Donald Trump’s tenure as President has brought several periods of upheaval to the international trade market. Amidst the sanctions on Iran, China, and Turkey, Trump has now given the World Trade Organization (WTO) a shocking ultimatum in an interview with Bloomberg News: he will pull the US out if they don’t “shape up” in their treatment of his country.
Trump’s actions and decisions are often brash but bold, and if he does indeed decide to pull the US out of the WTO, there could be great ramifications on the entire international economy.
What could the impact on the Middle East be if such a decision were to come to pass?
Trump is making an unsound argument
The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.
Essentially, it is their job to mediate trade disputes between feuding countries.
In Trump’s opinion, the WTO has not been treating his country in a fair manner.
“The World Trade Organization was set up for the benefit of everybody but us,” Trump said in an interview with Fox News last year. “They have taken advantage of this country like you wouldn’t believe.”
Keep in mind, however, that the WTO was originally founded in 1994 as part of a US-led effort.
“We lose the lawsuits, almost all of the lawsuits in the WTO,” he surmised.
Forbes, however, has disproved him late last year: “The United States has won the majority of the dispute settlement cases (they’re not lawsuits) it has filed with the WTO since its formation in 1994 and lost the majority of those that have been filed against it. Such is the case with most or all of the WTO’s 164 members. The plaintiff almost always wins.”
To further drive their point, Forbes cited data by the European University Institute: “The United States as a plaintiff has a higher winning percentage – about 70% – than any other country. As a respondent, the United States has won about 42% of its cases. That, too, is a higher percentage than any other country.”
A WTO without the US could lead to the Organization’s unraveling
Without the WTO in place, the international market would turn into the Wild West of trade. According to a 2016 report by the Peterson Institute for International Economics, the WTO handles 98% of world trade. If the US exits, it could lead to the unraveling of a system that has sought mediation among the 164 member states.
This is because the US is a significantly major player in international trade and in the WTO itself, and carries enough heft to be able to throw its weight around, something Trump is clearly capitalizing on.
However, smaller countries like Qatar have much less sway. When it requested the establishment of a dispute panel concerning measures imposed by the UAE, other GCC countries and the US were quick to dismiss its request as a political matter, stating that national security issues were political and not appropriate for the WTO dispute system.
Even as a member of the WTO, the US has been trigger-happy with its sanctions on several countries. Free of the constraints and regulations of the WTO, the US will be free to operate as it wishes and to the whims of its President.
Would the Middle East suffer?
At the moment, Saudi and the US share a mutually-beneficial relationship. If the two countries were to hypothetically have a disagreement, the US could put pressure on the Kingdom through the implementation of tariffs.
The US’ dependence on Saudi oil should keep these concerns from materializing, at least for the meantime. This might not last for long, though, as US imports of Saudi crude dropped 14% last year to 943,000 barrels per day, according to US government statistics. This figure is the lowest since 1988.
This fits with the US’ recent behavior, as it’s been decreasing its import of Saudi oil in recent years.
Back in 2016 when Trump was running for office, he had said that he wanted to bring “complete American energy independence,” releasing the country from the price fickleness of international oil exporters.
Could Trump break the US away from Saudi oil exports? In a few years, perhaps. A look at the table below shows a recent decrease in imports of Saudi oil products.
U.S. oil production broke 10 million barrels a day for the first time in 48 years in November of last year, according to monthly data released by the government. If it continues this rise in production, it could feasibly break off from Saudi-dependence, as well as cutting imports from other Arab countries like Kuwait and Iraq.
If the US were to impart tariffs on Kuwait oil, however, the impact on the small nation could be catastrophic. According to OPEC, Kuwait’s oil and gas sector accounts for about 40% of its GDP and about 92% of export revenues. According to 2016 data by OEC, 11% of Kuwait’s crude petroleum exports was purchased by the US.
Iraq stands to lose as well. OEC’s 2016 data shows that 13% of their crude petroleum exports was bought by the US. Iraq is the US’s third greatest source of imported crude oil, behind Canada and Saudi.
In politics, an ally can turn into a rival in a matter of hours. As it currently stands, any destabilizing of relations between the Middle East and America following a WTO exit could have major ramifications on the Arab nations.