MO) introduced a joint resolution to withdraw the US from the WTO. Earlier this week, [he] penned an op-ed in the New York Times calling for the US to lead the way to abolishing the WTO as the Chinese Communist Party has weaponized the WTO to its benefit at the expense of American workers.
It quoted Hawley saying,
The coronavirus pandemic has exposed deep, long-standing flaws in our global economic system that demand reform. International organizations like the WTO have enabled the rise of China and benefited elites around the globe while hollowing out American industry, from small towns to once-thriving urban centers. We need to return production to America, secure critical supply chains, and encourage domestic innovation. Pulling out of the WTO is a good first step.
Hawley took advantage of the fact that US law allows a WTO withdrawal resolution to be introduced every five years.
Hawley not supported by USTR
Nonetheless, the USTR’s Trade Agenda report doesn’t call for a US withdrawal or for terminating the WTO and instead concludes:
Going forward, the US seeks to revitalize the WTO and reinvigorate its negotiations through recognizing the organization’s original mandate, ensuring compliance with the rules as written, rebalancing its approach to development and non-market practices, and promoting new rules to respond to new problems.
The report thus could not be used to support the Hawley resolution and suggests that the president would veto it if it came to his desk.
Hawley not entitled to own facts
The Hawley resolution has been widely criticized for its factual ignorance, among others by Forbes (“Senator Hawley’s Case For Nationalism: Strong On Propaganda, Weak On The Facts”) and the National Taxpayer’s Union (“Sen. Hawley is Entitled to His Opinion On Trade, But Not His Own Facts”).
The US has used the WTO effectively, including against China. It has won almost all the complaints it has brought and forced China to change many of its unfair practices. In order to accede to the WTO, China had to undertake radical economic reforms that continue to benefit US businesses.
If US withdraws, China will dominate WTO
Perhaps most important, despite what Hawley says in his op-ed, if the US withdraws from the WTO, it would not cause the demise of the institution. It would, instead, leave the world with a WTO in which China enjoys the dominant position. US businesses would then face higher tariffs abroad than their competitors since trading partners without free trade agreements with the US would no longer have to grant most-favored-nation tariff levels to US products.
Most legislators recognize this and don’t share Hawley’s misinformed view of the WTO. Hence, passage of his resolution is unlikely.
For it to make it to the president’s desk, it would have to pass by simple majorities in both the House and the Senate.
Finance Committee chairman opposes
Senate Finance Committee Chairman Chuck Grassley’s office released a statement saying,
Chairman Grassley agrees with the Trump administration that the WTO is in need of reform. He looks forward to working with President Trump and Ambassador Lighthizer to achieve those reforms so the US can continue to take a leading role in setting global trade policy. Withdrawing from the WTO would only leave a vacuum for China to fill and diminish America’s position of strength.
Sen. Grassley’s dismissal of WTO withdrawal should kill the withdrawal resolution.
Many analysts agree with Hawley that China’s abusive trade practices and pandemic behavior make it necessary to rethink supply lines and encourage re-shoring. Few, though, follow Hawley in blaming the WTO for the problems they identify.
Hawley’s NY Times op ed
The Hawley op-ed begins:
The coronavirus emergency… has exposed a hard truth about the modern global economy: it weakens American workers and has empowered China’s rise. That must change. The global economic system as we know it is a relic; it requires reform, top to bottom. We should begin with one of its leading institutions, the WTO. We should abolish it.
This is, as many point out, a silly objective on its face since it’s not up to the US whether the WTO exists. Washington can at most withdraw from the institution. But that would leave 163 other countries as members with China the dominant one. No other WTO member to date has shown an inclination to follow a US exit.
Mischaracterizes WTO
Hawley then presents a quick review of the post-war history leading to creation of the WTO in 1995. He claims its creators’ goal was a world system in which “Nation-states themselves would become less important in setting economic policy and new, multilateral institutions, like the WTO, would take on the role of managing the global economy.”
The WTO, while having a stronger dispute settlement system than the GATT, like the GATT does not have a central authority that can take any action, impose rules, or enforce any decision apart from what the membership, generally working by consensus, decides. There is no WTO bureaucracy that can challenge a country for breaking the rules. Only another member country can do that. The WTO can’t even “enforce” its dispute settlement rulings. It can only “recommend” that the defendant country comply and authorize a complaining country to take action within its own borders. Thus, the WTO poses no challenge to national sovereignty.
China grew, but so did US
The new order created by the WTO, Hawley says, was governed by “internationalists” whose “liberal economic order… sent American production overseas, compromised American supply chains, and cost American jobs, all while enriching Communist China.” These claims are refuted by US economic data of the last 26 years. US industrial output has risen continually, even while manufacturing jobs declined largely due to improved technology. What got sent overseas was the lower-value production. This led to higher-value domestic jobs, which couldn’t have existed without the global supply chains that Hawley ignorantly repudiates.
China was indeed enriched, as were India and many other developing countries that became more prosperous in recent decades. But this wasn’t at US expense; the US economy benefited.
Xi Jinping’s turn
China remains a key market for many US companies as well as a cheap source for manufacturing inputs. That the Xi Jinping government reversed some of the liberalization of his predecessors, steals US intellectual property, subsidizes key strategic sectors, and excludes the US from key Chinese markets is a serious problem for US strategic as well as economic interests. But that has nothing to do with the WTO.
The Xi regime justified its post-2012 dictatorial turn by claiming that the 2008 financial crisis in the West was brought about by its pursuit of free market economics. So too FDR and his brain-trusters justified their statism during the 1930s on the argument that free markets had failed in 1929 and its aftermath.
While the WTO hasn’t done much to counter China’s abusive use of state-owned enterprises and related subsidies, other countries haven’t tried much to use the WTO’s tools to challenge these practices.
Sen. Hawley ignores TPP
Hawley concludes by reiterating that the WTO should be abolished and the US should re-shore supply lines while inducing allies to form other arrangements based on reciprocal trade. His call for some sort of economic alliance excluding China was in fact the goal of the Trans-Pacific Partnership. But Hawley, astonishingly, is not calling to join it.
Meanwhile, a posting in the May 11th RealClearDefense provides good reasons why the US should rejoin it:
The Trans-Pacific Partnership (TPP) enables the U.S. to assert leadership in the Asia-Pacific region. Although U.S. President Donald Trump withdrew the U.S. from the TPP, he indicated in 2018 that he would consider returning to the alliance. Regional tensions make this a favorable time for the U.S. to enter the TPP as a way to challenge China’s dominance.
L.C. reports on trade matters for business as well as Founders Broadsheet.
Leave a Reply