Trump's latest trade target is potentially the most dangerous one

Donald Trump has gone out of its way to antagonize major US trading partners.

He vilified Mexico and China during the campaign and after his rise to the presidency as "killing us" on trade. And his advisers have taken aim at Germany and Japan.

But the latest target of the Trump team's anti-trade agenda is a potentially more dangerous one: the World Trade Organization itself.

Trump did briefly threaten to exit the WTO during his run for office, but has since stayed away from that subject.

"We're going to renegotiate or we're going to pull out," he said in July of 2016. "These trade deals are a disaster. You know, the World Trade Organization is a disaster."

Now, his top trade advisers are quietly trying to undermine the WTO, whose resolution dispute system is credited with greasing the wheels of global commerce since the multilateral agreement came into effect in 1995. Before the WTO, global trade rules were governed by the post-World War II General Agreement on Tariffs and Trade (GATT).

The senior adviser who led President Donald Trump's trade transition team told Business Insider in February that "right now" the WTO "does not work for us." And in a draft report to Congress earlier this month, the Trump team reportedly said it might ignore WTO rulings if they happened not to go in the United States' favor, a violation of 60 years of trade diplomacy orchestrated by the United States itself.

What's scariest about Trump's attacks on the WTO is that, if anything, the 164-member group was expected to be the primary forum for settling the many disputes that are expected to flow from his aggressively protectionist policies.

What is the WTO?

What does the WTO do? It serves as a supranational arbiter of trade disputes in a way that prevents willy-nilly retaliation of the sort that might plunge the world into a trade war.

It does so by adjudicating disputes brought before it by countries who feel they have been injured by others' trade practices. Members are bound by WTO decisions, which allow nations who are found to have been hurt unfairly to retaliate in kind.

The WTO now covers over 98% of world trade, and new members continue to seek entry. Sounds pretty good, right?

Not to the Trump team, which rode to power the misguided but popular notion that the US got the short end of the stick in trade deals where it was a primary beneficiary.

As the world's major trading force until China's recent rise, the United States had enormous leverage in setting the rules of the road. While some worry wrongly that trade is costing the United States jobs on net, open commerce has actually helped sustain America's status as a global economic powerhouse.

The US could employ one of two tactics with the WTO under Trump. On one hand, it could remain a part of the organization, but choose to ignore it. Other large trading blocs like the European Union and China have already signaled they would likely pick up the mantle of free trade in America's absence, even if this does deal a crucial blow to global trading prospects.

Alternatively, Trump could choose to withdraw completely, submitting a written notice to the WTO Director-General. One key risk of leaving the WTO is that the United States would lose the crucial trading status of Most Favored Nation with other countries, potentially losing market access to some 60% of its trading partners.

That's because this status is part and parcel of WTO membership, and exempts countries from slapping punitive tariffs on imported goods or unfairly subsidizing exports.

The irony is that Trump's trade policies, like his immigration push, are likely to end up most hurting the discouraged US workers he promised to help during the campaign. That's because a trade war would affect not just the manufacturing sector he has pledged to revive, but also many associated services jobs at the lower-end of the income ladder - in Trump country.

Trump's anti-trade stance is also likely to empower the very trade adversary he spends so much time complaining about: China. As the world's second largest economy, China is already viewing Trump's jettisoning of the hard-fought Trans-Pacific Partnership agreement or TPP as an opportunity to lead its own round of trade negotations, on its own terms and without US influence.

To be clear, the WTO is not some international organization that was imposed on the United States from abroad. It was very much an American enterprise, with US trade interests at heart. Foregoing those interest contradicts Trump's purported nationalism - certainly his vow to put America first.