1. Introduction
This paper begins with a brief discussion of President Trump’s disruptive trade policy actions, built on significantly increased tariffs against almost all US trading partners, with some being hit significantly harder than others. We argue that Trump’s disruptive, unpredictable, and frequently changing tariff impositions are hostile to any good-faith attempts to reinvigorate the WTO. Quite apart from the immediate economic costs of Trump’s tariffs, his actions have undoubtedly aggravated the already challenging situation in which the WTO finds itself. Nevertheless, it is important to recognize that the institution has been struggling with its identity and challenges to its effectiveness for an extended period of time. A brief discussion follows on who gets hurt by the tariffs, and why even the putative beneficiaries of barriers to imports will be further diminishing the well-being of those that end up paying for the tariffs. The paper then briefly considers some of the issues that the WTO has been struggling with, examines their interconnections, and explores potential solutions.
2. The Economic Consequences of TariffsFootnote 1
Contrary to President Trump’s insistence, when a country imposes tariffs, it is the consumer in the importing country that is obliged to pay all or most of the additional price resulting from the tariff. The share of a tariff-induced price hike paid by the consumer is most likely to be considerably greater than that absorbed by the producer, particularly where producers are operating in competitive markets. The price effects on consumers will be direct if final goods are ready for the market. However, imported inputs into domestic production may also attract tariffs, and, in this case, producers are likely to pass on whatever price hike they can while remaining competitive in the domestic market.Footnote 2
The domestic producers that compete with tariff-ridden imports are potentially the only actors in the domestic economy that may benefit from opportunities to raise their prices. These domestic producers, however, will have difficulty competing effectively in international markets due to comparative advantage considerations, a lack of incentives to innovate, and possible reciprocal retaliation by trading partners.
The aggregate effects of tariffs are almost always net negative for the country imposing them,Footnote 3 particularly if they simply enable production that is not, and never will be, competitive. The aggregate effects of raising tariffs are typically characterized by higher prices, slower growth, and increased inequality.
Another adverse economic effect of the Trump tariff adventures relates to the inconsistency and unpredictability of his actions. The US Administration has imposed the tariffs, then in some cases delayed their application or selectively exempted products and particular countries from them. Unsurprisingly, the dramatic changes brought about by very large tariff increases had immediate destabilizing effects on the stock market, money markets, and the exchange rate of the US dollar. These indicators have to an extent, recovered. However, the longer-term consequences of such volatility and uncertainty are to destabilize business decision-making and potentially inhibit future investment decisions.
Even if an underlying stated objective of the tariffs, to bring back manufacturing, were to be successful, which is highly questionable on account of a range of fundamental economic realities, the objective is being heavily disincentivized by the consequences of Trump’s inconsistent and erratic policy interventions.
An important determinant of the consequences of what has widely been characterized as a Trump-induced trade war depends on the question of whether affected countries retaliate in kind to the US tariff hikes. The picture is mixed, but for the most part, it is likely to be large countries, upon which the US may be more dependent, that will retaliate, with China having done so immediately with like-for-like tariffs and the EU having published extensive proposed retaliatory actions.Footnote 4 At the time of writing, some of the tariffs have been paused, or their threatened imposition has been rendered uncertain. Meanwhile, country groupings such as ASEAN have committed to ‘not impose any retaliatory measures in response to the US tariffs’.Footnote 5 Were they to do so, they would damage US economic interests, but also incur some costs themselves, in the same way as those burdening the first offender. At the same time, however, their ability to hurt the US economy in a similar fashion to the damage meted out to them may have the effect of lessening these self-destructive interventions overall.
3. Challenges Facing the World Trade Organization
It has become commonplace in recent times to lament the decline of the WTO as an effective institution for guiding, promoting, and litigating multilateral trade relations. Before briefly exploring the causes of the WTO’s troubles and their implications for international trade cooperation today, it is important to note that these precede Trump’s most recent foray into the world of tariffs.
