US President Donald Trump’s tariff policies are reshaping global trade by challenging the established norms of the World Trade Organization (WTO). His administration seeks to redefine international trade rules, raising concerns about the WTO’s relevance and effectiveness. With the US increasingly ignoring WTO regulations, the organization’s dispute resolution process has become paralyzed. Experts warn that Trump’s approach could trigger retaliatory measures from other nations, potentially undermining multilateral trade rules and exacerbating global trade tensions.
Trump’s Impact on Global Trade Dynamics
A solitary figure, US President Donald Trump is reshaping the landscape of fair trade. For weeks, he has issued warnings of tariffs to both allies and adversaries, prompting a comprehensive review of all US trade relationships. The aim? To impose retaliatory tariffs against perceived unfair treatment.
This approach signals a potential departure from a system that has governed global trade for decades. The Trump administration seeks to redefine the rules of international commerce independently. This has stirred significant concern in Geneva, home to the World Trade Organization (WTO), which has long grappled with its own inefficiencies. Trump’s tariff strategies challenge the very foundations of the WTO’s existence.
The WTO’s Role and Challenges
Trump’s sweeping tariff policies clash directly with the objectives of the WTO. Established in 1995 by 123 nations, including the US, EU, Canada, and Japan, the organization was designed to facilitate liberalized international trade and establish reliable guidelines. The consensus reached over decades emphasized that lowering tariffs and other trade barriers fosters global economic growth.
The WTO acknowledged the existence of “unfair” trade practices, such as dumping, where countries export goods at prices significantly below production costs to capture market share. However, a key principle of the organization is to resolve trade disputes through established WTO mechanisms rather than through the dominance of stronger nations, hence its neutral location in Switzerland.
With 166 member countries, the WTO represents a significant alliance for common trade standards, at least theoretically. Yet, it has struggled for years to adapt to evolving global trade realities.
Globalization has introduced new challenges, particularly in the early 21st century, such as patent protection and the need for developing nations to benefit from free trade while maintaining heavily agriculture-based economies—an area industrialized nations often shield from competition.
The Doha Round, initiated in 2001, epitomizes the WTO’s struggles with reform, ultimately declared unsuccessful in 2017—the same year Trump took office. His approach, viewing tariffs as tactical tools for negotiating bilateral agreements across various policy arenas, has further diminished the WTO’s authority.
The US, as the largest economy, has increasingly disregarded WTO regulations. One fundamental rule mandates that any trade advantage granted to one member must also be extended to all other members, known as the most-favored-nation clause, aimed at preventing discrimination.
During Trump’s first term, his policies were already at odds with this principle. Although his successor, Joe Biden, seemed more cooperative, he too has made little progress in expanding free trade. Nevertheless, the WTO still plays a crucial role globally, with over 75% of world trade occurring under its regulations, as highlighted by chief economist Ralph Ossa earlier this year.
There is much to gain if the US refrains from obstructing the WTO’s daily operations. Unfortunately, its actions have led to significant blockages, notably in the dispute resolution process that has been inoperative for years.
The core issue is that common trade rules require an authority for enforcement. At the WTO, this enforcement mechanism lies within the dispute resolution process.
When nations feel wronged in trade matters, they can lodge complaints. Recently, China did just that, contesting Trump’s recent 10% tariff on all Chinese imports as discriminatory. However, the likelihood of China succeeding in its complaint is nearly non-existent, given the ongoing US blockade of new judges to the appeals panel, effectively paralyzing the dispute resolution process.
The Biden administration has also criticized this process, arguing it oversteps its authority and infringes on US trade sovereignty. Thus, the entity meant to counterbalance the might of stronger nations is rendered ineffective.
Criticism of the WTO from the US is not a recent phenomenon. Joost Pauwelyn, an advisor to the EU and trade law professor, warns of a potential escalation, stating, “Trump’s reciprocal tariffs undermine the fundamental framework of the WTO.” He expresses concern that recent tariff announcements could trigger a chain reaction dissolving multilateral trade rules.
Trump aims to leverage tariffs to extract concessions from trade partners. Pauwelyn notes that major economies might retaliate by lowering their tariffs to match those of the US in the near future. For instance, the EU might reduce its tariffs on US-made vehicles from 10% to 2.5%. However, adhering to the WTO’s most-favored-nation principle would compel the EU to similarly lower tariffs on imports from other countries.
If this approach fails, the EU may consider imposing higher tariffs on US goods in retaliation, which would violate WTO rules by discriminating against the US. In either scenario, global trade could become dominated by the negotiation tactics of powerful nations, disproportionately affecting smaller countries amid a breakdown of established rules.
Reto Föllmi, an international economics professor at the University of St. Gallen, asserts that the WTO faces its most significant crisis since inception. “Trump’s reciprocal tariffs clearly violate the multilateral trade framework, yet the WTO lacks mechanisms to address this due to the dysfunctional dispute resolution process.” He emphasizes that for the WTO to retain its efficacy, it must reform and reduce reliance on the obstructionist actions of individual members, or risk becoming merely a platform for discussion.
Reform efforts at the WTO have been attempted multiple times, yet success hinges on achieving consensus among member states. A recent attempt in March during a conference in Abu Dhabi faltered, largely due to US dissatisfaction with the negotiation outcomes. As long as the US remains a member, it retains the power to further undermine the effectiveness of the World Trade Organization.