A Crash Course on Global Trade and How Trump Is Wrecking It

Canada and the United States have long been cosy trade partners, but that relationship is now tested by U.S. President Donald Trump, who in his first months in office has threatened, paused and reversed tariffs so many times it makes the head spin. It is entirely likely that between the time I finish writing this and you read it, Canada will face an entirely new set of U.S. trade ultimatums.

All of this would have been inconceivable 20 years ago, University of British Columbia professor Kristen Hopewell tells The Tyee. And this approach not only will be damaging to the interests of the United States and its major trade partners for years to come, but risks unravelling a system that’s ordered the world economy since the end of the Second World War.

It’s more than just topsy-turvy tariffs. Institutions like the World Trade Organization, and its predecessor, the General Agreement on Tariffs and Trade, have defined the rules of trade for nearly a century and helped usher in a period of relative stability and prosperity. And those foundations of trade are now also at stake.

Hopewell, a former trade official and researcher on international trade who’s written books like Breaking the WTO: How Emerging Powers Disrupted the Neoliberal Project and Clash of Powers: US-China Rivalry in Global Trade Governance, warns about the treacherous path that lies before us.

As the most powerful nation in the international system “blatantly violates the rules of global trade,” it could encourage other countries to follow suit, and could ultimately drive conditions for events that marked the first half of the 20th century, like global economic downturn and conflict. Trump “could be throwing us back to the Great Depression,” she said, describing this moment as “truly frightening.”

That’s why it’s important for countries like Canada to lead the way in reaffirming the importance of these institutions and the values that support international co-operation and mutual benefit.

Hopewell spoke to The Tyee about the damaging, wide-reaching effects of Trump’s trade policy, attacks on the WTO and the role that Canada must play in defending the system. This interview has been edited for length and clarity.

The Tyee: It’s been a little over 100 days since Trump’s inauguration and I’m curious what this has looked like for a person who’s a former trade official and a researcher in trade policy. How has it been for you?

Kristen Hopewell: I think many trade experts are shocked and horrified to see what Trump has been doing in terms of his trade policy. The tariffs that he’s imposed and threatened, and imposed and then reversed or delayed, are really sowing chaos in international trade and global markets, and they’re clearly extremely harmful for the U.S. economy. They’ll do things like raise costs for consumers, raise costs for businesses, ultimately make the U.S. less competitive.

They’re really damaging to the U.S. economy, but they’re also extremely harmful to the U.S.’s major trading partners. And of course, for Canada, given how extremely dependent we are on trade with the U.S., these tariffs are a big concern.

The full effects of Trump’s policies haven’t really been seen yet. Do you think his actions could ruin the current system of global trade?

It’s true that the effects of Trump’s tariffs have not yet been fully felt, in part because some of his tariffs have been delayed temporarily, and he’s expressed his intention to still impose those tariffs at a later date. And when those tariffs are in place, they’ll be really damaging for the U.S. You’re looking at a surge in inflation, and you’re looking at harming American businesses, raising unemployment in the U.S., economic slowdown in the U.S. and having similar effects globally.

In terms of the effects on the trading system as a whole, there’s a real danger that Trump is going to throw us back into the 1930s. What happened in the 1930s is that with the outbreak of the Great Depression, countries around the world responded by raising tariffs in order to try to protect their domestic markets, and they thought that would help to spur economic recovery. But it actually had just the opposite effect, where international trade contracted dramatically, and that had the effect of greatly exacerbating the Great Depression and ultimately contributed to the outbreak of the Second World War.

So there’s a real danger that Trump’s tariffs could have much wider systemic effects, and if they lead to other countries implementing similar protectionist trade policies, it could lead to the unravelling of the rules-based trading system that’s governed trade for the past 70 years, and that’s been really critical to ensuring global economic prosperity, peace and stability.

While the system has never been perfect — it’s always had its flaws — it’s definitely far better than the alternative. And basically the alternative we’re looking at is that if the rules-based system were to collapse, we’d be looking at chaos and disorder in the global economy and in the international system more broadly. And that’s a really harrowing, dangerous prospect.

What we see happening today, we’re sort of on our precipice. We’re at a really dangerous moment in history, and this is something that was inconceivable 20 years ago. People were aware of the flaws in the system, [but] the potential alternative that Trump is ushering is much, much worse than anything we’ve ever seen.

Are we in a trade war? And if it isn’t a trade war, how would you describe it?