3.1 US Trade Policy towards the WTO
Shortly following US President Trump’s inauguration, he issued a far-reaching Presidential memorandum detailing an ‘America First Trade Policy’. The memorandum sets out significant reviews of nearly every aspect of the US trade policy, from tariffs to export controls, but only makes a single mention of the WTO in relation to the impact of the WTO Government Procurement Agreement.Footnote 6 It is evident that an ‘America First’ trade policy pays little regard to the WTO.
Since 20 January 2025, there have been three additional data points that give an indication of how the second Trump Administration may direct its trade policy towards the WTO.
First, on 3 March 2025, the US Trade Representative’s office published its 2025 Trade Policy Agenda in which it discusses the WTO at 30 and US interests. The report highlights US frustration with the WTO, listing many problems that the US government has with the organization, and is damning in its conclusions.
Thirty years later, the viability and durability of the WTO is increasingly in question. In fundamental respects, the organization, now comprised of 166 Members, has lost its way.Footnote 7
In its final section on the WTO, the 2025 Trade Policy Agenda ends with an admission that while the US in many ways provided the leadership to create the multilateral trading system, unless other WTO Members are willing to step up, US efforts are going to be curtailed going forward.
Second, according to press reports,Footnote 8 the US has paused its annual payment to the WTO as part of the State Department’s review of all multilateral funding arrangements. The US’s contribution to the WTO comprises approximately 11% of the total budget of the organization.
Third, the US delegation to the WTO put forward a proposal ahead of the April 2025 meeting of the WTO’s Council for Trade in Goods that seeks to curtail the activities of the WTO Secretariat and institute formal rules for when the Secretariat must seek the prior approval of WTO Members before undertaking certain activities.Footnote 9 All three of these developments clearly pose challenges to the credibility of the WTO as an institution.
3.2 The Trump Tariffs
Trump’s ‘liberation day’ and the ongoing aftermath of muddled policy intervention has certainly not helped, but much was amiss before this misguided tariff-driven foray. One notable addition to the confusion of WTO non-compliance added by the April 2025 surprise was a more systematic and generalized disregard of the non-discrimination (most-favored-nation, or MFN) principle, arguably the cornerstone of the entire regulatory edifice. This was the result of targeting countries with differential ‘reciprocal’ tariffs. Added to this was the growing disregard for the sanctity of tariff bindings and mixing of tariff and non-tariff arguments to justify the ‘reciprocal’ tariffs. Depending on how, if at all, WTO Members choose to respond to the US invitation to negotiate trade deals, during the 90-day tariff pause and beyond, will also determine whether the countries concerned act within the bounds of WTO rules.
Another Trumpian landmark intervention was his 2019 invocation of the WTO’s national security provisions (GATT Article XXI and GATS Article XIV bis) to justify import restrictions on steel and aluminium through the use of Section 232 investigations, which fall under the Trade Expansion Act of 1962, with the purpose of ‘determining the effect of imports on the national security’.Footnote 10 This has been further extended through the President’s use of the International Economic Emergency Powers Act to justify the imposition of tariffs on Canada, Mexico, and China, and a raft of new Section 232 investigations on imports of automobiles, critical materials, pharmaceutical products, copper, timber, and trucks.Footnote 11
National security imperatives have long been considered a matter for exclusive judgment and determination by individual parties, and invocation has been rare and generally restrained. The claim that US imports of steel and aluminium were a threat to national security was widely regarded as a systemic abuse of the provisions. In the case of Norway’s WTO dispute contesting the US measures, the panel found against the US's recourse to national security provisions.Footnote 12 This approach, however, avoided multilateral scrutiny.Footnote 13 It also secured deference – at least in the first instance – on the part of the US legislative branch, given that this is the one exception justifying executive trade policy action, which otherwise largely falls under the jurisdiction of Congress. The 2019 import restrictions occasioned a range of retaliatory or remedial responses from affected trading partners, not all of which were WTO-consistent, thus adding to disregard for WTO legal consistency.
