With the US slapping tariffs around, international trade is like the Wild West now: Gene M. Grossman

The WTO system got blown up starting with the first Trump administration when many appellate body judges stepped down — since every major country can veto appointments, the US vetoed all replacements. That stopped the adjudication of disputes. Currently, many countries — some led by the US — see fit to do what they want and don’t abide by WTO agreements. Gene M. Grossman is Jacob Viner Professor of International Economics at Princeton University. Speaking to Srijana Mitra Das, he discusses trade — in the time of Trumpian tariffs:

Q. What is the core of your research?
A. I am an international trade economist. I’ve worked over 46 years on various aspects of trade, from the relationship between it and the environment to links between trade and growth, outsourcing, political economy and the effects of trade policy.

Q. What have been some important developments in international trade since the pandemic?
A. There was a focus on supply chain disturbances as a result of the pandemic — that event made those concerns very salient and there was a lot of thought about how to make supply chains more resilient. This was the topic du jour until the US Presidential election — that turned everything on its head. Now, we are all talking about tariffs.


Q. On that, President Donald Trump says international trade has — so far — not provided a level playing field for the United States. Is that accurate?
A. No. The US has benefitted enormously from international trade. This is an international regime we set up to serve many of our goals, some economic, some political. It led to the development of a rules-based system and a great deal of liberalisation and while US trade barriers might be a tiny bit less than those in Europe or Japan, the differences are miniscule. Claims about international trade having been unfair to the US are absurd, in my opinion.

Q. You’ve compared international trade earlier to ‘the Wild West’ — why?
A. Earlier, we had a system that wasn’t perfect but it worked reasonably well — countries made commitments at the World Trade Organization (WTO) and subscribed to policies of other countries. If someone thought another country wasn’t abiding by what they promised, they would take their case to a WTO panel and then, an appellate body and a decision would be made. Countries would be asked to change their policies if these weren’t in conformance with what they’d promised. It wasn’t perfect — there was perhaps a bit of judicial overreach by appellate judges but, by and large, it did discipline what countries were doing and most nations obeyed those rulings, at times, with some foot-dragging. The whole thing got blown up starting with the first Trump administration when many of the appellate body judges stepped down. Since every major country can veto appointments, the US vetoed all replacements until there were only two judges left — three judges are needed to hear a case, so that stopped the adjudication of disputes.

President Biden also did not overturn that. Currently, many countries, some led by the US, see fit to do what they want and don’t abide by any agreements. We see the thinnest veneers of excuses made, including national security, emergencies, etc., with no real effort to show those are operative in several cases.

The US is now slapping trade policies and tariffs all over the place without any attention to the commitments it made in the WTO — that is the Wild West. There is no will to abide by WTO agreements — the organisation has no enforcing abilities and is reduced to sitting on the sidelines now.

Q. How do you foresee innovation and growth in the global economy now?
A. Trade has been a catalyst for the spread of knowledge around the globe — that’s been very beneficial to innovation. The limitations on the movements of people through visa tightening and immigration restrictions, and curbs on the movement of goods, will be detrimental to global growth and innovation.

Q. It’s argued international trade lowered many Americans’ wages, ended US manufacturing and privileged college graduates — how true is this?
A. It has some grain of truth — and a vast overstatement. All the research points to enormous skill-based technological progress in the US. Trade played a strong role in certain industries and locales and mostly benefitted low-income consumers who tend to buy imported goods more than proportionately. The claim that trade is the cause of adverse trends in income distribution is overstated.

Q. Do you see a global recession coming?
A. I wouldn’t bet against it. It depends on how these trade policies play out — that is anybody’s guess, given how they seem to change every few days. I do see the uncertainty, chaos and volatility that’s been created as a hindrance to investment. There will be lowered demand as well once these tariffs do hit prices in the stores. So, I’m concerned about a recession at least in the US. If there is enough cooperation, this could be avoided in other countries — however, when a shock hits the system, nations take steps they think will protect them but collectively, they get harmed. I see Europe building barriers, for instance — that could spread. If I were a betting man, I’d say the chances are 50-50.

(Views expressed are personal)