WTO, Trump and Another Exit?

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WTO, Trump and Another Exit?
In the short-term the USA might gain some benefits, but a long-term effect might bring detrimental effect.

WTO or World Trade Organization is an intergovernmental organization established in 1995, to ensure smooth functioning of international trade. WTO currently has 164 countries as members. WTO members constitute almost 98% and 95% of global GDP and global trade respectively.

The organization is currently in the crosshairs of Trump. It has been reported that he wanted to withdraw US from the global trade regulator. Trump recently declared in an interview that WTO had done nothing positive for the country and he might think about leaving the organization if nothing is done about the current situation. Axios.com has obtained all this information from a leaked draft of a bill that purports to give Trump unprecedented powers in deciding tariffs and negotiating with each country individually. These two actions go against the very core of what WTO stands for and what has already been negotiated and decided by the member countries in decades of negotiation. Peter Navarro is primarily pushing the Bill “United States Fair and Reciprocal Tariff Act”. He is a trade advisor to Trump and a trade extremist whose views have been roundly panned by almost all major business publications. The bill, even with Republicans controlling the House and Senate, has a minuscule chance of passing but it should anyways ring alarm bells as to the thinking of the Trump administration. All the great work done by tax relief and deregulation would go down the drain with one single act of destabilizing a global pillar of world trade.

Impact

The impact of any such unilateral action is predicted to be severe and swift. It will lead to dismantling of the organization with decades of hard work in hammering out trade deals going out the drain. The United States might be a short-term beneficiary with its ability to bully nations especially small exporters into accepting its demands. But the overall reduction in global trade would not only offset any advantage accrued to US, but have a long term detrimental effect on the same global trade United States depends on to survive and grow.

The other impact would be that US would lose the ability to approach WTO for any dispute. Losing such a mechanism would force US to retaliate via direct trade tariffs and other crude tools which would only create trade wars and raise geopolitical tensions.

Even without the bill, the US has been indirectly discrediting the global trade forum. Every judicial appointment to WTO has been vetoed by the Trump administration. This has led to chaos within the organization, as it has been unable to adjudicate on any trade issues.

Conclusion  

Supporters of global trade are obviously worried of this new disposition. Republicans have usually been always pro-trade. But new political commitments demand that Trump focus on the rust belt, which helped him achieve the presidency. This internal shift towards protectionism seems to be focused on appeasing that very vote bank. The question is that the economics behind this decision-making clearly shows that any such action by Trump would be extremely bad for the same electorate. It is just that the optics of berating these pro-globalization bodies can be leveraged for electoral gain for the coming midterm elections in November. Even the majority of Trump advisors are against any such move and history suggests that this is just Trump trying to ratchet pressure on the organization to get them to concede to his demands. But in any situation, it is definite that world trade and financial markets are in for a rough ride these few months.

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  1. WASHINGTON — President Trump has written sharply worded letters to the leaders of several NATO allies — including Germany, Belgium, Norway and Canada — taking them to task for spending too little on their own defense and warning that the United States is losing patience with what he said was their failure to meet security obligations shared by the alliance.

    The letters, sent in June, are the latest sign of acrimony between Mr. Trump and American allies as he heads to a NATO summit meeting next week in Brussels that will be a closely watched test of the president’s commitment to the alliance. Mr. Trump has repeatedly questioned its value and has claimed that its members are taking advantage of the United States.

    Mr. Trump’s criticism raised the prospect of another confrontation involving the president and American allies after a blowup by Mr. Trump at the Group of 7 gathering last month in Quebec, and increased concerns that far from projecting solidarity in the face of threats from Russia, the meeting will highlight divisions within the alliance. Such a result could play into the hands of President Vladimir V. Putin of Russia, who is to meet with Mr. Trump in Helsinki, Finland, after the NATO meeting, and whose primary goal is sowing divisions within the alliance.

    In his letters, the president hinted that after more than a year of public and private complaints that allies have not done enough to share the burden of collective defense, he may be considering a response, including adjusting the United States’ military presence around the world. The USA will no longer be these country’s piggy bank paying for there protection while they charge USA export fees, The president’s complaint is that many NATO allies are not living up to the commitment they made at their Wales summit meeting in 2014 to spend 2 percent of their gross domestic product on national defense. American presidents have long complained about the lack of burden-sharing by NATO member countries, but Mr. Trump has taken that criticism much further, claiming that some of the United States’ closest allies are essentially deadbeats who have failed to pay debts to the organization, a fundamental misunderstanding of how it functions.

    The Trump administration has already reportedly been analyzing a large-scale withdrawal of American forces from Germany, after Mr. Trump expressed surprise that 35,000 active-duty troops are stationed there and complained that NATO countries were not contributing enough to the alliance.

    In the letter, Mr. Trump told Ms. Merkel that Germany also deserves blame for the failure of other NATO countries to spend enough: “Continued German underspending on defense undermines the security of the alliance and provides validation for other allies that also do not plan to meet their military spending commitments, because others see you as a role model.”

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