The World Trade Organization (WTO) does not work in an exemplary way anyway. With Donald Trump in the White House it will probably collapse. What will be the consequences? Donald Trump does not particularly appreciate multilateral diplomacy organizations such as the World Trade Organization (WTO). He doesn’t consider them important, because they don’t work to serve American interests. In addition, as Michael Schaefer, former German ambassador in Beijing, points out to Deutsche Welle, Trump “considers the constant search for compromises in the framework of international organizations a waste of time.”

Different “schools” of international diplomacy

“I think we are facing a completely different philosophy of how the international community works,” notes the German diplomat. On the one hand there is already the EU as an example of cooperation between heterogeneous countries, which for centuries had been involved in wars, but left behind the vicious cycle of violence and confrontation. On these foundations the European Community was established “as a set of mutual obligations and rights, which is a model not only for the Europeans themselves, but also for all other international organizations”.

For the “dealmaker” Donald Trump, the international community works in a different way. “The ‘America First’ policy means bilateral agreements after a possible direct negotiation with the counterparty, a negotiation in which the US has the upper hand, as it is the most powerful negotiator,” notes Michael Schaefer.

Possible “collapse” of the WTO

Does all this mean the end of the international order as we know it? The example of the WTO is not encouraging at all. As noted by the German economist Herbert Dieter, associate of the German Foundation for Science and Policy (SWP) in Berlin, already today “the WTO is facing difficulties, it is a shadow of itself. In theory it continues to operate, but in reality it does not even have an effective mechanism for compulsory arbitration of commercial disputes.” “The WTO is in crisis,” Greek-American economist Penny Goldberg, a professor at Yale University, estimates for her part.

According to a joint study by the Institute for the World Economy in Kiel (IfW) and the Austrian Institute for Economic Research (WIFO) published shortly before the US presidential election, a shutdown of the WTO would have more negative consequences for Europeans than for the Americans, while the “big loser” would be China. Specifically, real GDP in the EU would fall by 0.5%. In the extreme scenario, researchers Julian Hinds and Gabriel Felbermeier point out, real GDP in Germany would fall by 3.2%, in China by 6% and in the US by 2.2%.

Painful consequences for the “little ones”

The consequences would be painful for the smaller countries as well. As Herbert Dieter explains, “participation in the WTO is particularly important for the smaller and less powerful countries, which look to the Dispute Settlement Mechanism within the framework of the international organization. For many years the mechanism worked effectively, but today it is being torpedoed by the US, which since 2018 has not consented to the appointment of new judges.”

Of course, the big powers, such as the USA, China, but also the European Union, find ways to impose their interests, even without the WTO. Smaller countries, however, are forced to bow to the interests of the powerful. As Penny Goldberg points out, “integration into world trade through international organizations is particularly important for small countries, which presumably do not have a large internal market.”

“America First” for 25 years

German economist Herbert Dieter believes that free trade based on binding rules under the WTO is coming to an end. He points out, however, that America’s show-of-power policy dates back to at least the mid-1990s, and cites the “so-called bailouts” by the International Monetary Fund (IMF) to over-indebted countries at the end of the decade as an example. “In reality,” he says, “they weren’t bailouts, they were an exercise of American foreign policy through the economy and without regard to the interests of the borrowers.”

Obviously international trade will continue, but in a much more fragmented regulatory framework. “This is not necessarily negative,” explains Herbert Dieter. “In commercial policy, perhaps one can achieve more with small steps than in the WTO, where each member state has a right of veto. In any case, the end of international trade relations has not come, but neither has the end of globalization.

Edited by: Yiannis Papadimitriou