Divergences & dualities in trade policies

Amid geopolitical flux, the prospects for reinvigorating the 80-year-old multilateral trade order appear dim straight talk

The world is responding to the growing pressures of geopolitics and supply chain vulnerabilities that emerged during the pandemic, gathered momentum with the Russia-Ukraine war and have acquired further intensity with the growing trade and tech competition between the United States and China. The unilateral reshaping of national trade policies has been one of the most significant responses of major trading economies. A clear divergence from the earlier multilateral trade principles is evident in the use of trade instruments by these economies.  

While the dysfunctional dispute settlement mechanism (DSM) has undoubtedly contributed to this growing trend, institutional silence has not helped. Surprisingly, the ministerial conferences at the World Trade Organization (WTO) continue to be held even if  lacking substantive outcomes. Talk of reforming and sustaining the multilateral system is being pushed forward through national reform submissions that are less about maintaining the fundamental principles of equity and fairness underlying the erstwhile liberal global trade order and more about redefining the rules of global trade to accommodate emerging divergences and dualities in national trade policies. In the context, pertinent aspects of the trade policies of a select set of major actors in global trade today are worth reflection. 

The US is the obvious manifestation of this trade policy dualism. While the stalling of appointment of judges to the DSM’s Appellate Body began under President Barack Obama, the WTO’s consensus principle was used later by President Donald Trump to render the system defunct. Consequently, despite its WTO commitment on “bound” tariffs, the US has proceeded unchecked with the unilateral imposition of discriminatory tariffs, reciprocal and punitive, on all its trade partners, including long-standing allies.  

Trade deals finalised by the US over this past year have been transactional and essentially aimed at pressurising partner economies into submission to achieve its political and economic objectives and in clear violation of GATT Article XXIV on free trade agreements (FTAs). 

Surprisingly, all of its unreasonable and excessive tariff action has been put forth by US trade experts as justified, based on the principles of “reciprocity”, which, as is well-known, is a fundamental principle of any fair international negotiation. Furthermore, despite all violations, the US has not parted ways with the WTO unlike its exit from some other multilateral organisations. In fact, not only has the US withdrawn the WTO from the list of multilateral organisations identified for stopping its contributions, but in October 2025, the US paid $25 million of its overdue membership fee to the WTO. This was after withholding it for the previous two years. 

The European Union’s trade policy too, over the last couple of years, has shown shades of dichotomy. While the EU has registered a complaint with the WTO, it has avoided imposing any retaliatory tariffs on the US. Instead, in an attempt to manage its relations with the US, it has negotiated a trade deal on terms favourable to the US as regards both tariff levels and promised investments.

To compensate its losses, the EU has shown remarkable alacrity and flexibility in concluding FTAs, including with India, Indonesia and Mercosur over the past two years.  Interestingly, the EU has deviated significantly from its earlier high-standard FTAs to now accommodate the interests of its trade partners. Earlier FTAs, such as with Korea and New Zealand, that came with strict punitive measures in case of non-compliance seem to be a thing of the past.  

Simultaneously, however, the EU is making increasing use of unilateral and discriminatory trade instruments. The Carbon Border Adjustment Mechanism, for example, has no provisions for concessional application as would be the case for less developed economies under WTO’s Special and Differential Treatment (S&DT) provisions.  

Additionally, concerned with the rapid pace of Chinese innovation and its own industrial laggardness, the European Commission proposed the Industrial Accelerator Act in March 2026. Primarily aimed at strengthening EU-wide regional supply chains, the Act is discriminatory as it restricts the sourcing of imported inputs from non-FTA partners. Significantly, the Act draws upon similar provisions in the US Inflation Reduction Act, 2022.  

In the case of China, the economy central to global trade and currently also to geopolitics, a dichotomous trade policy is not entirely new. There is, however, an additional element of dualism evident more recently as China tries to also project itself as a responsible global power. 

Even as China frequently weaponises its centrality in global value chains and remains at the core of the global excess capacity challenge, it has announced that it will give up its benefits of S&DT provisions in future trade negotiations and agreements at the WTO. China has also helped stabilise international oil prices earlier this year. By reducing its imports of crude oil in the second quarter of 2026, China assisted other Asian economies to secure scarce oil supplies in the wake of the West Asian crisis initiated by the US and Israel.  

The Association of Southeast Asian Nations (Asean) has, however, been an exception in this pattern of global trade policy dualism. Asean economies have continued to adhere to rules-based trade and expand participation in high-standard FTAs and mega-regional trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This is despite Asean member economies being burdened by the “hollowing out” of their domestic industry and loss of jobs owing to excess capacity spillover from China and excessive scrutiny and consequent higher transshipment tariffs by the US. 

India’s trade policy has acquired salience in the China+1 relocation of global value chains. India has taken some definitive steps towards a more open trade policy in its recent FTA negotiations. Faced with unceasing pressure by the US through imposition of high tariffs, including punitive tariffs on purchase of Russian oil, India has moved rapidly towards market diversification, concluding FTA negotiations with developed economies like the United Kingdom and the EU in the last one year. Simultaneously, though, India’s protectionist inclinations appear to have persisted. Average most-favoured-nation tariffs in the manufacturing sector in India that were higher than the Asean tariffs even in the 1990s or early 2000s have seen a further increase in the last decade. In recent multilateral negotiations, too, India has chosen to adopt a defensive stance.   

Undoubtedly, therefore, national trade policies are forked at this point in time. In the continuing geopolitical flux, the prospects for reinvigorating the 80-year-old multilateral trade order seem dim. However, it is difficult to anticipate how the emerging “nationalistic” trends will reshape an interconnected world economy. 

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The writer is professor, School of International Studies, JNU, and the author of India’s Trade Policy in the 21st Century, published by Routledge, London.  

The views are personal