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Mathias Döpfner is chairman and CEO of Axel Springer, POLITICO’s parent company. The following excerpt is taken from his new book “Dealings with Dictators.” It was originally published in German by Handelsblatt in 2024.
We are standing on the precipice of a trade war that has Europe in its crosshairs.
The World Trade Organization (WTO) had barely made it through U.S. President Donald Trump’s first term unscathed. Now, amid a looming wave of “reciprocal” tariffs and threats of retaliation, the world is once again confronted with grave geopolitical uncertainty and a faltering multilateral trading system. So, as we head into this year’s Munich Security Conference, it’s time to reevaluate an institution that is no longer fit for purpose.
Freedom and economic success are closely intertwined. One is usually a precondition of the other. As a general rule, the less free an economic system, the less successful it will be. The one big exception here is China because what we’re dealing with is state-controlled turbo-capitalism — which has, for years, taken advantage of the WTO.
Under the cover of “free trade,” China has used its membership to continue expanding its power by unfair means. It turns out that the WTO isn’t the solution but a fundamental part of the problem. By accelerating the weakening of truly free economies, it has fostered the rise of unfree and nondemocratic actors. It promotes dependencies and has become a Trojan horse of unfree trade.
The WTO was founded in Marrakesh in 1994. Its establishment led to rules being introduced for services and intellectual property. Previously, international trade rules for goods had been laid down by the General Agreement on Tariffs and Trade (GATT). The GATT treaty came into being in 1947 with the support of 23 nations. By 1994, 128 countries had joined.
GATT was created following World War II to prevent a replay of the tariff wars of the 1920s. However, what began as a lean and effective collaboration between Western nations grew into the larger, ineffectual WTO we know today. And it now needs a complete conceptual rethink.
WTO members pledge to observe three basic principles when forging international trade relations: trade without discrimination, reciprocity as a basis for negotiation, and the elimination of tariffs and trade barriers. Member states must extend the same advantages to one another. Nondiscrimination further stipulates that the benefits and support granted to one country must automatically be granted to all member states.
However, the WTO grants special provisions to countries that define themselves as “developing” — a classification for which the organization does not provide a formal definition. Members self-declare as “developing,” as China did when joining the trade alliance. The advantages include longer deadlines for implementing commitments or easier market access, among others. But the most important concession is the obligation of other WTO members to safeguard the interests of developing countries when imposing certain national or international measures — all benefits to which China has been holding on tight since the day of its accession.
Additionally, China has repeatedly violated WTO rules for years. The list is long: forced technology transfer; massive, often undisclosed subsidies; distortion of competition by state-owned enterprises.
In order to gain access to the Chinese market, many foreign companies have had to disclose valuable technological information. The resulting cost to international businesses runs into the billions. Meanwhile, Chinese competitors in some sectors have quickly caught up with industry innovators and become market leaders themselves.
An almost traumatic example — especially for Germany — is that of photovoltaic or solar power systems. Until 2005, this industry did not exist in China. By 2022, China’s share in all manufacturing stages had topped 80 percent, based on copied innovation and driven by heavy state subsidies.
China views Europe as a self-service shop. With great finesse, it buys into cutting-edge technology, often via “hidden champions” that are less publicly visible than companies such as Daimler, Volkswagen or Volvo. Chinese antitrust laws — and especially its Anti-Monopoly Law — also have some remarkable features. China likes to penalize foreign companies for being innovative. Anyone who owns a patent and charges licensing royalties for its use can be classified as a monopolist. Smartphone manufacturer Qualcomm was affected among others: It had to pay a fine of almost $1 billion for allegedly demanding excessive royalties from a Chinese competitor.
Last but not least, China hasn’t opened up its markets nearly as much as is often claimed. International companies were unable to fully access its financial sector until 2021. And a lack of transparent rules means that hardly any business can be done. There have been no successful joint ventures between Chinese and foreign companies in the telecommunications sector. Facebook and Twitter have been banned since 2009.
These examples would be scarcely imaginable the other way around. Chinese companies get to do business largely unhindered in Western markets, while the People’s Republic continues to write its own rules in ways that primarily further its expansion of power. The WTO’s rules and those who enforce them are either unable or unwilling to prevent this. Its principle of reciprocity thus remains a pious hope.
In reality, the WTO is breaking down, tolerating double standards and allowing members to play by different sets of rules. Asymmetry reigns instead of reciprocity.
Carbon emissions are another variable that has dramatically grown for China since its accession to the WTO: They’ve increased by over 200 percent. And this increase offsets the rest of the world’s decrease by far. China accounted for nearly a third of global carbon emissions in 2021. That’s more than the United States, India, Russia, Japan and Iran — the subsequent five largest polluters — combined.
Bottom line, the global climate crisis reinforces the need to take a stand against autocratic systems like China. The real problem with climate change is not the holiday flight to Florida or Mallorca. The problem is that we have little to no influence over the world’s largest carbon polluter. That it pursues a completely different political agenda. And last, but not least, that we, ourselves, contribute to it by outsourcing the climate sins we don’t want in our own backyards to China or elsewhere.
Viewed from today’s perspective, China’s admission as a full member of the WTO was a fundamental error in a trade policy led by wishful thinking. Motivated, as is so often the case, by good intentions, it created an imbalance that has worsened down the years, much to the detriment of democratic market economies.
The main mistake was giving entry to an economically weighty, nondemocratic state, which, due to its own outlook, was unable to adhere to free trade rules. The most ridiculous mistake was to grant China developing country status — which it still has today despite being the second largest economy in the world — with all the exceptions and exemptions that come with it. It’s like granting privileges to the most ruthless kid on the block. Competition couldn’t be more unfair or masochistic.
The result of this experiment was predictable: In the short term, it brought growth and economic success to all participants, but in the long term, it shifted the balance in ways that allowed dependencies and one-sided advantages to emerge. The masochism of the United States and Europe, in particular, led not only to a weakening of their own relative economic power but also, in the end, to an erosion of the entire WTO.
And speaking of the end, the WTO has reached the end of the line. What we see before us now is a dysfunctional and paralyzed colossus — a shadow of its former self. All of which leads to the unsparing conclusion: The WTO should be dissolved.
“Dealings with Dictators: A Ceo’s Guide to Defending Democracy” was published by Simon & Schuster in January 2025.
