By Ramendra Mishra
For nearly eight decades, the global economy has been built on the principles of free trade and international cooperation. The establishment of the General Agreement on Tariffs and Trade (GATT) in 1947 and the World Trade Organization (WTO) in 1995 encouraged countries to lower tariffs, expand trade and integrate their economies.
The results were remarkable. According to the WTO, global merchandise trade grew from USD 5.2 trillion in 1995 to more than USD 24 trillion in 2023. Trade became one of the biggest drivers of economic growth, technological progress and poverty reduction across the world.
However, the United States, once the strongest advocate of free trade, has increasingly adopted protectionist policies. Successive administrations have imposed tariffs on imports from China and several other countries in an effort to protect domestic industries, reduce trade deficits and strengthen national security.
While these policies may benefit certain industries in the short run, they also challenge the principles of globalisation and weaken the authority of the World Trade Organization.
Globalisation and the WTO
Globalisation is based on the economic principle of comparative advantage, developed by economist David Ricardo. The theory argues that countries should specialise in producing goods they can make relatively more efficiently and trade for the rest. Such specialisation improves productivity, lowers prices and raises global welfare.
The WTO was established to protect this rules-based trading system. Today it has 166 member countries, accounting for nearly 98 percent of global trade. Its responsibilities include reducing trade barriers, resolving disputes and ensuring that countries follow common trade rules instead of using unilateral economic measures.
For decades, this system helped reduce average industrial tariffs in developed economies from more than 20 percent after World War II to below 5 percent, encouraging unprecedented expansion in international commerce.
America’s Shift Toward Protectionism
The United States began moving away from traditional free trade policies during the trade conflict with China in 2018. Between 2018 and 2019, the U.S. imposed tariffs on nearly USD 370 billion worth of Chinese imports, with tariff rates reaching 25 percent on many products. Tariffs were also imposed on imported steel and aluminium under national security provisions.
The main objectives were:
- Protect American manufacturing.
- Reduce dependence on Chinese imports.
- Address the growing trade deficit.
- Strengthen domestic supply chains.
- Counter China’s industrial policies.
Although administrations have changed, many of these tariffs remain in force, indicating that protectionism has become an important part of U.S. trade strategy.
The Economic Cost of Tariffs
Tariffs increase the price of imported goods, but the burden is often borne by domestic consumers and businesses rather than foreign producers. Research by the Federal Reserve Bank of New York estimated that the U.S. trade war increased costs for the average American household by approximately USD 800 per year through higher prices and reduced economic efficiency.
The tariffs also produced several unintended consequences:
- Higher production costs for manufacturers using imported components.
- Increased prices for consumers.
- Retaliatory tariffs imposed by China, Canada and the European Union.
- Greater uncertainty for businesses investing in global supply chains.
Rather than eliminating trade, many companies simply shifted production to countries such as Vietnam, Mexico and India, a trend known as trade diversion.
Globalisation Is Becoming More Fragmented
One of the biggest consequences of recent tariff policies has been the shift from efficiency-based globalisation to geopolitically driven trade. Companies increasingly follow strategies such as friend-shoring, near-shoring and reshoring, where production is relocated to politically trusted countries instead of the lowest-cost producers. According to the International Monetary Fund, severe fragmentation of global trade could reduce long-term global GDP by as much as 7 percent, with developing economies likely to suffer the greatest losses due to weaker investment and slower technology transfer.
Why the WTO Is Losing Relevance
The WTO’s greatest strength was its dispute settlement system, which allowed countries to resolve trade conflicts through legal procedures rather than retaliation. However, the WTO Appellate Body has remained largely non-functional since December 2019 because appointments of new judges have been blocked.
As a result:
- Trade disputes remain unresolved.
- Countries increasingly rely on unilateral tariffs.
- Major economies often bypass WTO procedures.
- Confidence in multilateral trade rules has weakened.
When the world’s largest economy chooses unilateral action over multilateral institutions, other countries become more willing to do the same.
The Rise of Regional Trade Blocs
As the WTO’s influence declines, regional trade agreements are becoming increasingly important. The Regional Comprehensive Economic Partnership (RCEP) includes 15 countries, representing nearly 30 percent of global GDP and about 30 percent of the world’s population. Similar agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) reflect a growing preference for regional cooperation over global negotiations. This signals a gradual shift from one universal trading system to multiple regional economic blocs.
Conclusion
The growing use of tariffs by the United States represents one of the most significant departures from the principles of globalisation since the creation of the WTO. While these measures seek to protect domestic industries and strengthen economic security, they also increase costs, disrupt supply chains and encourage other nations to adopt similar protectionist policies.
At the same time, the WTO is struggling to enforce the rules that once governed international trade. Its weakened dispute settlement system and declining authority have reduced confidence in the multilateral trading order.
Globalisation is not disappearing, but it is changing. The world is moving from an era of open, rules-based trade toward one increasingly shaped by strategic rivalry, economic nationalism and geopolitical interests. Unless the WTO is reformed and major economies recommit to multilateral cooperation, international trade may become less predictable, less efficient and more divided than at any point in the last three decades.
(Ramendra Mishra is a Business Analyst and public policy researcher with a background in Computer Science and Engineering. He writes on economics, governance, and public policy, with a focus on evidence-based analysis and contemporary socio-economic issues.)
Disclaimer: The views and opinions expressed in articles published on Karmrath are those of the respective authors and do not necessarily reflect the views of Karmrath or its editorial team. The content is provided for informational purposes only. Readers are encouraged to verify information independently and exercise their own judgment before relying on any content. Karmrath is not liable for any loss or damage arising from the use of information published on this website.