In the end, the EU’s tactic of threatening restrictions on iconic American brands is not out of step with the long history of trade disputes, and it’s mostly an attempt to stop the United States from engaging in a trade war. But when we do see allies making these kinds of threats, it’s safe to assume that somewhere along the way, something certainly went wrong.

—Abdallah Fayyad

The Abnormal Analysis: What if Trump Fights the Whole Trade System?

That’s what happens when trade disputes go through the normal channels. But the Trump administration has been anything but normal. What happens if the U.S. decides it doesn’t want to cooperate with the global trading system and starts to withdraw, in whole or in part, from the WTO?



The WTO has gained 164 members since its creation in 1994. A wholesale American withdrawal would be like 164 Brexits, generating massive uncertainty as businesses scramble to figure out what rules they’re playing by. One conservative estimate holds that the United States would lose 5 million jobs.



What was was unthinkable is now being openly contemplated. Trump’s senior trade official, Robert Lighthizer, is a prominent critic of the WTO. Under his tenure, the U.S. has already slowed down its participation in the organization. The Trump administration is also blocking appointments to the WTO’s Appellate Body. Like the Senate blocking nominations to the Supreme Court, if there are not enough judges on the Appellate Body, the WTO’s dispute system could grind to a halt.

Dispute settlement is the crown jewel of the trading system

The creation of a neutral body to arbitrate countries’ trade disputes was no mean feat. “Given world history, it is remarkable that the U.S. and China, and the E.U. and Russia, today resolve their trade disputes through agreed rules applied by an independent body, minimizing the risk that disagreements would seriously undermine trade,” wrote a trio of scholars in the Washington Post last year.



I called up one of those scholars, Gregory Shaffer, a law professor at the University of California Irvine, to ask what’s at stake in this dispute. He said it’s not just a threat to the global trading system, but a threat to the rule of law.



The WTO is a legalistic place, said Shaffer. “Of course, law is good if the legal rules are what you want. And that’s basically the way the U.S. viewed it when it created the institution. But once other countries learn how to use the law against the powerful, then the powerful start thinking maybe the law isn’t such a great thing.”

Trade law has long been America’s friend

This was Shaffer’s key point in our conversation: The U.S. has drawn great benefits from being the WTO’s primary maker. “The U.S. actually has the highest win rate in the WTO of all major countries,” he added.

Settling disputes within the system has another important effect, said Christina Davis, a professor of politics and international affairs at Princeton University: settling the law for good means you don’t have to keep fighting the same battles. “If you have a strong legal system, then everyone follows the law in advance,” she said.



Those precedents help governments deal with their constituents, said Davis. “Think about the flood of industries that are all saying, look, someone is stopping my exports or I'm suffering because of too many imports,” she explained. The existence of a neutral arbitrator lets the government say, “Well, I hear you've got this problem, but you know, 164 countries agree to these rules. And those rules don't embrace that problem. So we're not going to be able to protect you.”



In this international legal system, a violation by one member is treated as a violation against all the others. Imagine a case against China (the U.S. has filed many). “When the U.S. wins the ruling against China,” Davis hypothesized, "if China were to just disregard that ruling, it would be speaking out against 164 countries. Whereas if the U.S. wants to challenge the same Chinese policy with a unilateral measure, instead of China standing alone, there'll be a lot of countries that will be worried about the U.S. appointing itself as the police, judge, and jury.”