Episode 37: GATT/WTO

Summary

This transcript explores the history and evolution of global trade policies, from the protectionist Smoot-Hawley Act of the 1930s to the creation of the World Trade Organization (WTO). It covers how tariffs, quotas, and non-tariff barriers like voluntary export restraints (VERs) shaped global trade. The transition from GATT to the WTO highlights the increasing complexity of international trade, with the latter offering a platform for dispute resolution. The U.S. has been both the most challenged and the most frequent complainant in trade disputes, underlining its central role in global trade dynamics.

Takeaways

• 😀 Tariffs on traded goods are lower today than at any point in the 20th century, despite protectionist measures in the past.
• 😀 The Smoot-Hawley Tariff Act (1930) was designed to protect U.S. farmers but led to global trade retaliation, contributing to the Great Depression.
• 😀 Smoot-Hawley expanded protectionist measures to over 20,000 U.S. products, including agricultural goods, cars, and textiles.
• 😀 The retaliatory tariffs and boycotts by other countries during Smoot-Hawley resulted in a significant drop in world trade from $3 billion to $1 billion between 1929-1932.
• 😀 The creation of GATT (General Agreement on Tariffs and Trade) in 1947 marked a shift towards reducing trade barriers globally after WWII.
• 😀 GATT led to gradual tariff reductions, bringing tariffs down from 70% in 1930 to just 2-3% by 1993.
• 😀 Despite tariff cuts, countries still sought protection for domestic industries by using quotas, voluntary export restraints (VERs), and non-tariff barriers (NTBs).
• 😀 The Uruguay Round of GATT (1986-1993) was the longest, addressing both tariffs and emerging issues like trade in services.
• 😀 The World Trade Organization (WTO) replaced GATT in 1995, focusing on broader trade issues, including dispute resolution and services.
• 😀 The U.S. became both the most challenged country for unfair trade practices and the largest complainer within the WTO by 2009.

Q & A

What was the Smoot-Hawley Tariff Act and why was it significant?

The Smoot-Hawley Tariff Act, passed in 1930, was a protectionist measure aimed at safeguarding U.S. industries, especially agriculture. Its significance lies in the fact that it contributed to the global trade collapse during the Great Depression, reducing world trade from $3 billion to $1 billion and sparking retaliatory tariffs and boycotts from other countries.

How did President Hoover's campaign promise impact the Smoot-Hawley Tariff?

Hoover's campaign promise to protect U.S. farmers from foreign competition led to the introduction of the Smoot-Hawley Tariff. Once elected, Hoover sought legislative support for the bill, which expanded beyond agriculture to include various industries such as automakers and textile manufacturers, creating a broad protectionist law.

What role did international retaliation play in the aftermath of the Smoot-Hawley Tariff?

International retaliation played a key role in escalating the global trade war. Countries like Canada passed their own protectionist laws, while others threatened boycotts of U.S. products. These retaliatory measures deepened the economic isolation of the U.S. and worsened the global economic crisis.

How did the General Agreement on Tariffs and Trade (GATT) emerge after World War II?

After World War II, countries recognized that protectionist trade policies like the Smoot-Hawley Tariff had disastrous consequences. As a result, they formed the General Agreement on Tariffs and Trade (GATT) to promote global trade by reducing tariffs and fostering economic cooperation.

What was the primary goal of GATT in its early rounds of negotiations?

The primary goal of GATT in its early rounds was to reduce tariffs and trade barriers among member nations to foster international trade and prevent the kind of protectionist measures that contributed to the Great Depression.

How did the average level of tariffs change throughout the GATT rounds?

Over the course of the GATT rounds, tariffs gradually decreased from 70% in the 1930s to about 40% by 1947, and by the Uruguay Round in 1993, they were reduced to around 2-3% on average, significantly lowering trade barriers.

What challenges did GATT face in dealing with non-tariff barriers (NTBs) like quotas and VERs?

As tariffs were reduced, countries turned to non-tariff barriers (NTBs) like quotas and voluntary export restraints (VERs) to protect domestic industries. GATT had to address these evolving trade barriers, and by the Uruguay Round, it sought to tackle these issues alongside traditional tariff reductions.

How did the Uruguay Round differ from previous GATT rounds?

The Uruguay Round, which lasted nearly nine years, was the first GATT round to address trade in services, such as financial services and technical consulting. It also marked a shift towards reducing non-tariff barriers and created the World Trade Organization (WTO), replacing GATT.

What is the World Trade Organization (WTO), and what role does it play in global trade?

The WTO, established in 1995, is the successor to GATT and serves as a global organization for trade dispute mediation. It helps resolve trade conflicts between nations, ensures compliance with trade agreements, and continues to oversee the reduction of trade barriers, including those related to services.

Why was the United States both the most challenged and the most active nation in trade disputes according to the WTO?

The U.S. was the most challenged nation in WTO disputes due to its influence on global trade and policies that other countries considered unfair. At the same time, the U.S. was also the most active in lodging complaints against other countries, reflecting its central role in shaping global trade rules and addressing perceived violations.