Don’t get too excited about Trump’s deal with China – he’s still waging a colossal war against world trade

Wednesday may mark phase one of the agreement, but it’s minor progress when set against the US president’s ceaseless attacks on the WTO’s appeals body

President Donald Trump will undoubtedly hail “phase one” of his agreement with China on Wednesday to end the damaging trade war he started as the “greatest deal”.

Never mind that his tariffs have cost American jobs and hit US stock prices, the real damage he is doing is to the multilateral trade system.

His will be a bilateral agreement to end a unilateral war that he launched in February 2018 that has caused disruption not only to importers and exporters in China and other Asian countries. Which is just how Trump likes it.

The idea of participating in multilateral trade deals under the auspices of the World Trade Organization is anathema to him, just as the United Nations is an “underperformer” and the Paris climate accord “a draconian burden”.

While he has withdrawn from the Paris Accord, he has kept the US inside the WTO but instead nobbled its effectiveness through a legal ruse.

Washington has blocked new appointments to the Appellate Body, the WTO’s appeals court, under the cover of complaints that judges take too long to make decisions often overreach in their rulings.

The terms of two judges ended in mid-December, leaving only one judge in the group where three are needed to decide appeals under WTO rules.

If a country loses a first stage ruling, that is not binding on the countries involved if one of them appeals. The dispute is in effect on hold indefinitely and countries cannot get legal authorisation to retaliate.

As it happens, among the disputes awaiting a ruling are seven cases that were brought against the US last year. They involve Trump’s move to place import taxes on foreign steel and aluminium because they represent a threat to US national security.

If any of this sounds familiar, interfering with a judicial process is now very popular among populist and nationalistic leaders. In 2018, Poland’s Law and Justice party passed a law that effectively forced 40 per cent of the country’s Supreme Court judges into early retirement.

Closer to home, Boris Johnson, the UK prime minister, pledged in the Tory manifesto to “update” the judicial review process that was used in two high-profile Brexit cases that saw the Supreme Court rule against the government.

Unsurprisingly, Trump’s assault against the appeals body is based on fake news. He has repeatedly said the WTO was set up for the benefit of everybody but the US, that his country loses almost all lawsuits, and that the system has been great for China. According to Ernesto Zedillo, former president of Mexico, now director of the Yale Center for the Study of Globalization at Yale University, these views simply cannot be substantiated.

He says no serious analysis has produced evidence of bias against the US. Furthermore, America is the most frequent user of the WTO’s settlement system, having brought more cases than China and the EU combined. It wins about 85 per cent of the cases it brings to the WTO. Indeed, the US has done well not only in cases it brought against China but also those brought by China against it.

It is clear Trump would rather not fight a case in front of a multilateral court when he can simply engage in unilateral trade wars, the outcome of which can be dressed up as victories by both sides, but where the interests of third parties are ignored.

The fear is that the world will go back to the idea that economist Adam Smith called “beggaring thy neighbour” – solving domestic problems at the expense of others by using tariffs to make imports more expensive.

This happened in the wake of the Wall Street Crash when a recession-hit US Republican government unveiled tariffs on 900 countries, prompting retaliation and exacerbating the Great Depression.

This was in the minds of the leaders of the Allied countries after the Second World War, when they established the General Agreement on Tariffs and Trade (GATT) alongside the International Monetary Bank and the World Bank’s predecessor.

After a dodgy start that saw GATT allow members to block arbitration panels to resolve disputes, its replacement by the WTO included a binding dispute mechanism. This is what Trump has succeeded in fossilising.

So, where do we go from here? The Appellate Body’s former chair has said it has been transformed from the WTO’s crown jewel to a problem child in urgent need of reform.

The WTO’s membership can force the issue by pushing for the appointment of new judges if three-quarters of them agree and show they are serious about reform. As a country that is soon to leave the protection of the European Union, the UK should see that having an appeals court will be in its long-term interests.

Some fear Brexit would give Trump an excuse to pull the US out of the WTO. Perhaps the Paris Accord shows a positive signal: since the US left, those remaining have drawn in support from states and cities in the US. Wednesday may mark phase one of Trump’s deal, but it should be seen only as round one in the battle for the multilateral trade system.

Phil Thornton is a journalist and consultant covering all areas of business and economics, including macroeconomics, world trade, financial markets and tax and regulation