Trump Tariffs, WTO, and Multilateral Trading System | UPSC Mains POLITICAL-SCIENCE-INTERANATIONAL-RELATIONS-PAPER-II 2025

Trump's unilateral imposition of reciprocal tariffs on scores of countries poses impending threat to the future of the rule-based multilateral global trading system under the WTO. What options do the WTO members have to salvage the organization?

How to Approach

The answer should begin by defining reciprocal tariffs and the multilateral trading system, setting the context of the threat to the WTO. The body will then delve into the multifaceted challenges posed by such unilateral actions, particularly to the WTO's dispute settlement mechanism. The core of the answer will be a detailed exposition of the options available to WTO members, categorised strategically, to safeguard and reform the organization. A forward-looking conclusion will summarise the need for collective action.

The unilateral imposition of reciprocal tariffs by a major economic power like the United States fundamentally challenges the efficacy and legitimacy of the WTO, pushing the multilateral trading system towards fragmentation and bilateralism. This section will explore the impact of such actions and the array of options available to WTO members to salvage the organization.

Impact of Unilateral Tariffs on the WTO and Global Trade

Unilateral tariffs, particularly "reciprocal tariffs" where a country matches the tariffs imposed by its trading partners, deviate sharply from WTO principles and have several detrimental effects:

Undermining Most-Favoured-Nation (MFN) Principle: The MFN principle dictates that any trade concession granted to one member must be extended to all. Reciprocal tariffs, by targeting specific countries or products, violate this non-discriminatory approach.
Paralysis of Dispute Settlement Mechanism (DSM): The WTO's Dispute Settlement Mechanism, often hailed as the "backbone" of the multilateral trading system, has been severely hampered. The US has, since 2019, blocked appointments to the Appellate Body, rendering it non-functional due to a lack of quorum. This prevents final rulings on trade disputes, encouraging members to resort to unilateral actions rather than the agreed-upon system. As of April 2025, 32 dispute panel rulings have been "appealed into the void."
Rise of Protectionism: Unilateral tariffs often trigger retaliatory measures from affected countries, escalating into trade wars. This creates uncertainty, disrupts global supply chains, increases costs for businesses and consumers, and ultimately hinders global economic growth. The WTO reported in December 2025 that protectionist policies had affected nearly $3 trillion worth of goods between mid-October 2024 and mid-October 2025, largely driven by US reciprocal tariffs, marking the highest coverage in over 15 years.
Erosion of Trust and Predictability: The arbitrary application of tariffs erodes trust among trading partners and undermines the predictability that the rule-based system is designed to provide, making long-term trade and investment planning difficult.
Increased Bilateralism: Faced with a weakened multilateral system, countries may increasingly opt for bilateral or regional trade agreements, further fragmenting global trade governance.

Options for WTO Members to Salvage the Organization

To address these challenges and restore the credibility and effectiveness of the WTO, member countries have several critical options:

1. Revitalizing the Dispute Settlement Mechanism (DSM)

Unblocking Appellate Body Appointments: The immediate priority is to overcome the impasse in appointing new members to the Appellate Body. This requires constructive dialogue, primarily with the United States, to address its concerns regarding judicial overreach and procedural issues.
Interim Appeal Arrangements: Several WTO members, including the European Union and 15 other countries, have established the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) in March 2020. This allows participating members to access a binding, two-step dispute settlement system using the WTO's arbitration rules (Article 25 of the DSU) until the Appellate Body becomes functional again. More members should be encouraged to join or explore similar arrangements.
DSU Reform: Members can engage in negotiations to reform the Dispute Settlement Understanding (DSU) to clarify the Appellate Body's mandate, streamline procedures, and address concerns about the length of proceedings and the scope of its interpretations.

2. Strengthening Rule-Making and Negotiations

Reviving Multilateral Negotiations: The WTO needs to foster new multilateral agreements to address contemporary trade issues like digital trade, e-commerce, and environmental subsidies, which are currently inadequately covered. The stalled Doha Development Round highlights the difficulty of achieving consensus among all 164 members.
Promoting Open Plurilateral Agreements: Where full multilateral consensus is difficult, "open plurilateral agreements" can offer a viable path forward. These involve a subset of WTO members agreeing on new rules, with provisions for other members to join later. This approach could address specific issues efficiently and build momentum for broader multilateral cooperation. Examples include ongoing discussions on investment facilitation for development.
Enhanced Transparency and Notifications: Members should improve compliance with WTO notification requirements, which are crucial for transparency and monitoring trade policies. Strengthening the Trade Policy Review Mechanism (TPRM) can also help ensure adherence to commitments.