I think the best way to describe it is that the U.S., which still is overwhelmingly the dominant power in the global economy, in the international system, is now blatantly violating the rules of global trade. And that’s totally unprecedented. One of the things that’s surprising is that Trump has been implementing these tariffs against everyone, against all of the U.S.’s major trading partners, including many of its closest allies, like Canada, like the EU, Japan, Korea and others. There doesn’t seem to be any kind of clear logic or strategy on the part of Trump. We’ve seen just total incoherence and chaos in terms of the trade policy coming out of his administration.

Mark Carney said before the election, “If the U.S. no longer wants to lead, Canada will.” On trade, is that a realistic proposal? How would that work?

I think that that’s really important. Countries like Canada do need to step up and try to show leadership, to try to preserve and defend the rules-based trading system. Canada has a long history of punching above its weight on trade, playing a really important role in shepherding international co-operation on trade, in helping to foster that rules-based order. With the U.S.’s assault on that order, it’s really critical for middle powers and countries that depend on trade and value a rules-based system, like Canada, to try to step up and maintain the system.

And we’ve seen this. One aspect of Trump’s assault on the liberal trading system has been disabling the WTO appellate body, which is effectively a Supreme Court for global trade. Today, any country that loses a trade dispute at the WTO can block the ruling simply by filing an appeal to this now-defunct appellate body. And so that means, basically, WTO rules, international trade law is now effectively unenforceable. There’s no way to enforce the rules without a functional appellate body. So this is a huge threat to the system, because as the U.S. is breaking the rules of global trade, there’s a real danger that without an effective enforcement mechanism, other countries will start breaking the rules as well.

So one of the things Canada has done is worked with a group of countries, including the EU and others, to try to create what’s known as the Multi-Party Interim Appeal Arbitration Arrangement, or the MPIA, which is basically a de facto appellate body. It’s intended to replicate the functioning of the appellate body and ensure that WTO rules remain enforceable. And so that’s a really critical step to try to preserve this rule-based system, and that’s something that Canada has done in conjunction with a group of like-minded states. And so it’s initiatives like that, initiatives to try to preserve and defend the rules, that are really critical, and that’s an area where Canada can play a really important role.

Were there other attacks on the WTO and the appellate body before Trump?

In terms of blocking the appointment of judges to the appellate body, that started with the first Trump administration, and obviously the first round of tariffs we saw was under the first Trump administration. There was a lot of hope that with the election of [Joe] Biden, that you would see a reversal of those policies, that you would see the U.S. recommit to an open, rules-based trading system. And unfortunately, that’s not what we saw.

Biden continued many of Trump’s trade policies, and even expanded them, introducing huge volumes of subsidies, increasing U.S. tariffs in some areas. So we didn’t see that return to the liberal trade policy that many people had hoped for. And now with the second Trump administration, U.S. trade policy has just spiralled completely out of control.

Climate advocates are often fascinated by and even envious of the enforcement and the dispute-resolving mechanisms for global trade. You can get a bunch of countries to act quickly together on a front, but the climate emergency doesn’t seem to trigger as much movement.

That’s sort of this paradox of this institution. The WTO is really unique among international institutions in having a very powerful enforcement mechanism. Its rules are actually legally binding on states, which is really rare, and that’s because of this dispute settlement mechanism and this appellate body. But the WTO also works on the basis of consensus; all states have to agree to decisions within the institution. And so what that’s done is effectively given the U.S. a veto.

The U.S. blocked the appointment of judges to the appellate body, so that basically there are no judges now sitting on the appellate body, and that’s why it’s unable to function. So the WTO is actually a very democratic institution, in the sense that every country has an equal vote and all countries have to agree. But that means it creates situations where countries like the U.S. can basically hold the institution hostage. And that’s what we’ve seen happen.

That feels bonkers. It’s almost like we have a Ferrari, but the children can take over the car at any point. But I guess for people to have buy-in, you kind of need to be democratic in that way.

Exactly right.

So, what is the World Trade Organization?

The WTO was created in the mid-’90s, but its predecessor — the General Agreement on Tariffs and Trade, or the GATT — dates back to the end of the Second World War in the late 1940s. The impetus behind creating the institution was very much driven by the experience of the 1930s and the Second World War, and policymakers were really trying to prevent a recurrence of the trade wars and tariff wars that had broken out in the 1930s and exacerbated the Depression. And so that was really top of mind when they were creating the GATT and what would become the WTO. They were really trying to create a rules-based system that would ensure that trade was based on rule of law and not just the raw use of power and ensure stability and order in the system. They were trying to create an institution to help foster international co-operation on trade and steadily open global markets and liberalized trade and risk to foster deeper economic integration between countries.

