Senator Josh Hawley’s op-ed in the New York Times last week titled “The WTO Should be Abolished” unleashes a flamethrower at the World Trade Organization (WTO). As with most Trumpian tear-downs of the status quo, there is some truth in the rage. It is true that “free trade” has exhibited decreasing benefits after over 50 years of multilateral tariff reductions. It is true that the globalization has squeezed the American middle class. It is true that China has pirated intellectual property and subsidized technology. And it is true that attempting to restore the multilateral trade regime, while it might feel comforting, would not solve the root causes of these problems.
The current global trading system is obsolete. After 50 years of arbitraging labor, capital and materials price disparities around the world, wage differentials between developed and developing countries have shrunk dramatically, and companies are reshoring instead of offshoring, especially now with COVID-19 constraining supply chains. The World Trade Organization is dysfunctional: the rich countries and the poor countries can’t resolve long-running feuds about subsidies to agriculture in poor countries or who should bear the cost of environmental and social governance. The EU is limited in its capacity to guide a new economic order, as it is caught between the US and China, and Eastern Europe and Italy are being drawn toward Eurasia and China’s Belt and Road Initiative.
There is a better trade model for the medium-term future, and the US can define it. The fact that the world trading system is now in chaos and the WTO is immobilized presents a unique opportunity to reconstruct the scattered pieces of “world trade junk” in a way that overhauls the global trade apparatus for the next generation and sets a clear path to sustained U.S. economic leadership on a global scale. The US can take advantage of this situation to define a new institution in a way that embeds and protects its own interests, as it did after World War II when it took a defining role in establishing the UN, GATT which later became the WTO, the Marshall Plan, the IMF, the World Bank, WHO, and OAS.
The US should withdraw from the WTO (and also UNCTAD) to form and lead a new trading club that is based on the original intent of GATT in 1945 (well before the WTO came about in 1995): to be a club of nations that sought for member countries to achieve net zero balances of trade, and to equalize tariffs — not to reduce all tariffs to zero (“free trade”), as subsequently became its purpose. Harmonized trade, not free trade. Make it an invitation-only club consisting of China, Germany, Russia, and Saudi Arabia (on the surplus side), and the United States, the UK, India, and France (on the deficit side). Make the US a permanent member with veto power, in contrast to the unanimous voting that has crippled the WTO and stalled the Doha Round of trade talks for the last 19 years, whereas the prior eight rounds since 1947 lasted from five months to eight years each. A similar organization almost took hold in 1945 called the International Trade Organization.
Using its position inside that club, the US can eliminate its trade deficit by exporting, especially technology-centric services, to other club members. The Office of American Innovation can support the strategy by funding technology research, promoting technology exports, building network infrastructure, and advancing online learning technologies. An R&D spending target of 4% of GDP could be achieved through investments in health sciences, clean energy, intelligent transport, cybersecurity, artificial intelligence, 5G Internet, and telecommunications. America can solve the COVID-19 crisis and export the solution. It can become a cybersecurity leader. It can lead the world in building network infrastructure for autonomous vehicles (including drone and robotic delivery). And legislators have the opportunity now, today, to lock in the US’s competitive edge for the next generations by embedding these technologies in upgraded educational and learning platforms.
Let’s not miss this train.
David Steven Jacoby is the author of Trump, Trade, and the End of Globalization (ABC-Clio).