Why Donald Trump’s neutering of the WTO is bad for everyone, even the U.S.

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Saturday Night Live got it right with a recent skit that cast Donald Trump as the high-school outcast, mocked and shunned by the cool kids.

The U.S. President’s “America First” foreign policy is turning America into a loner, and a loser.

It’s true at the North Atlantic Treaty Organization and the United Nations. And it’s most obvious on trade.

Bluster here, threaten there and then slap some more tariffs on your trading partners. And most importantly, do it on your own, flouting the global trade rules the United States helped write and alienating your friends.

No wonder no one wants to hang out with you, Mr. Trump.

The destructive fallout of unilateralism is playing out in real time at the World Trade Organization. The WTO appeals court has been shut down – the result of two years of obstruction by the Trump administration, which has vetoed the appointment of all new judges. As of last week, there weren’t enough judges to hear new cases. It’s retribution for long-standing U.S. gripes about the court’s slow decision-making, judicial overreach and failure to curb bad behaviour by China.

The hobbling of the WTO’s top court – the final arbiter of disputes – will make it virtually impossible to enforce global trade rules. Countries will still be able challenge the trade actions of others, but the WTO won’t be able to sanction retaliation.

The fight is not just about arcane bureaucratic procedures. Shutting down the court sends the message that might makes right. It’s the law of the street over the rule of law.

Canada, the European Union and others are now scrambling to find a fix – a voluntary, interim court that would continue to issue binding rulings. Other countries, including China, may also join, leaving the U.S. increasingly isolated.

That is not in anyone’s interest, including the U.S.

Since its creation in 1995, the WTO appeals court has dealt with 162 cases, including the Canada-U.S. lumber and Boeing-Airbus subsidy disputes. More than a quarter of all cases brought to the WTO have gone to appeal. The remainder were either dropped or settled out of court. The U.S. is at once the most frequent plaintiff and the most targeted defendant, reflecting its status as the world’s largest market.

The irony is that the U.S.’s won-loss record at the WTO is pretty good, compared with most other countries. It has won most cases it’s been involved in and boasts a 21-5 record against China (with three split decisions), according to a recent analysis by the Washington-based Peterson Institute for International Economics.

Mr. Trump, however, would rather duke things out mano a mano with unilateral tariffs.

In spite of claims to the contrary, Mr. Trump is not winning the trade war with China. So far, he has not got most of what he wants, even after last week’s “phase one” agreement that avoids a further escalation of their destructive trade war. Tariffs on tens of billions of dollars of trade remain in place.

And the partial settlement does not erase the losses already suffered by U.S. businesses and consumers, who have born most of the cost of the tariffs imposed by Washington. Since the trade war began in 2018, Americans have paid an extra US$42-billion for imported Chinese goods, according to a recent report by the Federal Reserve Bank of New York, openly challenging Mr. Trump’s claim that China is paying them.

The economic damage is compounded by the often-unseen hit to investment.

Consider the trials of MISCO, a small Minnesota maker of audio equipment. It has suspended plans to launch a new line of U.S.-made speakers because the tariffs have inflated the price of key Chinese components.

“We’re not creating anything new,” president Dan Digre said to Reuters. “We’re spending all this time and money trying to deal with a problem that’s more or less self-inflicted.”

Meanwhile, U.S. farmers are the main target of Chinese retaliation. They’ve already lost two-thirds of their exports to China as a result of higher tariffs.

The lesson Mr. Trump should have learned from his trade war with China is that the U.S. doesn’t have unlimited trade clout. Yes, it’s the world’s largest market. But it’s the destination for less than a fifth of Chinese exports.

Mr. Trump could have gotten further, faster, by ganging up on China with the help of the cool kids, including the EU, Canada, Japan and others. Instead, he’s pushing them further away.

Special to the Globe and Mail