The US and the Trade Regime: Who Benefited from the Rules?
24 October 2018
Marco Segna (MSc Global Governance and Ethics) on a GGI keynote lecture with Professor Judith L. Goldstein.

It is commonly assumed that the United States transitioned from a policy of protectionism to trade liberalisation after World War II and that, unlike previous great powers, it did not take advantage of its position to promote its economic dominance but made deals favouring other nations in exchange for security and influence.
In a recent lecture at the Global Governance Institute, Professor Judith Goldstein, from Stanford University, challenged this commonly held theory through an examination of the trade regime, its origins and organisation, and by assessing the arrangement’s winners and losers. Goldstein argued that the post-war rules served US domestic interests and that the US never traded unequally in favour of other nations, even close allies.
Recently, this topic has become particularly pertinent as US President Donald Trump has threatened to leave the World Trade Organisation (WTO). Reports from inside the White House claim that he has repeatedly expressed that “the WTO is designed by the rest of the world to screw the United States”. Trump has been rather candid in his view that the US has been losing whilst the rest of the world has benefited from the rules. But is this true? Has the US been treated badly?
The Origins of the Trade Regime
Goldstein began the lecture with a history of the development of the General Agreement on Tariffs and Trade (GATT), the informal post-war precursor to the WTO.
The interwar period saw huge increases in trade tariffs, with the Fordney-McCumber Tariff Act in 1922 and the Smoot-Hawley Tariff Act in 1930. These acts increased tariffs above 50% and have been attributed by economists as a leading cause of the Great Depression. Following the depression, southern export-focused Democrats took over the government and began reforming tariffs. By 1934, the US began to open up trade with 38 bilateral agreements.
In 1947, the GATT was signed into existence by 23 nations in Geneva. The GATT is typically seen as a substantive break from the US’s past protectionism, however, tariffs had already been reduced to an average of 19%. Also, contrary to popular belief, the GATT was not originally designed as a multilateral institution but rather as a ‘stopgap’ measure to allow the US president, and not Congress, to set the trade agenda. Thus, the multilateral GATT/WTO system that later emerged was in fact the unanticipated outcome of the US system for reducing tariffs.
Goldstein argued that, unlike the WTO, the GATT gave governments the flexibility to reconcile powerful domestic interest groups without undermining their general commitment to the regime. In particular, the system offered a way to deal with the natural bias within democratic states towards the economic ‘losers’ of trade. Any trade agreement will be defined with the next election in mind and constituents that are in fear of losing their job are usually more vocal than the ‘winners’ of potential trade agreements, in part because the latter might not yet exist. Thus, the GATT trade regime was a system which was directed as much by politics as by economics. This, Goldstein argued, provided the system with a measure of protection, as only politically saleable agreements could be reached, thereby protecting the GATT from negative domestic discourse.
The Myth of Post-War US Benevolence
Through an analysis of the agreements and processes of the first Geneva round of the GATT in 1947, Goldstein showed that, contrary to the common theory, the US never gave more than it gained through trade agreements, neither was it the champion of multilateral free trade, as it is often fabled as being.
Goldstein demonstrated that, rather than reducing tariffs across the board, as has been commonly believed, the US often simply bound tariff rates. The results also revealed that tariff reduction was done on a reciprocal basis, showing that the US did not deal favourably to promote tariff reduction.
By analysing requests made by countries to the US through GATT, Goldstein showed that the less specific a request for tariff reduction was, the more likely the US would be to accept it. Additionally, the likelihood of success was increased by asking for more products. However, as the trades were balanced this meant that smaller nations were at disadvantage and did not make as many agreements. On the other hand, the US, due to the size of its economy, was favoured by the rules.
The WTO and the Future of the Global Trade Regime
In 1994, the Marrakesh Agreement saw the advent of the WTO, the more formalised successor of the GATT. Goldstein stated that the WTO suffers from being directed by law and economics. It no longer has the flexibility of the GATT which took political needs into consideration. Furthermore, putting the policy of the WTO ahead of domestic political sensitivities has left it vulnerable to domestic displeasure.
As the WTO does not respond to domestic political needs, losers of trade agreements have been alienated and left behind. The iconic symbol of this is the forgotten coal miner. With the coal industry having been whittled down for years by natural gas and renewables, the plight of the coal miner has been seen as the fuel for the political rise of Trump.
One solution to this issue, provided by an audience member, could be to look to nation-states to redistribute economic gains made through trade agreements. So, why has this not happened already? Does the natural bias of states shift from ‘losers’ to the ‘winners’ once an agreement is in place?
Perhaps the answer to public discontent with globalisation and free trade is to pre-emptively distribute economic success made through agreements, therefore, protecting potential ‘losers’ and ensuring everyone enjoys a piece of the bigger pie.