WTO Reform: Multilateral Control over Unilateral Retaliation – Lessons from the US-China Trade War

Abstract

Preventing trade wars is a key function of the WTO rule-based system. But as the United States and China waged the largest trade war in history, the WTO sat on the sidelines, unable to do anything to stop the fight. Why has the system failed so spectacularly? In a search for answers, this article examines the context of the US-China conflict and makes a number of findings. First, under WTO law, the burden of avoiding this trade war was placed on China, the victim of US aggressive unilateral tariffs; and contrary to China’s claim, its retaliatory tariffs cannot be justified by general principles of international law. Second, the WTO rule prohibiting unilateral retaliation was born out of a grand political bargain, but it embodies the wisdom of Adam Smith and achieves the goal of the Havana Charter to turn retaliation into an instrument of international order. Third, the WTO’s inability to prevent China’s resort to unilateral retaliation reveals a deficiency in its existing legal design, but that deficiency can be fixed procedurally as proposed herein. Given the importance of preventing large-scale trade wars in the future, improving multilateral control over unilateral retaliation should be a top priority in WTO reform.