Fixing the WTO: Barriers to Trade In the Post-Neoliberal World

By: McConnell Bristol

Abstract

The story of the second half of the twentieth century and start of the twenty-first century has been one of economic liberalization around the world, as trade has become increasingly free and more states than ever have engaged in the global economy. The institutional structure that enabled this development, between the General Agreement on Tariffs and Trade (GATT) and later World Trade Organization (WTO), has been one of the greatest exercises in global economic growth in human history. This global trade regime has lifted millions out of poverty and sped the economic development of countless nations, all based on the liberal principles of mutual absolute gains and cooperative trade policy. Now, however, this system is under pressure from populist forces on both sides of the political spectrum, as economic nationalism takes root in a global populace that feels the gains of such remarkable economic expansion have not been shared evenly. This rise in economic nationalism has been a reaction to heightened inequality in the global economy, which itself has its roots in the neoliberal reforms and so-called “de-embedded” liberalism of the 1980s. Getting back to global economic openness today will require a “re-embedding” of global liberalism that will distribute the benefits of economic expansion more evenly and restore faith in liberalism, including trade.

Fixing the WTO

Few observers would deny the recent trend in global trade towards protectionism. Examples abound: a prominent episode was the imposition of American tariffs on Chinese steel, first initiated by the Trump administration and maintained, somewhat surprisingly, by President Biden. Critics would also point to the Trump-led exit from the Trans-Pacific Partnership (TPP), or the failure of the Transatlantic Trade and Investment Partnership (TTIP), which never enjoyed significant support in the US or the EU. All of these individual failures, however, are representative of a greater breakdown in the capacity of the global trade regime, not only to enforce existing rules but to facilitate communication and resolve conflict between parties. The most significant problem the WTO has faced in terms of its enforcement abilities has been the US’ unilateral dismantling of the organization’s appellate court for dispute resolution, a practice of blocking judges that has essentially halted what had been praised as one of the most effective aspects of the global trade regime. Along with this, President Trump’s move to impose tariffs on China outside of the framework of the WTO was called by the Council on Foreign Relations’ Edward Alden “the death of the institution” (CFR, p. 4). These actions, just like Trump’s aversion to deals like the TPP and TTIP, were central to his “America First” agenda, which blamed the US’ economic hardships on foreign competitors like China and the EU, as well as the “‘globalist’ liberalism of international institutions” like the WTO (Snyder, p. 1). This platform, though not exceedingly sound economically, resonated with a large number of American voters, and similar protectionist messages have found receptive audiences all across the globe: the 2010s have seen a rise in extremist governments around the world, both left- and right-wing, which have championed nationalistic policies including economic protectionism and outright hostility to the liberal trade regime.

For its role in all the difficulties of the global trade regime, the biggest barrier to free trade today is economic nationalism. As Jack Snyder argues in “The Broken Bargain,” the rise of nationalism has been precipitated by the “de-embedding” of global liberalism, or the dismantling of “institutionalized political control[s] at both the domestic and the international level” that helped curb the worst excesses of free trade at its peak (Snyder, p. 1). The domestic level is especially important—economic nationalism in the US grew in large part out of political movements that opposed policies like NAFTA, but their anger at such agreements was misdirected. The failure of NAFTA was not the free trade it promoted, but its somewhat lackluster domestic implementation. For instance, job displacement is a well-known consequence of free trade, but the de-embedding of domestic liberalism in the US meant communities were not equipped to deal with such turnover, with no strong social safety net or government programs like job training in place. More broadly, the neoliberal attacks on the regulatory framework, progressive tax system, and strong welfare state that defined embedded liberalism in America played an important role in the economic collapse of 2008 and the worsening economic conditions of the working class, both of which helped create the conditions for the recent rise of economic nationalism. Americans’ reflexive distrust of the global economy is understandable given the reckless and uneven economic growth of recent decades, but the blame should be reserved for the irresponsible economic policy that got the US to this point, not the global trade regime itself.

Of course, other barriers to trade exist as well. The Economist’s “The new order of trade” outlines a handful of common justifications for protectionism, particularly labor rights and the environment (The Economist, pp. 6-9). State subsidization of national industries is another frequent complaint in trade disputes. But none of these elements on their own present as significant a barrier to global trade as rising economic nationalism, and in reality all have solutions that can be built into a re-embedded global liberalism. In fact, the WTO used to be very effective at handling disputes like these on a case-by-case basis, in an approach to trade enforcement that perfectly represented globally embedded liberalism. To re-embed liberalism internationally, the WTO simply needs its enforcement capabilities back: the US must stop blocking the confirmation of judges to the appellate court, and reaffirm its commitment to cooperation within the WTO, abiding by the liberal rules of global trade. In order for this to happen, however, liberalism must be re-embedded domestically in the US. Liberal institutions must regain the trust of the American public after decades of dissatisfaction, and that trust will come from economic growth, re-embedded with the regulatory structure, redistributive mechanisms, and robust safety net that have fueled sustainable and equitable development in the past.

Today, global economics and global politics are firmly linked, as economic measures have emerged as an exceedingly effective toolkit for international political enforcement and political relationships have come to dictate economic cooperation. Therefore, the world’s economic fate is deeply tied to its political fate, and a more open economic order will no doubt translate to a more cooperative world politically. That comes on top of the material benefit gained by the consumers of markets on every continent, where prices in the global marketplace are driven down by fair competition and the unrelenting innovation fueled by free trade.

When facilitated by a liberal framework embedded with mechanisms to correct for disparities in labor protections, environmental laws, and state subsidies, free trade is an incredibly powerful engine for the financial betterment of populations around the world. Unfortunately, rising nationalist tides have brought progress on liberalizing global trade to an effective halt, as skepticism pervades national politics across the globe and states turn their economic focus inward, embracing protectionism. These attitudes have been a result of the de-embedded liberalism championed by the neoliberal reformers of the 1980s, which left the global working class in a perilous economic position without the protections of social welfare or government oversight. Learning from these mistakes, the path forward must include a re-embedding of liberalism on the global and domestic levels, stemming the tides of economic nationalism and moving the global political economy in a direction towards free trade, the benefits of which are evenly shared, for a more prosperous future for all.

Bibliography

Keynes, Soumaya. “The New Order of Trade.” The Economist, October 6, 2021. https://www.economist.com/special-report/2021/10/06/the-new-order-of-trade.

McBride, James, and Anshu Siripurapu. “What’s Next for the WTO?” Council on Foreign Relations, June 10, 2022. https://www.cfr.org/backgrounder/whats-next-wto.

Snyder, Jack. “The Broken Bargain: How Nationalism Came Back.” Foreign Affairs 98, no. 2 (2019): 54–60. https://www.jstor.org/stable/26798087.