President Trump called NAFTA “one of the worst deals our country has ever made” and promised to renegotiate it or scrap it altogether
The critics said it couldn’t be done, and once again he proved them wrong. The U.S. and Mexico came to terms on an agreement that will silence the “giant sucking sound” of American jobs rushing South of the border, as Ross Perot put it so poetically.
Now, our take-no-prisoners president has set his sights on “the single worst trade deal ever made” – the World Trade Organization, or WTO.
President Trump has proposed a solution: “If they don’t shape up, I would withdraw from the WTO,” President Trump told Bloomberg News.
This triggered the usual suspects to declare such a move a dagger to the heart of the global trading system.
To the contrary.
Withdrawing the U.S. from the WTO could be the single best way to restore balance and fairness to the world trading system.
Consider the record. Since its birth in 1994, the WTO has few achievements to point to other than a spectacular record of failure.
The WTO is founded on the Cobdenite pipe-dream that says countries that trade with each other all become more peaceful and more democratic and more prosperous.
That was the justification for admitting communist China into the WTO in 2001 on largely the same terms as the United States and our European allies.
Never mind that China is not a free-market economy – it will become one, the theory went.
In reality, China remains a government-directed economy, with huge state-owned companies, government subsidies to favored industries and all the market distortions that result.
In addition, China has flouted every commitment it made to the United States and to the WTO when it joined. It has maintained its sky-high tariffs, erected non-tariff barriers to American (and other nations’) imports, targeted American industries from steel to solar for extinction, and routinely stolen whatever trade secrets it can’t force American companies to surrender to majority-Chinese joint venture “partners.”
While China’s gross and serial abuses have gone on for decades, the WTO has proven itself incapable of stopping them. The WTOs enforcement mechanisms are toothless.
We can’t say we weren’t warned. Bob Dole was so unimpressed with the organization’s track record 18 years ago, he wanted a “three-strikes-we’re-out-of the WTO” rule before we’d let China join. (Fun fact: Current U.S. Trade Representative Bob Lighthizer once worked for Sen. Dole.)
It would be an understatement to say Beijing has paid no price for its misconduct.
At the same time China breaks the rules, it exploits the global market access the WTO affords members to gain an advantage over competitors.
Beijing now claims to be the defender of the very trade system it has violated.
Like the notorious cuckoo, China has commandeered the WTO.
So what would WTO withdrawal mean?
Consider how the U.S. conducted trade relations before we let the WTO take over the federal government’s constitutional power “to regulate commerce with foreign nations” (Article I, Section 8, Clause 3).
Washington regarded foreign access to our consumer market, the largest in the world, as a privilege only for countries deemed worthy.
We would lower our tariffs for “most favored nations.” The flip side of the coin was the Jackson-Vanick Amendment to the Trade Act of 1974, which denied most favored nation status to countries that violated the human rights of their citizens.
Lower tariffs and most favored nation treatment were incentives for allies and others to play by the rules and a means to use trade to promote our values.
Under WTO rules, if the U.S. lowers tariffs for one country, it must lower tariffs for all member countries, even if one respects human rights and the other practices slavery (Mauritania).
The prize reserved for the best has been replaced with a participation trophy.
The record shows the WTO has failed to punish bad behavior while it’s destroyed incentives for good behavior.
Dan DiMicco, Trump campaign adviser and chairman emeritus of Nucor Steel sums it up nicely:
The WTO is not helping the world trading system; it’s hurting it – and we should be prepared to walk away.