What Happens if US Pulls Out of WTO?

Reports are emerging there is a draft bill in place for the US to abandon the WTO and remove congressional consent for tariffs. In other words, Trump would get to call all the shots on tariffs without asking Congress, and US wouldn't have to play by any WTO rules whatsoever. I'm trying to follow this to its logical conclusion, but feel it would have to be the community's veteran economist, Jan who takes us through this one...

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OK, first off, a Huge Disclaimer, I disavow being a veteran economist.  Now that we are past that, I would react that this is completely fascinating.  I had not heard of it. 

OK, so can the US bail out of the WTO?  Yup, sure can.  WIll it?  I view it as a possibility, not a certainty.  Although it would blend with The Donald's distaste for the WTO and the other members, it runs up against blowback from the US Business community, especially industrialists, who are the Big Bucks contributors to the Republican Party and not the vast numbers of angry people out in the hinterlands that did the Voting.  Those folks likely would want to  leave the WTO, but not precisely for intellectual reasons.  Remembering that emotion is a huge factor in US politics, sometimes that influences politicians to abandon any critical analysis and go that way. 

First off, remember that Bills start in the House of Representatives.  The Pres can draft and "send over" a Bill for consideration, but that hardly ensures passage.  Let's assume the House drafts a Bill to leave the WTO and also puts in there a clause abrogating Congress' power to set or certify a specific tariff, and hand that over to the Pres.  Is that scenario likely?  I don't think so.  Congress is not too keen on Bills that limit its own powers, for the simple reason (besides ego and turf) that having power to do something means that by doing some act you get to curry favor with the voters back in the District. Why would Congress hand over its prerogatives?  I don't see it. 

I also don't think that the business community is too keen on having the Donald have the ability to go set tariffs on just his whim.  He has already demonstrated a certain impulsiveness driven in part by pique.  Remember that these industrial operations have established and intricate international supply and customer relationships, and the WTO has an internal mechanism to bring complaints and seek redress for trade offenders, and that system works.  It is a bit slow, but look at what happened to GazProm vs. Ukraine, where the international tribunal whacked GazProm for billions in damages.  Is the US business community ready to toss away that type of leverage?  I just don't see it.

All political and economic parameters, once set, eventually can be lived with as a certain stable pattern evolves.  And that is now the case with the WTO.  What is the future if you toss it  (and that may well happen)?  First, instability.  And business typically is not keen on instability (unless you run guns for a living). 

I would predict that long-term contracts with the USA would disappear.  Who is going to commit to some long-term supply when some huge tariff goes up part way through, bankrupting you?  You contract to supply say $20 million in aluminum at a landed price Baltimore Dock each Quarter for six years.  One year in, the Donald whacks aluminum with his 10% duty.  Now since the price is FOB Port Baltimore, you get to eat that duty for your customer.  There goes your profit margin.  See where this goes?  So what you end up with is a whole series of short-term or spot delivery contracts.  I see that as being a burden. 

Would The Donald use that tariff setting power if he had it?  But of course.  You can anticipate tariffs going up and coming down with dizzying speed.  That is the sort of thing that he is prone to.  Unpredictability is the Achilles Heel of business.  Big problems if that goes through. 

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I think the US strategy is to undermine the WTO and do the usual blackmail "Adopt the reforms we want or we will withdraw". They already have done that with the UN Human Rights Council.

WTO knows some reforms are needed. So I think there really is a need to update and synchronize its activities and we’ll see where that lead . But I think it’s a little premature to talk about simply withdrawing from it.”Commerce Secretary Wilbur Ross said in an interview with CNBC on Monday.

The U.S. is already blocking the appointment of legal experts to the WTO appeals body, the world’s top court for settling trade disputes among nations.  A kind of hostage in Trump's hands.
 
Trump don't believe in multilateral institutions. He has a "Jungle's law" world vision where the dominant country can impose its views on the others. He thinks the US are the king of the jungle and therefor he tries to undermine or destroy all the multilateral institutions that can offer a way to the "weaker" countries to gather and counter the dominant one.
 
But Trump will have to face the fact that the US are not so dominant and powerful as he thinks.

