The WTO is a Disaster. Really?

Dear Mr President,

   I have heard that you called the World Trade Organisation (WTO) “a disaster for America”, and would like to suggest with all due respect that you have been reading the wrong  history books. Perhaps we can start with 1945, the end of the last world war, and a low point in international economic history.

First point: did you know that the post-war economic system was put together by the Americans and the British in the [late] mid-1940s at Bretton Woods?

It is hard to believe that the system designed by Americans has been unfair to America. The contrary would be a normal assumption.

Did you also know that the Marshall Plan was a wise American investment in Europe, aimed at helping nations to recover from the war and building new markets for US exports? For some time this worked very well; America had retained its industrial capacity and was able to deliver to meet European needs, while Europe slowly rebuilt its infrastructure.

Two international bodies which were important in dismantling the high tariffs and widespread quotas that existed at that time were the OEEC and the GATT.*

Through the 1960s and 1970s there was spectacular progress in cutting tariff barriers and eliminating many of the restrictions and outright bans on trade – at least in the Western world.

However good things do not last forever. By the 1980s America entered a period marked by a series of global US trade deficits.

This pattern started 30 years ago and America has been borrowing from other countries to finance its business and consumer purchases ever since.

Was this the result of tariffs and quotas which obstructed US exports? No; Americans were simply buying more abroad than they were selling.

To take a current example, is there evidence that the global steel industry is operating unfairly for the USA?

This may be true in two respects: clearly one problem lies in the large flows of steel products at low prices which are often alleged to be dumped, and equally there has been a major global over-supply of steel in recent years as a result of the industrial policy followed by China. In the first case, remedies are available where the criteria for action are met. In the second case the international community has not yet figured out how to deal with state-financed subsidies on the scale present for steel producers. Many countries are sympathetic to the use of subsidies in order to grow their dpmestic output.

But the issue here is: these problems are not uniquely unfair to the USA. Other countries are affected and apply their own solutions.

Two examples are often quoted of unfair trade practices – unfair to Americans of course.

The EU is criticized for its protectionist policies on agriculture, and it is well known that supply and demand were out of balance in some cases (“butter mountains and wine lakes”).

It is however equally true that the EU became the world’s largest importer of agricultural products, and that US agriculture was shielded from market competition by a general waiver (for more than 30 years) from the late 1950s until the WTO was set up.

Apparently you also believe that it is unfair that the EU (Germany) has 10% duties on car imports where the US rate is 2.5%. But this low duty was the result of a bilateral deal between America and Japan to lower their tariffs to each other: the EEC was not a party to it. There are lots of cases where US and EU duties are not at the same level; tariffs on American textiles for example are much higher than on similar products in the EU,  it is quite normal.

Companies like GM and Ford have been able to secure significant shares of the European market, and European companies have made significant investments in the USA.  This does not suggest a serious imbalance of interests in the automobile sector.

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*You may be more familiar with the names they adopted later, the OECD and the WTO