In the Saturday night debate, Republican candidate Donald Trump again threatened a 35 percent tariff on goods produced in Mexico by an American company that has relocated to Mexico. No opposing candidate pointed out that such a retaliatory tariff would violate the rules of the World Trade Organization (WTO) of which the United States is a member in good standing. (It would also be in violation of the NAFTA agreement).
WTO is the international organization that sets the rules of the game in international trade that its members have agreed to follow. It has worked to reduce trade barriers among countries and has contributed to the rise of international trade across the globe.
For years, the United States opposed admitting Russia into the WTO because of its indifference to the rule of law. The United States earlier lobbied for China’s admission on the grounds that membership would make it a stable party of the world economic community.
If a President Trump carried through on his threats to impose confiscatory tariffs (the average WTO tariff rate is below five percent), the United States would be in clear violation of WTO rules and would be subject to penalties. If a Trump administration ignored the WTO penalties, it would become a renegade member, no better than Putin’s Russia.
Retaliatory tariffs carry with them a strong populist message, but they are anathema to free trade and globalization. It is a shame they hold such appeal. Economists, who rarely agree on anything, are united in their support for free trade and globalization. Although populists claim the contrary, trade expansion is a clear net win-win – the gains of the winners exceeds the losses of the losers. The problem is that those who lose are more vocal and visible than those who gain. We require a chief executive with a broad perspective, something that candidate Trump lacks.