U.S. President Donald Trump opened up another front in the ongoing global trade war on Wednesday by ramping up rhetoric against the World Trade Organization (WTO). He even threatened to pull the U.S. out of the multilateral trade organisation if it fails to treat the U.S. fairly and blamed it for allowing too many countries to claim the status of a “developing country”. In a memo to the U.S. Trade Representative last month, Mr. Trump pointed out that nearly two-thirds of the 164 WTO members classified themselves as developing countries, and raised the issue of even many rich economies claiming to be “growing” rather than “grown” economies. This time around, in Pennsylvania, the President targeted India and China in particular for “taking advantage” of the U.S. by classifying themselves as “developing countries” at the WTO. The status of a developing country allows countries to seek partial exemptions from the WTO’s rules for free and fair trade between countries. The status, for instance, allows countries like China and India, with their special tag, to impose higher tariffs on imports from other countries and also offer more subsidies to local producers in order to protect their domestic interests. Developed countries find this to be unfair on their producers who are put at a relative disadvantage, but countries like China have argued that their developing country status is justified given their low per capita income.
Mr. Trump’s recent attacks on the WTO would be welcome if they were truly about creating a global trading arena with lower tariffs and fewer barriers to trade. The “developing country” status, which offers substantial benefits to countries that want to protect their domestic interests and which most countries are more than happy to make use of, has indeed skewed global trade over the years in favour of certain countries. But he may be raking up the issue not to further the cause of global free trade, but simply as a convenient pretext to justify further trade barriers against China and other countries. By pointing fingers at other countries that follow protectionist policies, Mr. Trump will find it justified to impose retaliatory tariffs against them. This will help him bolster his “America First” approach and allow him to successfully hold on to his support base in America’s manufacturing belt that has been affected by foreign competition. Even if countries like China and India offer to lower their tariffs, Mr. Trump would not take them up on their offer. That is because it would require reciprocation in the way of lowering U.S. tariffs, which would work against the interests of local American producers.
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