Setting the Record Straight on the World Trade Organization (WTO) and the United States

Wednesday, May 20, 2020 - 10:00am

CLAIM: The WTO was created in 1995 to manage the global economy, and in doing so has undermined U.S. sovereignty and drawn economic policymaking authority away from nation-states.

FACT: The WTO isn’t managing the world economy — or the U.S. economy. “Americans are not directly subject to WTO decisions,” according to President Trump’s 2017 Trade Policy Agenda. Its agreements are reached by consensus, meaning the U.S. and every other member state has a veto at all times.

As for the WTO’s dispute settlement system, the United States has been a big beneficiary, winning about 90%of the completed cases it has filed and all 20 completed cases brought against China. When other countries bring a dispute against the United States, an adverse ruling “does not automatically lead to a change in U.S. law or practice,” the aforementioned Trump Administration report states.

CLAIM: The WTO has sent American production overseas and cost American jobs.

FACT: U.S. real industrial output rose by 50% between 1995 and the end of 2019. U.S. private sector employment rose in this period from 97.1 million to 129.3 million — an increase of 32 million net new jobs. U.S. nonfarm real compensation rose over the same period by 32%.

CLAIM: The WTO has done a poor job bringing down trade barriers.

FACT: According to World Bank data, average tariffs around the globe fell from an average of 6.44% in 1995 to 2.59% in 2017. Many non-tariff barriers have been reduced through later WTO agreements addressing issues such as telecommunications, financial services, and trade facilitation. Foreign tariffs and disguised protectionism against U.S. exports would be much more common without the WTO.

CLAIM: Since the WTO was created, American farmers have struggled to get fair access to overseas markets.

FACT: According to USDA data, U.S. agricultural exports have more than doubled since the WTO was created. According to the Farm Bureau, about 25% of U.S. farm products are exported. Leaving the WTO would be a devastating blow to American farmers and ranchers, whose exports would certainly face higher tariffs and other barriers.

CLAIM: If the United States left the WTO, we could seek new trade arrangements with other free nations.

FACT: Leaving the WTO would be a lonely course: Leaders of the world’s largest economies have reaffirmed their commitment to the organization — and to its reform. Key U.S. allies such as the U.K., Canada, and Japan strongly support the WTO. However, if the United States left the WTO, its members would be free to raise tariffs and other trade barriers against U.S. exports. As Senate Finance Committee Chairman Charles Grassley (R-IA) has stated: “Withdrawing from the WTO would only leave a vacuum for China to fill and diminish America’s position of strength.”

CLAIM: The international trading system that prevailed before the WTO — from 1947 to 1995 — did a better job protecting U.S. interests.

FACT: The 1947 General Agreement on Tariffs and Trade (GATT) began the hard work of bringing down the steep global tariffs that contributed to the Great Depression. In the following decades, a dozen global negotiating rounds lowered tariffs further. But the GATT didn’t go away: It remains the cornerstone of the WTO, with supplemental agreements added on over the years to protect intellectual property rights, ensure that foreign governments don’t use food rules as a form of disguised protectionism, and so forth.