3.3 Some Observations on Issues Confronting the WTO in the Pre-Trump Period
As already suggested, the WTO, and the GATT before it, have faced mounting challenges. Dating the beginning of systemic decline would doubtless be a source of some debate, but agreement is widespread that a range of challenges has been lapping at the foundations of the post-World War II multilateral trading system, raising pressing questions about how to manage international trade relations in the future.
For present purposes, we identify six areas of WTO-relevant issues, relating to procedures, activities, and responsibilities, that are at the core of systemic challenges facing the trading system. These matters are often elusive when it comes to securing positive negotiating outcomes and are frequently interlinked in various ways.
They include: (i) the question whether the WTO can prosper in the absence of a hegemonic leader; (ii) the weakening of the organization’s negotiating capacity; (iii) the continuing rise of preferential trade arrangements; (iv) disagreement regarding the rules for decision-making; (v) a largely failing system for settling disputes among WTO members; and (vi) how development and diversification provisions are accommodated within the multilateral trading system.
3.4 Can the WTO Function Effectively in the Absence of a Hegemon among Its Members?
The multilateral trading system that emerged in the post-World War II period was largely based on the design and with the strong political support and leadership of the United States. The United States at that time enjoyed hegemonic power (at least among those countries that were contracting parties to the GATT) and was willing to deploy that authority to foster shared multilateral arrangements aimed at ensuring peace and shared prosperity. During the Uruguay Round, the ability of the US to impose its will had started to be challenged in the GATT with a more coherent Europe able to negotiate with the US through the 1992 ‘Blair House accord’ and subsequent market access breakthroughs in July 1993 between the so-called ‘Quad’ – the US, EU, Japan, and Canada – which set the stage for the conclusion of the Uruguay Round negotiations in December 1993. Today, that hegemonic power has been further dissipated by the emergence of competing economic centres of gravity, notably China among others, thus raising the question whether the community of nations is capable of securing and managing the kind of shared commitments that characterized the first decades of multilateral trade cooperation.
3.5 The Loss of Negotiating Capacity
The last major multilateral trade negotiation concluded successfully was the Uruguay Round, which, among other achievements, absorbed the GATT and established the WTO. Some would argue that the level of ambition of the overall package, by including services, intellectual property, and an enhanced dispute settlement system, exceeded the capacity of the membership to pool the requisite degree of sovereignty to make the system work.
Increased reliance on national security justifications for the increased use of higher tariffs, as well as growing recourse to industrial policy and subsidization in some jurisdictions, has clearly played its part in weakening the ability and willingness of WTO members to negotiate.Footnote 14 The re-emergence of industrial policy has been particularly strong in China with its Made in China 2025 initiative, in the US with its Inflation Reduction Act, and in the EU with the Green Deal (now the EU’s Competitiveness Compass). Perhaps these tendencies reflect both the causes and effects of weakened negotiating capacity.
A further factor challenging the WTO’s negotiating capacity is the emergence of new technologies. They bring with them the need to ensure adequate international cooperation to underpin mutual benefits. This is perhaps most clearly seen in the efforts at the WTO to reach agreement on issues surrounding digital trade. The latest revised text of the Joint Initiative on E-commerceFootnote 15 provides an indication of the state of play in the negotiations. The text itself is contested in certain quarters and is issued under the responsibility of the co-chairpersons (Australia, Japan, and Singapore). It is intended to serve as a basis for further negotiations.
Following the birth of the WTO in 1995, another attempt at a negotiating round – the Doha Round – was made in the early 2000s. Part of the stimulus for attempting a new multilateral negotiation was to demonstrate that governments could still cooperate effectively in the wake of 9/11. This negotiation was never completed and was effectively abandoned in 2015, although some WTO members do not accept that Doha is dead, insisting that any negotiations in the WTO’s negotiating sessions (Special Sessions) continue to take place on the basis of the Doha Development Round negotiating modalities. Subsequent negotiating results have tended to comprise single-issue agreements, such as the Expansion of the Information Technology Agreement, the elimination of export subsidies on agricultural products, and the Agreement on Trade Facilitation.
