Rules-Based Multilateral Trading System Could Collapse

Trade barriers being erected by major economies could jeopardize the global economic recovery and their effects are already starting to show, the World Trade Organization said in a report on trade restrictions among G20 nations.

“This continued escalation poses a serious threat to growth and recovery in all countries, and we are beginning to see this reflected in some forward-looking indicators,” WTO Director General Roberto Azevedo said in a statement, Reuters reported.

He did not elaborate, but in May the WTO’s quarterly trade outlook indicator suggested trade would grow slower in the second quarter than in the first.

One component of its composite forward-looking indicator is international air freight data from the International Transport Association, which issued its figures for May on Wednesday.

IATA said air cargo demand was expected to grow by “a modest 4%” in 2018, less than the 4.5% foreseen in December. “Headwinds are strengthening with growing friction among governments on trade. We still expect demand to grow, but those expectations are dampened with each new tariff introduced,” IATA Director General Alexandre de Juniac said in a statement.

New Restrictions

The WTO analysis found that G20 countries introduced 39 new trade restrictions between mid-October last year and mid-May this year, double the rate seen in the previous period, affecting trade in iron and steel, plastics and vehicles.

“The marked increase in new trade restrictive measures among G20 economies should be of real concern to the international community,” Azevedo said, adding that more restrictions had been put in place in the weeks after the period under review ended.

The WTO report did not name any particular country, but since the start of the year US President Donald Trump has launched a series of tariffs to punish what he sees as unfair trade, by allies and economic rivals alike.

“At a juncture where the global economy is finally beginning to generate sustained economic momentum following the global financial crisis, the uncertainty created by a proliferation of trade restrictive actions could place economic recovery in jeopardy,” the WTO report said.

It added that the world trading system was built to resolve such problems but the escalating tensions were a threat to the system itself, and G20 economies needed to use all means at their disposal to de-escalate the situation and promote further trade recovery.

WTO Members Complain

Major US trading partners including the European Union, China and Japan voiced deep concern at the WTO on Tuesday about possible US measures imposing additional duties on imported autos and parts.

Japan, which along with Russia had initiated the discussion at the WTO Council on Trade in Goods, warned that such measures could trigger a spiral of counter-measures and result in the collapse of the rules-based multilateral trading system, an official who attended the meeting said.

Over 40 WTO members, including the 28 countries of the European Union—warned that the US action could seriously disrupt the world market and threaten the WTO system, given the importance of cars to world trade.

The United States has imposed tariffs on European steel and aluminum imports and is conducting another national security study that could lead to tariffs on imports of cars and car parts. Both sets of tariffs would be based on concerns about US national security.

Trump said on June 29 that the probe would be completed in 3-4 weeks. But the European Union has warned the United States that imposing import tariffs on cars and car parts would harm its own automotive industry and likely lead to counter-measures by its trading partners on $294 billion of US exports.

A Russian official told the WTO meeting that the issue of US investigations had been raised over the past year in different WTO meetings, only to see things change for the worse.

The United States was losing its reputation as a trusted trade partner, the Russian delegate told the meeting, adding that the United States could soon start an investigation into the case for import tariffs on uranium products.

China, Canada, Switzerland, Norway, Turkey, Costa Rica, Hong Kong, Venezuela, Singapore, Brazil, South Korea, Mexico, Qatar, Thailand and India all echoed the same concerns and said they doubted the US tariffs were in line with WTO rules.