President Donald Trump launched a new attack on global trade rules last week in an attempt to get members of the World Trade Organization to agree to sweeping changes that would stop Chinese abuses of the international trading system. China’s exploitation of these loopholes is destroying a structure that has been vital to export industries in South Carolina and the rest of the United States.
Mr. Trump ordered the Office of the U.S. Trade Representative to use every tool available against prosperous nations that corruptly claim special trade status under WTO rules as “developing” nations. Although the executive order named a number of countries that exploit this WTO loophole, it clearly was aimed at China, the world’s largest trading nation and second-largest economy.
China promised to make a rapid transition toward a more market-based economy when it joined the WTO at the end of 2001. Instead, beginning in 2006, it turned away from open markets toward massive state intervention in every aspect of the economy.
Among other abuses, China subsidizes excess capacity in steel and other metals and dumps the surplus on world markets, hurting free-world steel mills in Georgetown and elsewhere and driving many companies out of business. It also limits U.S. imports and extorts trade secrets from companies wanting to do business in China.
China spuriously claims these anti-market actions are permitted because it is a “developing” country.
Mr. Trump’s prospects of persuading the WTO membership to change the rule that nations may declare themselves “developing” without any clear definition of the term may seem dim. The WTO has 164 members, the vast majority calling themselves developing, and makes rule changes by consensus.
The president also is putting a direct squeeze on the WTO, in effect giving its members a choice: Reform or see the organization collapse. He has exercised his right to object to the appointment of appeals judges, meaning the dispute-settlement process that gives the WTO its clout could die by as early as the end of this year unless Mr. Trump relents.
The WTO dispute-settlement machinery recently issued a landmark decision in favor of Boeing’s charge that some European nations gave massive illegal subsidies to its main competitor Airbus.
The threat to the dispute-settlement system directly challenges other major trading nations that created the WTO and invited China to join. They must either find a way to change the WTO or replace it with a new organization with tighter rules. Discussions are taking place between the United States, Japan, the European Union, Canada and other developed nations.
For more than a decade American trade negotiators have complained that WTO’s appeals court arbitrarily creates and withdraws trade privileges. The U.S. wants new rules eliminating the discretion of appeals judges to create new trade law not agreed to by Congress. There should also be a new WTO negotiation to clarify the rules on new types of trade, one that Congress can vote on.
More seriously, the WTO does an inadequate job of policing misbehavior by its members. A major abuse arises when WTO members like China that wrongly describe themselves as developing are allowed to restrict trade in services, are shielded from anti-dumping penalties, have relief from technical regulations and standards, and may subsidize industries.
Mr. Trump is right to demand better WTO rules and better enforcement. If he doesn’t get them, a new deal will be necessary to protect free economies from China.