3.6 The Rise of Preferentialism
Since the mid-1990s, there has been an explosion of preferential trade agreements (PTAs). According to the latest WTO figures, as of January 2025, there were 373 PTAs in force, corresponding to 615 notifications from WTO members.Footnote 16 These PTAs are highly networked and overlapping. In 2011, the WTO Secretariat devoted its annual World Trade Report to the topic.Footnote 17 A significant finding was that in 2011, each of the 153 members of the WTO belonged, on average, to 13 separate PTAs. An objective behind the report was to reposition the WTO away from the mantra that PTAs were second cousins to multilateralism, and to emphasize the importance of working with, and benefiting from, complementarities between PTAs and the WTO.
One idea discussed but never acted upon was to consider ways in which communalities in policy commitment levels could be multilateralized, furthering efforts at coordination and deeper coherence.Footnote 18
3.7 Decision-making in the WTO
Although the WTO Agreement makes provision for voting in specified circumstances, the GATT/WTO membership has traditionally eschewed the arrangement. Voting is not weighted, with each WTO member having an equal say should a vote ever be taken. This contrasts with the decision-making procedures in the IMF and World Bank, where votes are weighted to provide larger countries with a greater say in decisions.
The absence of voting in the WTO has meant that decisions are usually taken by consensus. Any single member theoretically has the power to block a decision. The inclusiveness of the consensus approach means that when decisions are taken, they involve joint responsibility and consent among all members. While this may seem equitable on the face of it, a problem can arise when the consensus requirement is weaponized into a veto power that can be exercised by a single or a small number of members. There is no requirement under consensus decision-making to explain or defend objections to a proposed decision, and no mechanisms exist to guard against cross-conditionality considerations that bear no relevance to the issue at hand.
This has sometimes proven frustrating for members and a source of complaint at the WTO’s slow pace of progress on pressing issues. While it is occasionally suggested that some form of majoritarian voting system might help to solve this problem, it is doubtful that such an arrangement is either feasible or desirable. In practice, developed-country WTO members would be frequently outvoted, potentially accelerating the disengagement of the US and other major players from the WTO, as has been seen at the UN, where such votes can take place. Even where differences do not split developed and developing countries at the WTO, the same log-jammed dynamic would likely result.
A practice that has emerged in recent times, particularly following the 11th Ministerial conference in Buenos Aires in 2017, is an arrangement known as Joint Initiatives (JIs). JIs constitute decisions adopted by a subset of members to pursue a particular initiative without the requirement of a consensus decision, but with a guarantee that any benefits accruing under such an agreement are to be enjoyed by the entire membership on an MFN basis. This means that countries can enjoy any beneficial outcomes without committing to additional obligations. The scope for free-riding on such arrangements tends to give rise to ‘critical mass’ considerations as a prerequisite for moving ahead. For those members adopting the new obligations, these can be entered into their schedules of national commitments.
Any country that feels such an arrangement may prove detrimental to a national interest would still be at liberty to resort to the WTO’s dispute settlement procedures. While this arrangement meets with some not altogether well-articulated opposition, it may offer a solution to the risk of stasis occasioned by the consensus rule. The one instance where the JI approach may not suffice is where a proposed JI is deemed to fall outside the established competence of the WTO. A consensus decision would still be called for, as is the case currently for the Agreement on Investment Facilitation for Development.
