Trump´s Tariffs: “A Frontal Attack on the WTO”

This is the most serious attack on the basic principles of the World Trade Organization (WTO) to date. It is all the more concerning because it comes from the very country whose leadership allowed the WTO to grow and prosper. What is particularly problematic is that the US government is invoking the International Emergency Economic Powers Act of 1977 to protect economic and national security interests. This may seem legitimate in terms of domestic policy, but it is likely illegal under WTO law. The WTO had already ruled that the much smaller tariff that the first Trump administration imposed in 2018 for national security reasons were inadmissible because the US was not at war at the time – as it is not now.

China has already filed a complaint with the WTO over the US tariffs. Can such a path achieve anything?

Realistically, no. The WTO's appellate body has been unable to function since 2020 because the US is blocking the nomination of new judges. China complaint will be decided by WTO lower courts, but the US is likely to appeal any decision to the appellate body. Since none sits in the appellate body today, this “appeal into the void” effectively paralyses the international trade arbitration court. Another nail in the WTO's coffin.

What is the strategic thinking behind these tariffs? Don't they seem a bit erratic?

That may be the case at first glance, but there are signs of a larger strategy. Documents and statements from the circle of Trump's economic advisors, such as Treasury Secretary Scott Bessent or the chairman of the Council of Economic Advisers, Stephen Miran, suggest as much.

What is this strategy?

At its core, the economic advisors of Trump are worried that the current international order is harming the US economy because it is driving its manufactures elsewhere. The WTO is part of the problem because it allows US consumers to import manufactured products from places where they are produced cheaper, effectively undermining US production. But according to the Trump team the WTO is not the only source of weakness for US industries.

What else do they have in mind?

They are also worried about the US dollar as the world's reserve currency and the impact that this has on the US economy. Because central banks worldwide hold an estimated seven trillion dollars in dollar reserves there is enormous structural demand for dollars. Economists in the Trump team believe that this drives the value of the dollar relative other currencies to levels that harm the competitiveness of US producers. They are determined to counter these structural forces – with tariffs and any other tool they can reach.

So you think that the tariffs will remain in place for long?

It may be that the Trump administration will use some of the tariffs as bargaining chip in bilateral negotiations – they have already shown that they are not beholden to the Most-favoured-nation-principle of the WTO! However the Trump team seem to believe that tariffs will help bring back manufacturing in the US, so I suspect that most of these tariffs are here to stay.

What do these developments mean for other countries – especially for smaller ones like Switzerland?

The US is effectively abandoning the multilateral system, or at least no longer wants to play an active role in shaping it. The rest of the world now faces a decision: either it bids farewell to the WTO or it continues to develop it without the US. A rules-based trading system is vital for small open economies like Switzerland, even if it has to manage without the United States in the future.

Is a WTO system without US leadership even conceivable?

That is the big challenge. After the Second World War, it was the American leadership that made the WTO possible at all. Such a leading nation is missing today – but it is necessary to find a new balance in order not to lose the multilateral structures completely.

Image: Keystone

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