Republican presidential candidate Donald Trump is threatening to leave the World Trade Organization and rip up agreements like the North American Free Trade agreement, and his critics predictably are branding him everything from "wrong-headed" to "insane." But here's the real deal.
When our politicians and diplomats negotiate trade deals, we lose because they don't know a good deal from a bad one. For instance, when President Bill Clinton signed NAFTA in 1993, he believed it would "create 200,000 jobs in this country by 1995 alone." Instead, the U.S. has lost over 700,000 jobs, according to the Economic Policy Institute, while our trade deficit with Mexico has rocketed from $1.6 billion in 1993 to $60 billion in 2015, according to the Commerce Department.
Clinton also lobbied for China's entry into the World Trade Organization (WTO) in 2001, promising China would "play by the same open trading rules we do." Instead, the U.S. has had to file WTO case after case against China's questionable trade practices on products ranging from apparel, aircraft, and autos to shrimp, steel, and textiles.
Despite numerous WTO "victories" for the U.S., most have been pyrrhic. It takes years to adjudicate a case. In the interim, American companies go bankrupt, China takes over the market, and the court ruling becomes moot. This happened to Bethlehem and 30 other steel companies that went bankrupt waiting for relief.
As a second glaring flaw, many of America's trading partners rely on value-added taxes, and WTO rules permit VAT rebates on export sales. However, the U.S. has no VAT — yet our exports don't receive similar corporate income-tax rebates. While Congress has tried three times to modify our laws to get equal treatment, each modification was rejected by a hostile WTO, giving foreign competitors a huge tax-break edge.
The WTO also provides little or no protection against four of the most potent unfair trade practices many of our trade partners routinely engage in — currency manipulation, intellectual property theft, and the use of both sweatshop labor and pollution havens. America's status as the largest market in the world with a freely floating exchange rate and the world's most advanced set of environmental and work safety regulations makes us a defenseless victim.