3. Addressing Protectionism and Unilateralism

Collective Condemnation and Pressure: WTO members, individually and collectively, can publicly denounce unilateral trade measures that violate WTO rules and exert diplomatic pressure on countries resorting to such actions.
Utilizing Existing WTO Rules: Countries affected by unilateral tariffs can initiate dispute settlement proceedings against the offending member, even if the Appellate Body is non-functional, to establish the illegality of the measures at the panel stage.
Coalitions of Like-Minded Countries: Forming coalitions of countries committed to the rule-based system can enhance their collective bargaining power and influence in WTO negotiations and reforms.

4. Modernizing the WTO Secretariat and Governance

Strengthening the Secretariat's Role: Empowering the WTO Secretariat to take a more proactive role in research, proposal development, and facilitating negotiations can improve the organization's efficiency and responsiveness.
Addressing Special and Differential Treatment (SDT): Reaching a consensus on the principles and application of Special and Differential Treatment for developing and least developed countries is essential to ensure equitable participation and development outcomes within the WTO framework.
Improving Decision-Making: While consensus-based decision-making is a cornerstone, exploring alternative voting mechanisms for specific issues, as permitted by the WTO Agreement, could help overcome stalemates and facilitate progress in certain areas.

The current crisis demands a concerted effort from all WTO members to reaffirm their commitment to multilateralism and actively pursue reforms that strengthen the institution's ability to address contemporary trade challenges and curb protectionist tendencies. Without a revitalized WTO, the global trading landscape risks becoming more volatile, uncertain, and less equitable.

Additional Resources

Key Definitions

Reciprocal Tariffs

Reciprocal tariffs are taxes or trade restrictions that one country places on another in response to similar actions taken by that country. The aim is often to create balance in trade relations or as a negotiating tool to encourage other countries to reduce their tariffs. Essentially, it means "if they tax us, we tax them the same amount."

Multilateral Trading System

The multilateral trading system refers to the global framework of rules, agreements, and institutions, primarily overseen by the World Trade Organization (WTO), that govern international trade relations. Its core objectives are to facilitate free, fair, and predictable trade by reducing barriers, resolving disputes, and promoting cooperation among nations based on principles like non-discrimination.

Key Statistics

In a report on the international trading environment, the WTO estimated that $2.64 trillion, or 11.1 percent of the world's imports, have been affected by tariffs and related measures between mid-October 2024 and mid-October 2025. This amount is more than four times the $611 billion coverage recorded in the same period the prior year, becoming the highest coverage in over 15 years of WTO's trade monitoring.

Source: World Trade Organization (WTO) Report, December 2025

Since 2019, the WTO's Appellate Body has been de facto paralysed due to the United States vetoing all appointments of judges. As of April 2025, 32 dispute panel rulings have been "appealed into the void" due to the lack of a functioning Appellate Body.

Source: World Trade Organization (WTO) reports, April 2025

Examples

US-China Trade War (2018-present)

Beginning in 2018, the US imposed tariffs on hundreds of billions of dollars worth of Chinese goods, citing unfair trade practices and intellectual property theft. China retaliated with its own tariffs on US products. This tit-for-tat escalation, driven by protectionist policies, disrupted global supply chains, increased costs for businesses, and demonstrated the severe economic consequences of unilateral actions outside the WTO's dispute settlement framework.

Multi-Party Interim Appeal Arbitration Arrangement (MPIA)

In response to the paralysis of the WTO Appellate Body, the European Union and 15 other WTO members (excluding the US) established the MPIA in March 2020. This interim mechanism allows participating countries to resolve trade disputes among themselves through arbitration that replicates the substantive and procedural aspects of the Appellate Body's functions, ensuring a two-step dispute settlement process.

Frequently Asked Questions

▶What is the difference between reciprocal tariffs and retaliatory tariffs?

Reciprocal tariffs specifically aim to match the tariff rates imposed by another country on one's own goods, seeking to create a "level playing field." Retaliatory tariffs, while also a response to another country's actions, are generally broader and used to punish perceived unfair trade practices (like subsidies or dumping) and may not necessarily mirror the exact tariff rates.

▶How does the Appellate Body crisis affect smaller economies?

The paralysis of the Appellate Body disproportionately harms smaller economies. Without a fully functional and impartial dispute settlement system, smaller countries lack a reliable mechanism to hold larger, more powerful trading partners accountable for their WTO obligations. This can lead to power imbalances and an increased risk of larger economies imposing their will unilaterally, undermining fair access to justice and the predictability of the multilateral trading system for all members.