3.8 The Failing Dispute Settlement System
The hobbling of the WTO’s dispute settlement arrangements began in December 2015 under the Obama Administration, when the United States blocked the appointment of rotating Appellate Body members. The eventual absence of the necessary number of Appellate Body members caused the Body to cease functioning in 2019. This opened the possibility for WTO members involved in disputes to appeal panel findings to the void, leaving the matter at issue unresolved. A subset of members established a Multi-Party Interim Appeal Arbitration Arrangement (MPIA) to serve as a temporary substitute for any possible future multilateral appellate apparatus, or some other permanent multilateral dispute settlement arrangement. The difficulties surrounding the dispute settlement system involve several issues,Footnote 19 but, above all, there is a question as to whether members are ready to hand over the right to an international body, such as the WTO, to overrule national authorities. This must be resolved in one way or another if the WTO is to fulfill its mandates adequately in the future.
3.9 Developing Countries and Special and Differential Treatment
Another thorn in the side of the workings of the WTO has, for many years, been the question of special and differential treatment for developing countries.Footnote 20 Underlying this difficulty is the fact that developing-country status is determined by individual countries, and not on the basis of established criteria. Not all members consider that some countries that define themselves as developing are deserving of that status.
If, however, one distinguishes between regulatory obligations and market access commitments under WTO rules, it becomes apparent that the issue at hand concerns not so much the regulatory aspect of members’ obligations, but rather their respective market access commitments. The former are largely designed around the notion of eventual policy convergence among all members, with the exception of the UN-designated group of least-developed countries (LDCs).Footnote 21 Virtually no non-LDC developing countries currently enjoy regulatory SDT.Footnote 22 Following the completion of the Uruguay Round, developing countries enjoyed time-bound phase-in periods. These have expired, resulting in substantial regulatory uniformity among developed and developing country members.
As for market access commitments, dependent largely on tariffs in the case of goods and specific commitment schedules in the case of services, these are highly varied among individual countries, virtually all of whom have maintained higher-than-average protection levels on particular products considered sensitive domestically. This, surely, should be considered a matter for negotiations among all members concerned, rather than as a binary question of rights and obligations between two groups of members differentiated by assigned development status.
4. Conclusions
The policy pandemonium brought about by the erratic tariff-related actions of the Trump Administration so far in 2025 has rocked international trade cooperation. While such uncertainty does nothing to ease the tensions and disagreements that have plagued the WTO in recent years, the current crisis in international trade relations under the WTO has been steadily accruing for approximately three decades. The situation now, however, calls for concerted action on multiple fronts if a future contribution to the peace and prosperity of orderly trade cooperation is to be assured at the multilateral level. A number of issues and options have been identified, bearing in mind the key role that the US and other trading nations can play in shaping international trade and investment cooperation in the coming months and years.
In light of the recent trade-related actions taken by President Trump, three possible scenarios relating to future US actions and attitudes towards the WTO suggest themselves.
First, the US could decide to withdraw from the WTO. This would perhaps be a rash decision unless the US had a viable plan for establishing mutually advantageous trading relationships with a subset of countries that, in all likelihood, would stay in the WTO. Otherwise, such a course of action could run the risk of creating a complicated aftermath where the US wished to re-enter the WTO and would have to negotiate accession. If the US did adopt this approach, it would perhaps serve as a wake-up call to other WO members and potentially generate more concerted efforts to solve the difficulties and challenges we have outlined above.
A second option might be that the US stays in the organization and participates minimally, with limited interest in helping to restore the rule of law in the institution. This would arguably be akin to what the US is currently doing. If the US persisted in withholding its budgetary contribution, it would progressively be subject to ‘administrative measures’ affecting regular WTO rights.
A third option could be to stay in the institution and seek to render it moribund by blocking progress. It is unclear what the US might believe that it gains from this posture, except perhaps to continue to exert pressure on individual trading partners.
Given the challenges that confront the WTO multilateral trading system, trying to wait out the current US administration would be a serious strategic error. It is incumbent upon the rest of the WTO Membership to take on joint leadership by continuing to resist pressures to make WTO-inconsistent bilateral agreements with the US, while pushing for a restored negotiating function and trade rules that support governments and businesses that depend upon the multilateral trading system. In addition, the WTO Secretariat should strive to acquire the necessary maneuverability to deliver better support to the multilateral trading system.
