By Greg Ip
After President Trump imposed steep tariffs on Chinese imports
in 2018, Beijing did what aggrieved trading partners typically do:
It complained to the World Trade Organization. Last month, a WTO
panel ruled in its favor, declaring most of the U.S. tariffs
violated the organization's rules.
The victory is hollow. The ruling is subject to appeal to the
WTO's top court, the Appellate Body, but that body isn't
functioning because the U.S. has blocked the appointment of new
members. Thus, the "phase one" trade deal the U.S. and China
reached in January will, for the foreseeable future, govern their
bilateral relationship, not the WTO.
The outcome formalizes the reset in U.S. trade policy the Trump
administration has pursued since taking office in 2017. Mr. Trump
hasn't destroyed the global-trading system as some had feared, but
he has fragmented it. Historically the U.S. sought rules and
institutions like the WTO that apply equally to everyone. Under Mr.
Trump, the U.S. now crafts its own rules, as it has with China,
according to what it considers its own best interest.
The approach has attracted criticism as contrary to historic
U.S. support for free trade and multilateralism. Yet it is hard to
deny that it has an underlying logic. That is in large part thanks
to the person most responsible for it, U.S. Trade Representative
Robert Lighthizer. Throughout his long career advising Republican
politicians and representing U.S. steel companies hurt by imports,
Mr. Lighthizer developed strong views about the many flaws in U.S.
trade policy, and how to fix them if he got the chance.
Some of the most important involve the WTO, which in 1995
replaced the General Agreement on Tariffs and Trade (GATT), set up
in the aftermath of World War II to prevent a return to the trade
wars of the 1930s. Participants had worried that the GATT's
dispute-settlement decisions were too easily circumvented and thus
the WTO included an appellate body -- a sort of "supreme court" --
to which lower panel decisions could be appealed.
Appeals were supposed to be rare, but they are now commonplace,
and the Appellate Body, backed by a large professional staff, has
increasingly gone beyond ruling on the case at hand to creating a
body of jurisprudence to govern future cases. In a report issued
earlier this year, Mr. Lighthizer argued that the Appellate Body's
enhanced role had turned the WTO from a negotiation forum to a
litigation forum. Rather than achieve access to the U.S. market
through the painstaking give-and-take of trade negotiations,
countries instead ask the WTO to overturn an adverse U.S. trade law
USTR says up to 90% of cases against the U.S. have led to a
finding that some U.S. law or measure violated WTO commitments.
True, the U.S. wins more often than it loses at the WTO but what
Mr. Lighthizer focuses on is that the U.S. is sued more often than
anyone else despite having among the world's lowest trade
"We've had to make changes in our laws, which were never
negotiated, never conceded and were never paid for," Mr. Lighthizer
said in an interview. "And the consequences have been, we have
fewer people working in good jobs."
Once in office, Mr. Lighthizer acted: The U.S. began blocking
appointments to the seven-member appellate body, with the result it
now has too few members to hear appeals of lower panel
The WTO's next major flaw, in Mr. Lighthizer's view, was
admitting China as a member in 2001. The GATT worked because it was
between countries with similar political and economic systems.
China's authoritarian state-directed economy didn't fit that mold,
and WTO rules couldn't adequately address many of its practices,
from currency manipulation to forced technology transfer. The WTO's
Appellate Body tilted the rules further in China's favor -- for
example, by making it difficult to punish anticompetitive subsidies
that come via state owned enterprises, which dominate China's
Convinced the WTO, which decides by consensus, was structurally
incapable of changing China, the U.S. acted unilaterally, dusting
off a piece of U.S. legislation, Section 301 of the Trade Act of
1974, to hit China with steep tariffs until it changed its
The success and durability of the new, U.S.-centric system of
trade arrangements remains to be seen. Jennifer Hillman, a former
WTO Appellate Body member who is now at the Council on Foreign
Relations, said the phase one deal focused too much on reducing the
U.S. trade deficit by forcing China to buy more goods without
addressing the most problematic aspects of Chinese behavior, such
as forcing western companies to transfer their technology to
Chinese competitors, or subsidies. And by acting alone rather than
with allies, critics says, the phase one deal, its ban on Huawei
Technologies equipment and similar actions are fragmenting the
global market for technology which will slow innovation and hurt
U.S. companies' ability to compete.
Democratic presidential nominee Joe Biden has been particularly
critical of Mr. Trump's failure to work with allies on China, and
his advisers have signaled that he will unblock appointments to the
WTO's Appellate Body.
Yet a growing number of lawmakers, including Democrats, and
trade experts, concede the prior policy of trying to change China
through engagement didn't work. Mr. Trump's actions may make U.S.
allies more, not less, willing to work with it on China. Perhaps
the strongest defense of Mr. Lighthizer's approach to managing
China is that it beats the status quo. He said: "The fact that it's
complicated is not a reason not to try to do it. And even if you
have a little extra inefficiency in the system, it's still worth it
because the way we [had] it is absolutely crazy. It's destined to
He added: "And the only person who started thinking about this
is President Trump, who doesn't mind breaking a little crystal if
it's going to get us to a better place."
Write to Greg Ip at email@example.com
(END) Dow Jones Newswires
October 21, 2020 15:38 ET (19:38 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.