Unilateral US tariffs destabilize multilateral trading system

Trade experts and officials are warning that the US is jeopardizing the global trading system by repeatedly imposing steep tariffs on imports.

“The existing multilateral system provides effective trade remedy measures and dispute settlement mechanisms,” says Liang Guoyong, an economic officer at the United Nations Conference on Trade and Development. “WTO members should solve their trade problems and disputes within a multilateral framework.”

A recourse to unilateral measures threatens the authority and effectiveness of the multilateral trading system, Liang asserts, which in the long run disrupts the stability and growth of the world economy.

Despite widespread dissent from business groups and trading partners around the world, US President Donald Trump on March 22 signed a memorandum that could impose tariffs on up to $60 billion in imports from China, following a recent tariff plan for steel and aluminum imports and January’s tariffs on imported solar panels and washing machines. All are chided as acts of protectionism.

In the name of safeguarding national security and protecting domestic jobs, Washington’s arbitrary move has unleashed heavy criticism.

Unilateral announcements spark countermeasures, says WTO DirectorGeneral Roberto Azevedo.

“Actions taken outside these collective processes greatly increase the risk of escalation in a confrontation that will have no winners, and which could quickly lead to a less stable trading system,” says Azevedo.

He encourages members to work through the WTO for solutions.

WTO members in Geneva are expressing concern with the US decision to levy tariffs. Trade representatives from more than 40 members, including 28 from the European Union, on March 23 took to the floor.

They said tariffs would hurt traders and the predictability and stability of the rules-based multilateral trading system.

“As shown repeatedly in the past, we need global solutions to global problems,” says Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development.

Unilateral measures do more harm than good. The Obama administration’s decision to levy tariffs on Chinese tires in 2009 saved few jobs at a high cost, according to a study by the Washingtonbased Peterson Institute for International Economics. The move temporarily saved no more than 1,200 jobs, but American buyers of car and truck tires paid about $900,000 per job, a hefty price for protectionism in the institute’s analysis.

Arancha Gonzalez, head of the Geneva-based International Trade Center, recalls the steel tariffs of 2002 during the George W. Bush administration. “There was a net loss of 200,000 jobs in the US because of those measures,” he says.

While the US has announced a suspension of tariffs on steel and aluminum imports from some countries, Gonzalez warns that as governments focus on seeking “bilateral exemptions,” there is a risk of diminishing their collective ability to deal with the real problem: overcapacity.

Gonzalez says that negotiated exemptions from the proposed tariffs represent another step in the direction that “we are moving from a trading system based on rules to one based on deals.”

Problems such as overcapacity can’t be easily solved bilaterally but would be most effectively addressed at the multilateral level, she says. In the end, the Bush administration had to withdraw tariffs after they were successfully challenged at the WTO by a number of countries. Analysts believe the Trump administration’s tariffs will face a similar challenge at the WTO and the US will most likely lose the case.