 

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33 minutes ago, Guillaume Albasini said:

I think the US strategy is to undermine the WTO and do the usual blackmail "Adopt the reforms we want or we will withdraw". They already have done that with the UN Human Rights Council.

WTO knows some reforms are needed. So I think there really is a need to update and synchronize its activities and we’ll see where that lead . But I think it’s a little premature to talk about simply withdrawing from it.”Commerce Secretary Wilbur Ross said in an interview with CNBC on Monday.

The U.S. is already blocking the appointment of legal experts to the WTO appeals body, the world’s top court for settling trade disputes among nations.  A kind of hostage in Trump's hands.
 
Trump don't believe in multilateral institutions. He has a "Jungle's law" world vision where the dominant country can impose its views on the others. He thinks the US are the king of the jungle and therefor he tries to undermine or destroy all the multilateral institutions that can offer a way to the "weaker" countries to gather and counter the dominant one.
 
But Trump will have to face the fact that the US are not so dominant and powerful as he thinks.

 

That is a nicely reasoned post, Guillaume.  Tip of the hat to you. 

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34 minutes ago, Guillaume Albasini said:

I think the US strategy is to undermine the WTO and do the usual blackmail "Adopt the reforms we want or we will withdraw". They already have done that with the UN Human Rights Council.

WTO knows some reforms are needed. So I think there really is a need to update and synchronize its activities and we’ll see where that lead . But I think it’s a little premature to talk about simply withdrawing from it.”Commerce Secretary Wilbur Ross said in an interview with CNBC on Monday.

The U.S. is already blocking the appointment of legal experts to the WTO appeals body, the world’s top court for settling trade disputes among nations.  A kind of hostage in Trump's hands.
 
Trump don't believe in multilateral institutions. He has a "Jungle's law" world vision where the dominant country can impose its views on the others. He thinks the US are the king of the jungle and therefor he tries to undermine or destroy all the multilateral institutions that can offer a way to the "weaker" countries to gather and counter the dominant one.
 
But Trump will have to face the fact that the US are not so dominant and powerful as he thinks.

 

But I think it’s a little premature to talk about simply withdrawing from it.”Commerce Secretary Wilbur Ross said in an interview with CNBC on Monday.

Watch out for this guy.  Wilbur Ross was a corporate raider, he would move in on some company and muscle the management out, then use its assets for  his own purposes. He is a Yale guy, and like a whole bunch of Yalies headed for Wall Street after college, working at Rothschild.  He took a Rothschild unit and raised capital, converting it into a hedge fund, then started out on his raiding career, taking over steel companies on what is known as a "leveraged buyout," where the assets of the bought company are used to secure the loans for the money to buy it.  He took a whole bunch of distressed US steel companies and later sold them to Arcelor-Mittal for over $3 billion, making his big pile.  He is plenty smart, and also deadly. It was Ross who put that thought into Trump's head to go whack the steel and aluminum industries with those tariffs.  Who knows; my guess is he still has stock shares in US steel and aluminum companies, I would not put it past him.  We don't have a clear picture of his holdings as he has not made a full disclosure to the Senate when his appointment as COmmerce Secretary came up, that was another scandal that Trump simply ignored  (Trump does the same thing, so no surprise there). 

Ross is quite capable of convincing Trump to lead the US out of the WTO.  Ross would  put big tariffs on all industrial metals.  It would not surprise me if he put a tariff on imported oil, either, as far as that goes.  He is capable of anything. 

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1 hour ago, Jan van Eck said:

But I think it’s a little premature to talk about simply withdrawing from it.”Commerce Secretary Wilbur Ross said in an interview with CNBC on Monday.

Watch out for this guy.  Wilbur Ross was a corporate raider, he would move in on some company and muscle the management out, then use its assets for  his own purposes. He is a Yale guy, and like a whole bunch of Yalies headed for Wall Street after college, working at Rothschild.  He took a Rothschild unit and raised capital, converting it into a hedge fund, then started out on his raiding career, taking over steel companies on what is known as a "leveraged buyout," where the assets of the bought company are used to secure the loans for the money to buy it.  He took a whole bunch of distressed US steel companies and later sold them to Arcelor-Mittal for over $3 billion, making his big pile.  He is plenty smart, and also deadly. It was Ross who put that thought into Trump's head to go whack the steel and aluminum industries with those tariffs.  Who knows; my guess is he still has stock shares in US steel and aluminum companies, I would not put it past him.  We don't have a clear picture of his holdings as he has not made a full disclosure to the Senate when his appointment as COmmerce Secretary came up, that was another scandal that Trump simply ignored  (Trump does the same thing, so no surprise there). 

