The prospect of a global trade war looks more real as governments react to U.S. President Donald Trump's imposition of tariffs to balance his country's trade books. Implicit in Trump's decision is a rejection of the arbiter of trade practices, the World Trade Organization. While that organization is flawed, it can be fixed. Unilateral actions will ensure that a bulwark of a free and open trade system is damaged, perhaps fatally. It makes far more sense to fix the WTO, and use it to remedy unfair trade practices, than to tear it down.
Convinced that the United States has been exploited by its trade partners and that systematic abuse of those relationships has done great harm to the U.S. economy, Trump declared earlier this year that the U.S. would impose tariffs on aluminum and steel imports. He suspended application of the sanctions to facilitate negotiations, assuming that a threat of sanctions would strengthen his leverage. That assumption was wrong. Only South Korea, Brazil and Australia struck deals; the rest said that they would only discuss trade reform when the threat was lifted.
Absent progress, Trump decided last week to impose the sanctions, a decision that European Commission President Jean-Claude Juncker called "a bad day for world trade." World leaders decried the move and almost all threatened countermeasures, bringing the world to the brink of a trade war. Canadian Prime Minister Justin Trudeau reflected their sentiment when he called the tariffs "totally unacceptable." A German government spokesperson called the tariffs "unlawful," adding that they create "the danger of a spiral of escalation, which in the end harms everyone." At a meeting of Group of Seven finance ministers over the weekend, six of the seven — all but U.S. Treasury Steven Mnuchin — issued a statement conveying their "unanimous concern and disappointment" about the tariffs.