The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade on a worldwide scale. It is a place for member countries to settle arguments and negotiate trade deals. But what happens when negotiations between two counties go awry, and tariffs continue to apply for long periods? The WTO can only intervene when its members create undesirable consequences for one another by disputing or blocking economic development and citizen’s well-being.
This is important for all Americans, as the flow of trade domestically and abroad impacts the profitability and returns in our portfolios and personal savings. We continue to invest in global economies, even when world politics and trade disputes have far-reaching effects.
According to the WTO, the trade agreements between countries are lengthy and complicated because they are legal texts covering a wide range of activities. But, several fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system:
A country should not discriminate between its trading partners. A country should not discriminate between its own and foreign products, services, or nationals.
Lowering trade barriers is one of the most obvious ways of encouraging trade; these barriers include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively.
Foreign companies, investors, and governments should be confident that trade barriers should not be raised arbitrarily. Stability and predictability encourage investment, create jobs, and consumers can fully enjoy the benefits of competition.
Discouraging ‘unfair’ practices, such as export subsidies and dumping products at below cost to gain market share; the issues are complex, and the rules try to establish what is fair or unfair. They establish how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused.
The latest dispute between the U.S. and the EU is expected to impact aircraft and parts manufacturing. Additionally, imported food products will not be spared as higher grocery store bills and dining out will impact Americans until new world trade agreements start. As trade talks between China and the U.S. go unresolved, financial analysts fear the extended tariffs are sending troubling signals to financial markets in an increasingly fragile economic environment. The latest blacklisting of Chinese tech companies has added more layers of problems for U.S. companies in the tech and manufacturing sectors that rely on Chinese technology. Within the lines of policy, the WTO must remain impartial to politics between countries, even in a global economic crisis built by trade wars.
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Additional Disclosure: These are the opinions of the author and not necessarily those of the Registered Investment Adviser or Broker/Dealer. These opinions are for informational purposes only. Do not be construe or act upon these opinions as investment advice.