Trump threatens to pull out of World Trade Organisation

Trump also declared China won’t outlast the US in the trade war between the superpowers

US president Donald Trump said he would pull out of the World Trade Organisation if it doesn't treat the US better, targeting a cornerstone of the international trading system.

"If they don't shape up, I would withdraw from the WTO," Trump said Thursday in an Oval Office interview with Bloomberg News. Trump said the agreement establishing the body "was the single worst trade deal ever made."

A US withdrawal from the WTO potentially would be far more significant for the global economy than even Trump’s growing trade war with China, undermining the post-World War II system that the US helped build.

Trump said last month that the US is at a big disadvantage from being treated “very badly” by the WTO for many years and that the Geneva-based body needs to “change their ways.”


US Trade Representative Robert Lighthizer has said allowing China into the WTO in 2001 was a mistake. He has long called for the US to take a more aggressive approach to the WTO, arguing that it was incapable of dealing with a non-market economy such as China.

Lighthizer has accused the WTO dispute-settlement system of interfering with US sovereignty, particularly on anti-dumping cases. The US has been blocking the appointment of judges to the WTO’s appeals body, raising the possibility that it could cease to function in the coming years.

In the Oval Office interview, Trump said at the WTO “we rarely won a lawsuit except for last year.”

“In the last year, we’re starting to win a lot,” he added. “You know why? Because they know if we don’t, I’m out of there.”

For all of his complaints about the WTO, Trump’s administration has continued to file cases against other members. Earlier this week it launched a case against Russian duties on US products that it argues are illegal.

States that bring complaints to the WTO tend to prevail and defendants in trade disputes lose.

But WTO data also shows that the US does slightly better than the WTO average in both cases it brings and that are brought against it, said Simon Lester, a trade analyst at the Cato Institute, a Washington policy group that favors more open international trade.

Of the 54 cases brought by the US over the life of the WTO, Washington won at least one finding in its favour in 49, or 91 percent, Lester said. Of the 80 cases brought against it, a WTO panel had ruled against it in at least one aspect in 69 cases, or 86 percent of the time.

The Trump administration has taken his complaints a step further by arguing that the WTO’s dispute settlement system is broken and in need of a major overhaul.

The EU has been leading an effort to propose reforms to try and defuse the conflict. Officials from the EU and Japan visited Washington last week to discuss potential changes as well as joint efforts to take on China at the WTO.

Since World War II, successive US presidents have led efforts to establish and strengthen global trading rules, arguing that they would bring stability to the world economy.

The WTO was created in 1994 as part of a US-led effort by major economies to create a forum for resolving trade disputes.

Trump also declared that China won’t outlast the US in their trade dispute, and said his administration is re-examining how to determine whether countries are manipulating their currencies.

Trump has repeatedly complained that China manipulates the renminbi, also known as the yuan, a charge that isn’t officially supported by his government. “We are a much stronger country,” Trump said.

“Nobody’s waiting us out. Our country is stronger than it’s ever been financially.” Trump again alleged in an interview with Reuters last week that China was manipulating its currency.

The president’s accusation, presented without explanation or substantiation, conflicts with the findings of his own administration.

The Treasury Department stopped short of naming China, the EU or any other country as a currency manipulator in April, in a semi-annual report on foreign-exchange policy.

“It is a formula,” Trump said Thursday. “And we are looking very strongly at the formula.” He said that China has devalued its currency in response to a recent slowdown in its economic growth.

“They’re trying to make up for lack of business by cutting their currency,” he said. “It’s no good. They can’t do that. That’s not, like, playing on a level playing field.”

The yuan has tumbled 6 per cent over the past three months - making it the worst performer in Asia. In response, officials have taken actions to give them better control over the exchange rate.

A reserve requirement that makes shorting the yuan costlier has also been reintroduced. The currency rebounded 1.4 per cent since hitting the lowest since January 2017 earlier this month.

China has said it won’t use competitive currency devaluation or the foreign exchange rate as a tool to cope with trade frictions.

“The yuan’s exchange rate is decided by the market,” Li Bo, director of the People’s Bank of China’s monetary policy department, told reporters in Beijing earlier this month.

He said the currency has more flexibility this year and the central bank is confident of keeping the rate “basically stable at a reasonable equilibrium level.” The US hasn’t officially accused another country of currency manipulation since 1994.

Under guidelines established in 2016, the finding is based on whether countries meet three criteria for the designation: a minimum $20 billion trade surplus with the United States, a current account surplus in excess of 3 percent of GDP, and repeated interventions in currency markets.

Trump said he had “delayed” both imposing tariffs against China and declaring it a currency manipulator “because I wanted to get as much help as they could give us with respect to North Korea”.

“But there came a time when I couldn’t delay it anymore,” he said. “It’s too much money that they drain out of our country.” – Bloomberg