President Donald Trump has raised eyebrows more than a few times during his presidency so far, not least when he first threatened to pull America out of the World Trade Organization (WTO).
Since then, he has repeatedly asked his advisors about the possibility of doing so, and news website Axios recently obtained a leaked draft of an administration bill, ordered by Trump, that would declare the US’s abandonment of WTO rules. Such a move would have significant ramifications for trade, and for international business, and some worry it would completely upend the international trade system, potentially even throwingentire economies into subsequent chaos.
Trump’s WTO Threats
As proposed, the bill, titled the “United States Fair and Reciprocal Tariff Act,” would allow the US to raise tariffs above the ceiling previously agreed between WTO countries. Instead, the US would be able to set different rates for individual nations outside of free trade agreements (the US has free trade agreements with just 20 countries).
Removing the US from the WTO could undermine the organization’s legitimacy by removing one of its largest economies and leading players, as well as risking other countries flouting the agreements created by all members. Some experts also predict that a US withdrawal from the WTO could hand leadership of the world trading system over to China, who are currently pursuing the creation of a parallel regional trade initiative with Korea and Japan.
The WTO was founded in 1995 as a means to settle international trade disputes using a rules-based system, with the aim of putting a stop to unfair trading practices, while simultaneously lowering the risk of international trade wars.It has 164 member economies, representing 98% of global GDP.
According to the organization, its goal is “to help producers of goods and services, exporters, and importers conduct their business”. Members enjoy non-discriminatory access to new markets, and secure trade.
What Would this Mean for International Business?
Pulling the US out of the WRO risks undoing 60 years of trade diplomacy and could also risk the US facing higher trade barriers in major export markets, since countries would no longer be obliged to stick to lower tariffs on US goods. Neither would they have to stick to the current agreement not to discriminate against US goods. It could essentially strip the US of its ability to address foreign trade barriers.
There are fears that this could lead to a trade war among global business, and lead to catastrophic consequences for global market sustainability. However, the most likely consequences concern the potential diplomatic signals such a move would send out, which could cause like-for-likeretaliatory measures. Anything that lowers confidence is potentially bad news for global business, particularly if your organization currently sells goods abroad or you are looking at expanding your business overseas.
If you’re planning on expanding business globally, it’s advisable to seek the advice and support of international expansion experts, such as Galvin International, who can develop business growth strategies to navigate choppy political waters.