The goals were twofold. One that would help ensure order and stability in the global economy, it would provide the framework for international commerce, and the second that ultimately would help foster peace. The goal was, if countries trade with one another, if you foster deep economic links between countries, ultimately, they’d be less likely to go to war with one another. It would help to resolve conflict and spur greater co-operation between countries.

For over 70 years, it was definitely successful. We, until this point, have managed to avoid a third world war. We’ve had unprecedented prosperity during that period. And the gains in terms of reducing global poverty have been extraordinary. The system has had a massive effect in terms of improving the quality of life, standard of living worldwide.

If people are unfamiliar about the GATT and WTO, they’re usually very unfamiliar with the ITO [International Trade Organization]. Could you tell us what the ITO is, and what its eventual failure illustrates about the global trade system?

The ITO included a slightly broader agreement than the GATT, and also would have created an international organization to govern trade. The U.S. played an active role in negotiating the ITO but ultimately decided at the end not to sign on to the ITO. It blocked the creation of the ITO because it was concerned about incursions into U.S. sovereignty, into decision-making power of the state. So the ITO failed. It was stillborn. But instead, the GATT, which was part of the ITO, went ahead, and that’s what governed trade until the mid-’90s, when you had the creation of the WTO, which was a formal organization with this binding mechanism to govern trade.

There’s always been that tension between accepting international rules at the cost of national sovereignty. But for the most part, the system had achieved a fairly good balance in that sense, and the shift from the GATT to the WTO resulted in the creation of a much stronger dispute settlement mechanism, which basically is what gave WTO rules teeth. So that’s when you got this hard law component of the WTO where the rules were legally enforceable, and that dramatically strengthened the institution.

Even if Trump backs off eventually, I can’t really see a way that this current trade regime, this very important function of the current world, remains unscathed. Am I being overly pessimistic?

I think it’s too early to tell at this point. I think, you know, there are two different directions we could go in. On the one hand, there’s a danger that Trump’s policies are contagious, that other countries follow his lead in adopting tariffs or other protectionist trade measures and disregarding the rules of the system, and that’s a really dangerous path. That would lead to an unravelling of the system, that would have hugely negative consequences for the global economy and probably lead to a significant increase in the risk of conflict between states.

On the other hand, if the rest of the world comes together to try to preserve and defend the system, maybe it can be salvaged. The reality is the U.S.’s economic power has declined significantly from its height before. Today, the U.S. share of global trade is less than 10 per cent, so it is possible that you could have the system be preserved if other countries continue to abide by the rules and respect the system. Even though the U.S. is a big player, it’s possible that the system could continue to function provided that other countries continue to abide by the rules.

So that’s why it’s really important that Canada, and other countries that value a rules-based system, really mobilize and try to take efforts and initiatives to protect the system, because this is a precipice that we find ourselves on.

You and I are talking about ideas like mutual benefit and a rising tide that raises all boats. But Trump seems to see everything as explicitly zero-sum, winners and losers. It’s interesting to be in a situation where the U.S., the most powerful country in the world with probably the most favourable trade deals, is talking about being cheated. Trump keeps talking like they’re being hoodwinked or they’re being suckered by all these other countries that they are trade partners with. What do you think of that?

Yeah, it’s totally nonsensical. It’s clear that the U.S. has been a huge beneficiary from this open, liberal, rules-based trading order. It was the key actor, played a leading role in creating this system, and it's benefited enormously from it, and the types of trade measures that Trump is taking are hugely damaging to us as economic and strategic interests. This is the U.S. really harming itself.

This is making past Canada-U.S. softwood lumber trade disputes look awfully quaint, like a couple bickering in the kitchen.

And that’s the thing — there have always been trade disputes, trade irritants between Canada and the U.S., and that’s normal. That’s expected, given the huge volume of trade between the two countries. That’s just the normal part of doing business. But those disputes have always been governed by the rules in the past, and they've been disputed at the WTO or through the dispute settlement mechanism provided under NAFTA [North American Free Trade Agreement].

So there have been ways for the two countries to constructively resolve their trade disputes in the past. The issue is, today, Trump is just completely disregarding the rules entirely, and the scale of what we’re seeing is just unprecedented. It’s truly something we have never experienced before.