by Peter ZeihanMelissa Taylor, and Michael N. Nayebi-Oskoui

See Part IPart II, and Part III.

Event 4: The World Trade Organization Loses Its Grip (in progress)

Before we talk about a life without the WTO, we need to review why it exists in the first place.

The core of the international system during the Cold War was the Americans’ support of the global trade and security order in part by stepping back from the role of global economic hegemon. In exchange, the Americans wanted strategic control over the alliance. The economic half of the American understanding was codified in a series of international negotiations in the late 1940s which created the General Agreements on Tariffs and Trade. GATT eventually morphed into what we now know as the World Trade Organization. The basic concept is that the United States – the most powerful economy and military in history – has no stronger legal standing than Paraguay or Malawi when it comes to economic matters.

The Americans’ willingness to sublimate their economic interests in exchange for security control is what enables the global system to work, and the WTO is the institution that manages the economic side of the global order. It shouldn’t come as much of a surprise that pretty much everyone plans to use the WTO to sue the United States on the issue of secondary sanctions.

No wonder Donald Trump has the organization in his sights.

The American ambassador to the WTO has made it clear that so long as the WTO isn’t furthering America’s direct economic interests – a position diametrically opposed to the original negotiation – the United States will prevent judges on the WTO’s appellate bench from being replaced as their terms expire. (The U.S. enjoys a de facto veto over procedural measures like this.) By year’s end the WTO’s dispute resolution system will shut down due to lack of judges, and that spells the organization’s functional end.

Now consider the context:

  • In the United States political and strategic interest in all things international is at the lowest level since at least the 1930s.
  • The United States economy is one of the least exposed in the world to the global system, but the Americans are the sole country with the ability to maintain that system.
  • The shale revolution has made U.S. oil production cost competitive OPEC producers, and the United States will be a net oil exporter by the end of 2020.
  • The dominant strains of political thought in both the Republican and Democratic Parties is staunchly anti-trade. Anti-trade factions have seized control of the White House in 2016, and are highly likely to dominate both sides of the Congressional aisle after this year’s mid-terms.
  • The U.S. dollar dominates the international trading system. The American administration has discovered it can use that fact to selectively punish countries for reasons wholly disconnected from trade.

It isn’t exactly a big step to say the Trump administration might choose to use secondary sanctions to selectively punish countries for other reasons.

The WTO works because the Americans have always deferred to it on economic matters. Remove that, however, and the entire global structure of anything that involves a border crossing falls back into a combination of survival-of-the-fittest and how-big-is-your-gun. For a country like the United States with scant exposure but global reach, that’s pretty good.

For anyone else, not so much.

And that’s before the Trump administration really gets going.

Next, the final installment of our series: Trump unleashed.

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