Why there's no referee for the trade war

0:01NPR.

0:11This is The Indicator from Planet Money. I'm Waylon Wong. And I'm Adrian Ma. You know, in the midst of the Trump administration's trade war, you might be wondering, is there some sort of neutral third party here? You know, some authority figure that can step in and stop this carnival ride of imposing tariffs, then suspending those tariffs and threatening more tariffs and retaliating with tariffs? The global economy does actually have a kind of mediator for these disputes, the World Trade Organization. and Canada and China have filed complaints against the U.S. with the WTO. There's just one problem, though.

0:48The WTO essentially is a lame duck, and it's the U.S. that has been blocking it from playing referee on these trade disputes. And this hamstringing of the WTO did not start with Trump. It actually goes back to the Obama years. Today on the show, what made the U.S. turn against the WTO, an organization it helped create? and how are other countries redefining their relationships in a system where the U.S. no longer wants to cooperate? This message comes from NPR sponsor Capella University. Sometimes it takes a different approach to pursue your goals. Capella is an online university accredited by the Higher Learning Commission.

1:29That means you can earn your degree from wherever you are and be confident your education is relevant, recognized, and respected. A different future is closer than you think with Capella University. Learn more about earning a relevant degree at capella.edu. This message comes from NPR sponsor U.S. Bank. With U.S. Bank Business Essentials, you get more than just a bank. You get a dedicated partner that provides you a powerful combo of checking and card payment processing with quick access to the money you've earned, proving that there is nothing as powerful as the power of us. Visit usbank.com today to learn more.

2:08Member FDIC. Copyright 2025 U.S. Bank. After World War II, powerful countries like the U.S. and the United Kingdom got together to set up the new ground rules for the global economy. These talks led to arrangements on tariffs and international trade. And over the years, countries went back to the negotiating table to work out more of these rules. These post-war arrangements culminated in the creation of the World Trade Organization in 1995. It's basically a big club of countries that agree to trade with each other using the same set of rules. Jennifer Hillman knows these rules really well. She's a professor at the Georgetown Law Center and an expert in international trade.

2:48I could show you my, my, oh, here it is. Jennifer showed us her copy of the WTO agreements. It's a thick document that she's flagged with a bunch of colored sticky tabs. I have one of the original books as it was issued in 1995 when the original, you know, sort of WTO came about. It has lots of tabs all over it. So have these tabs been in there since the 90s or have you updated them? Yes, they have. Yes, they have. When governments get into disputes over these rules, they go to the WTO. And here's how that process works. First, the case gets heard by a panel of experts. They make a ruling. And then the governments can appeal that decision to a different panel of experts.

3:31This group is known as the appellate body, and Jennifer served on it from 2007 through early 2012. You basically have to be ready to drop everything. The minute you are put onto an appeal, fly to Geneva, and then the work is quite, quite intense. Intense, like 70 to 80 hour weeks. The panel has around just a couple of months to make a decision. And this ruling, by the way, is final. The appellate body, in essence, has the last word. And if at the end of the day the appellate body says there was a violation, then what it does is recommend that the country bring its measure into compliance. In other words, fix the problem.

4:10Fixing the problem might mean reducing tariffs on specific products or lifting a ban on certain kinds of imports. And for a while, the system of settling disputes worked. Jennifer says countries would generally follow the WTO rulings, even the U.S. And the U.S. did lose at the WTO. Like several years ago, the state of Washington had to end a preferential tax rate for aerospace manufacturing. This came out of a long-running dispute between the U.S. and the E.U. over subsidies to companies like Boeing and Airbus. Quince Lebodian is a professor of international history at Boston University. He points out that when it helped found the WTO, the U.S.

4:50signed onto a system where it wouldn't always get its way. It was a moment where America, the world's most powerful country, saw it somehow in its own interest to cede part of their sovereignty to this international institution in a way that was actually binding on them. However, the U.S. would eventually grow unhappy with the WTO. Quinn says a big factor here is China, which joined the group in 2001 and became an economic powerhouse. And yeah, China was part of the same economic club, but it was also claiming exemptions from free trade rules on the basis of it being a developing country. So, for example, China used this rationale to justify subsidizing its fishing industry.

5:38This kind of behavior wrinkled policymakers in the U.S., starting with the Obama administration. Quinn said there was grumbling that China was too rich and too powerful to still be getting those exemptions. They thought that China was exploiting the rules of the WTO, that they were claiming exceptions that they should no longer be permitted to, and that the rules needed to be tweaked to make sure that they weren't playing both sides. Also, the U.S. started to have other gripes with the dispute settlement system. It believed the appeals panel was relitigating evidence that had already been decided and going outside of its narrow mandate of interpreting WTO's laws.

6:21The U.S. believed this approach was hurting American businesses. Jennifer says these frustrations came to a head during the Obama administration. And so the U.S. blocked the reappointment of some members to the WTO appeals panel. It's almost like you move the goalposts. So now we don't want to participate in the refereeing. Like we're not going to send any referees. Correct. That's exactly right. And the perception is the goalposts were moved because you're interpreting the rules in a way that we would never have agreed to. We wouldn't have joined the game had we known those were the rules. During the first Trump administration, the U.S.

6:56started blocking all new appointments to the appellate body. In late 2019, the group stopped functioning because it didn't have enough members. So it's been paralyzed ever since. This paralysis continued through the Biden administration, although it had been in talks on reforming the WTO appeals panel. That work didn't get done before Biden left office. So the WTO remains stuck. That hasn't stopped Canada and China from filing fresh complaints about American tariffs. And Jennifer says they can get their cases heard by the first panel at the WTO. Those rulings will almost certainly get appealed, though.

7:32And then nothing will happen because there's no appellate body to hear the case. So the appeal just appends forever. They refer to it as appealing into the void. Do you ever feel like screaming into the void when you think about this? Very often. Very often. That is a lot more cathartic than appealing to the void, I must say. Yeah, just get a couch cushion and just scream right into that thing. So we've got a big and crucial void at the WTO. Where does this leave other countries? Well, historian Quinn Silbodian says governments have been busy making trade deals without the U.S. For example, in 2022, an Asian-Pacific trade deal called RCEP came into effect.

8:19This agreement links 15 countries, including China, Japan, and South Korea. And in December, the European Union and four South American countries signed a deal they had been negotiating for 25 years. Quinn says it is not a coincidence they wrapped up this deal right after the U.S. election. Trump has been outdoing himself in his second term, right, for the inability to sort of expect what new petulant outburst will lead to some new form of tariffs, which will then be gone the next day, which may come back in a month. So it's really accelerating forms of integration beyond the United States. In fact, Quinn says he thinks the future of international cooperation looks like a bunch of regional agreements, as opposed to global organizations with the U.S.

9:04at their center. In other words, something more akin to the 90s era, before the WTO came along. Even so, Quinn says the WTO still has value as a place where countries can discuss issues around climate, labor and inequality. And Jennifer says the WTO remains a source of guidance for its members, including on urgent topics like bird flu. At a bare minimum, the WTO provides tremendous amounts of transparency. If you want to look up whether you can and cannot trade in products, you know, that are coming from flocks that are near or outbreaks of bird flu, what is the latest science? Go to the WTO. And other countries might still go to the WTO for these discussions, even if the U.S.

9:50does not.

9:55This episode was produced by Julia Ritchie and Lily Quiroz with engineering by Jimmy Keely. and was fact-checked by Tyler Jones. Kicking Cannon is our editor, and The Indicator is a production of NPR.