What happens if the United States decides to bypass the World Trade Organization dispute settlement system — and crack down unilaterally when it thinks other countries are trading unfairly? Here’s the immediate problem: History shows that the U.S. has had more success getting trade concessions through multilateral channels.
The Trump administration’s March 1 trade report to Congress suggested a major shift in U.S. trade policy. This National Trade Policy Agenda for 2017, the Trump administration’s first written statement on trade, lists “defend U.S. national sovereignty over trade policy” as a first priority.
Trump is following up on campaign promises to get tough on China and other trade partners that he claims hurt U.S. interests. But here’s a surprising fact: Unilateralism just doesn’t work very well, even with all of U.S. market power behind it. And the main U.S. unilateral trade tool, Section 301 of the 1974 Trade Act, has serious drawbacks.
The Trump administration sees Section 301 as “a powerful lever.” It’s not.
Section 301 was created in a political setting that sounds familiar. At the end of the Nixon era, an overvalued dollar contributed to a growing U.S. trade deficit. Many Americans saw the rise of Japan’s industrial power as a threat to U.S. economic power.
Congress grew disenchanted with the GATT multilateral trade system — which the United States itself helped usher in after World War II. So it pushed for an aggressive mechanism to go after perceived foreign trade violations, without the procedural burden associated with the multilateral trade regime. The U.S. would decide on its own whether a foreign measure was a trade violation, in which case it would promptly retaliate.
U.S. trade partners quickly condemned Section 301
Alarmed trade officials around the world decried Section 301 as an “an irreparable act of folly” and a “war against all.” As the trade representative of India described it, Section 301 appointed the U.S. “judge, jury, and executioner.” The European representative called it a “commercial nuclear bomb,” warning that the U.S. itself “would not be spared.”
Yet the U.S. persisted in using Section 301 for more than two decades, challenging foreign policies from Korean barriers on auto imports to Japanese measures on satellites — until the WTO system came into effect. The U.S. retaliated by cutting off trade partners from its large market in one-sixth of these challenges. By comparison, retaliation never occurred under the multilateral system during the same period. Section 301 was finally “defanged” when a WTO panel ruled on its legality in 1999, following a challenge by European countries.
The reactions at the time offer a sense of how U.S. trade partners might respond to a return to unilateralism today. The Trump administration may well turn a deaf ear to such international condemnation, but there are clear lessons of history: Unilateralism in trade generates overwhelming resistance in targeted countries, and this resistance makes any concessions unlikely.
In a study published in the journal International Organization, I examined the success rate of U.S. Section 301 actions and compared it to that of analogous actions brought under the multilateral system. I reviewed a total of 189 trade actions from 1975 to 2000.
So which path led to better results for the United States? Here’s the big surprise — despite a far more potent threat of retaliation, the U.S. was 34 percent less likely to secure concessions in the targeted countries when it opted for the unilateral route.
Countries resisted unilateral trade sanctions
Digging deeper, the reason for this ineffectiveness seems to be that the targeted countries, particularly Japan, saw resisting unilateralism as an investment in the future. They reasoned that conceding to a unilateral threat would bring on similar threats — much like how negotiating with hostage-takers can precipitate further hostage takings.
U.S. trade partners feared that concessions would further embolden the United States, and lead others to follow suit. In contrast, conceding to legitimate multilateral challenges showed countries to be good global citizens. That’s why trade challenges conducted via multilateral channels proved more effective.
China is heavily invested in the WTO
Considering how China’s relative power today is greater than Japan’s even at its peak in the 1980s, there is every reason to be skeptical of the U.S. ability to push the Chinese unilaterally to amend their policies. Lately, China has even emerged as the unsuspected champion of the WTO. Beijing has systematically complied with adverse WTO rulings.
If the Trump administration were to opt for the unilateral option, it would be jeopardizing this significant achievement of assimilating China into global trade rules. The Trump administration should be especially wary of doing so now, since the Obama administration launched multiple WTO disputes in recent months, including several against China.
A major U.S. dispute challenges China’s export restrictions on nine key raw materials (antimony, cobalt, copper, graphite, lead, magnesia, talc, tantalum and tin) that U.S. companies rely on to produce high-end electronics, for instance. The U.S. has every chance of winning the case, having won a similar WTO case on rare earths in 2014.
That’s another clear advantage the multilateral system has over unilateral threats. WTO rulings progressively clarify the law, and the predictability of the system increases in tandem.
If the Trump administration follows a unilateral path, it will be throwing away the fruits of a half-century of institution-building on global trade, with little chance of opening markets for U.S. companies. The history of the trade regime suggests that unilateralism breeds disproportionate resistance, even when threats are backed up with considerable retaliatory power from a large market.
As social scientists since Max Weber have pointed out, getting one’s way through coercion alone is costlier than through consent, and it leads to less stable world orders. The Trump administration seems intent on relying on U.S. clout to get its way. It is likely to discover what a slog that will prove to be.
Krzysztof J. Pelc is a William Dawson Scholar and associate professor in the Department of Political Science at McGill University, and the author of “Making and Bending International Rules” (Cambridge Press 2016).