Ross is quite capable of convincing Trump to lead the US out of the WTO.  Ross would  put big tariffs on all industrial metals.  It would not surprise me if he put a tariff on imported oil, either, as far as that goes.  He is capable of anything. 

There is evil among us.  It is not so difficult to see why people don't want to give up their guns: they may know a time is coming when they are truly needed.

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7 minutes ago, Dan Warnick said:

There is evil among us.  It is not so difficult to see why people don't want to give up their guns: they may know a time is coming when they are truly needed.

Here is the question for you:  how is it that this evil rising up and taking control is a continuing theme?  Ross himself does not think of himself as evil; he thinks in terms of an obsolete version of capitalism, one that is self-centered.  He shares that with Trump and others in DC.  What he does not care about is the hurt and suffering it brings to lots of ordinary folks.  The irony of the masses of ordinary people voting for Trump is that they have no understanding that neither Trump nor any of the guys he brings in to the Administration give two whits for them.  Those ordinary people are "the Expendables." 

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1 hour ago, Jan van Eck said:

Here is the question for you:  how is it that this evil rising up and taking control is a continuing theme?  Ross himself does not think of himself as evil; he thinks in terms of an obsolete version of capitalism, one that is self-centered.  He shares that with Trump and others in DC.  What he does not care about is the hurt and suffering it brings to lots of ordinary folks.  The irony of the masses of ordinary people voting for Trump is that they have no understanding that neither Trump nor any of the guys he brings in to the Administration give two whits for them.  Those ordinary people are "the Expendables." 

I don't know about a continuing theme, but I think I get you.  I agree with your assessment of all the characters and the most troubling thing for me is exactly that the ordinary folks will suffer, again.  I don't consider myself religious and therefore I actually had trouble even typing "there is evil among us" precisely because it implies that there is some battle between a god and a satan.  It just seems to fit with guys like these.  However, I felt it was acceptable for me to take the liberty of using a reference to evil in this case, because a lot of those ordinary people are in fact, at least in their own eyes and the eyes of their peers, god fearing, salt of the earth, trustworthy, hardworking and kind, among many other admirable traits.  I hope they take solace in their god in the nasty days ahead that are thrust upon them for no other reason than their ignorance and trust in their fellow man.

A totally man made crises is being thrust upon the world right now and I believe it will end up in the worst depression the world has ever known.  These fat cats will undoubtedly carry on and reap the rewards of their dastardly deeds, while the ordinary people are left to become people they are less proud of in order to survive.

Wow!  How's that for an answer?!?!  🤔

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Meanwhile Russia becomes 7th WTO member to challenge Trump tariffs

https://www.politico.com/story/2018/07/02/russia-wto-member-challenge-trump-tariffs-665149

The complaint filed Monday is the seventh initiated by a WTO member against Trump's steel and aluminum duties, following cases brought by China, India, the European Union, Canada, Mexico and Norway

 

 

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3 hours ago, Dan Warnick said:

 

Wow!  How's that for an answer?!?!  🤔

Eloquent?   For sure.  Priceless?  You bet!

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(edited)

On 7/2/2018 at 8:44 PM, TraderTate said:

Reports are emerging there is a draft bill in place for the US to abandon the WTO and remove congressional consent for tariffs. In other words, Trump would get to call all the shots on tariffs without asking Congress, and US wouldn't have to play by any WTO rules whatsoever. I'm trying to follow this to its logical conclusion, but feel it would have to be the community's veteran economist, Jan who takes us through this one...

The US has already violated the WTO rules and country or countries the judges' rule to be violating WTO rules must conform, pay compensation or abandon. I guess the US will leave WTO because president Trump believes decisions taken at The World Trade Organization were "unfairly" going against US interests.

Edited by Mahyar

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