A Ray of Hope Emerges on the WTO’s Path to Paralysis

(Bloomberg) --

The steady march to save the World Trade Organization from institutional paralysis is picking up a little steam.

While everyone focused on the U.S.-China trade war earlier this week, Group of Seven leaders pledged to reform the Geneva-based trade body and address some key gaps that have emerged in the international trading system since the WTO was created 25 years ago.

The G-7 statement on WTO reform was noteworthy because it aligned with the Trump administration’s demands for tougher intellectual-property protections, a more efficient system for settling disagreements and new curbs on unfair commercial practices.

President Donald Trump emphasized he’s not yet satisfied with the various proposals aimed at fixing the WTO, but added that “we’re getting there.”

The big question is whether the push to overhaul the WTO can fully address Trump’s demands in time to prevent the organization’s dispute settlement system from running aground. And the clock is ticking. If the U.S. leader remains unhappy, his continued block on appointments to the WTO appellate body — the world’s supreme court for settling trade disputes — will prevent the forum from issuing new rulings after Dec. 10.

That could exacerbate global economic instability by undermining the WTO’s ability to resolve conflicts and potentially usher in an era where economic might wins rather than international law — just like the current eye-for-an-eye tariff battle between Washington and Beijing. 

The WTO’s survival matters because the U.S.-China trade war doesn’t seem to be headed for a quick deal, with Trump and his counterpart Xi Jinping showing few signs of surrender as a Sept. 1 escalation looms. Add to the mix the Oct. 31 deadline for the U.K. to sever official ties with the European Union, and a U.S. threat of new import taxes on EU-made automobiles, and it could be a tumultuous next few months, particularly if the sheriff in Switzerland gets stripped of its badge.

Charting the Trade War

Bloomberg Economics’ analysis of 700,000 trade data points shows that, in one important respect, the U.S. is the biggest loser in the trade war. China was the dominant supplier of many tariffed products, meaning U.S. importers are scrambling — and failing — to find replacements. With China sourcing from a wider variety of countries, its firms face smaller supply disruptions.

Today’s Must Reads

• Can we talk? | China declined for now to take its turn escalating a trade war with the U.S. and called for talks aimed at reducing tensions, a conciliatory move that sent stocks higher.
• Debt relief | The Trump administration has been studying the prospect of reviving century-old claims on Chinese bonds sold before the founding of the communist People’s Republic.
• Christmas plea | Trump delayed tariffs on some Chinese imports until mid-December, but more than 150 trade groups made are asking him to postpone duties on other goods due Sunday.
• Hitting home | American house builders are pulling back from U.S. manufacturing regions as the fallout from the trade war begins to spread into other industries across the economy.
• Spoils of Brexit | Autoworkers in continental Europe are angling to snatch Vauxhall production that owner PSA Group plans to transfer out of the U.K. in the event of a no-deal Brexit.

Economic Analysis

• Export compliance | Brexit paperwork opens income opportunity to certification firms
• Rushing orders | Christmas orders are being filled early, easing exposure to tariffs for American retailers.

Coming Up

• Sept. 1: South Korea trade balance for August
• Sept. 4: U.S. trade balance for July

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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