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Last week I discussed whether trade policy moving away from traditional trade liberalization and multilateral institutions was a feature or a bug. I thought it could well be a feature and that the “new normal” was beginning to look a lot like the old, pre-World War II law of the jungle normal. From that perspective, the last 75 years were the bug, not the feature. I concluded by suggesting that this week I would tell you what to do about that, while lamenting that neither of our presidential candidates seem inclined to take whatever advice I might give. I’m going to provide it anyway but not with any optimism that something might happen as a result. In doing so I will draw upon recommendations from the CSIS Trade Commission on Affirming American Leadership published in 2021.
The underlying challenge is how to restore trust, which has broken down, not only between adversaries but among friends. Without a modicum of trust, it is difficult to build institutions and agree on rules. I would suggest there are two ways to begin rebuilding trust.
The first is for the United States to take the lead in respecting existing rules and institutions. Shoring them up is an integral part of rebuilding trust by demonstrating that large countries believe rules are important and are prepared to support them even when they are on the losing side of a decision. The United States used to do that but has abandoned the effort in the Biden administration, both at the World Trade Organization (WTO), where the United States has refused to abide by adverse panel rulings on steel and aluminum and some tariffs on China, and in the United States-Mexico-Canada Trade Agreement (USMCA), where the United States just announced definitively that it will ignore an adverse panel decision regarding its interpretation of the automobile rules of origin in the agreement.
This is different from the Trump administration, but just as bad. I can imagine Trump saying, “rules are for losers” as he makes an obscene gesture in the direction of Geneva, but at least he would be honest about his efforts to destroy the system. The Biden administration hypocritically proclaims its support for the system even as it undermines it. Both approaches simply encourage other countries to do the same thing, and with the demise of the WTO’s Appellate Body, thanks largely to the United States, everyone can get away with it. The sinners get to keep on sinning with impunity, and their number is getting larger. The only way to reduce it is if countries start accepting decisions they don’t like.
The same thing is beginning to happen here at home. The additional China tariffs the administration announced in May have now created a line of supplicants demanding additional increases, such as for agricultural, mining, and construction machinery, and for applying them to third countries that use Chinese materials like steel. This is the natural consequence of the breakdown of order. There’s a protectionist train leaving the station, and everyone wants to get on board. In short, when you don’t have rules, you get Smoot-Hawley.
Restoring respect for the rules, however, has run into a new roadblock—governments who say the rules are no longer fit for purpose. The Biden and Trump administrations have both made this argument largely in reference to China, suggesting that it is simply too big and has subsidies and unfair tactics so complex that the current rules cannot reach them. The argument has merit, but the solution—let’s just ignore the rules and do what we want—is wrong.
The right answer is to change the rules, but that has proved difficult, both because the system is currently plagued with a few countries, primarily India, that object to almost everything, and because even if you could get past that, countries engaging in practices new rules would stop would be unlikely to agree to them.
That conundrum is what led to CSIS’ 2021 recommendation suggesting the development of a “two track” WTO, where countries which wanted to pursue a more ambitious trade agenda could do so among themselves, while the others remained outside, just watching. The theory was that stronger rules and a more ambitious agenda would lead to more growth and more job creation, which would, in turn, inspire the nonparticipants to sign up in order to get the benefits.
The good news is that this is already beginning in the form of the several Joint Statement Initiatives (JSIs) underway at the WTO, the most important being the one on e-commerce, where the participating countries now number 91. Even in this smaller group of volunteers, the talks have been difficult, but the likelihood of arriving at an agreement is greater than within the whole WTO of 166 members.
This plurilateral approach is definitely Plan B, but it is probably the best we can do right now, and it keeps alive the prospect of better rules and better adherence to them. An important question is whether the United States will lead this effort. The Biden administration has participated in several of the JSIs, though it has not played a leading role in any of them, and its notable retreat on digital policy has complicated the future of the e-commerce JSI.
That takes us back to the beginning. Restoring trust must be a collective exercise, but it requires leadership. The big countries must do their part by honoring the existing rules and leading the fight for new, better ones. The United States has failed the first test, and it is an open question whether it will step up and take on the second.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
