From GATT to WTO: How Trump's tariffs are pushing global trade rules

Trump's new reciprocal tariffs raise concerns over WTO limits, trade law violations, and the future of global tariff rules

US President Donald Trump on Wednesday introduced a series of “reciprocal tariffs”, set to take effect in early April, impacting nearly all trading partners, including India. Describing the move as a “historic milestone”, Trump positioned the tariffs as a measure to reinforce US economic sovereignty. However, economists warn the move could drive up prices for everyday goods such as coffee and chocolate, placing a greater financial strain on consumers.

 

The new tariffs have also raised concerns about their compliance with World Trade Organisation (WTO) rules. To understand the implications, it is worth examining the history of global trade agreements, particularly the General Agreement on Tariffs and Trade (GATT), which laid the foundation for today’s system.

 

 

How have US tariffs evolved over time?

  Before the 1930s, tariffs were a primary revenue source for the US government. However, the Smoot-Hawley Tariff Act of 1930 sharply increased tariff rates, reducing global trade and deepening the Great Depression.

 

In response, the Reciprocal Tariff Act of 1934 empowered the executive branch to negotiate bilateral tariff reductions, marking a shift towards trade liberalisation.

 

How did GATT shape global trade rules?

  Following World War II, the General Agreement on Tariffs and Trade (GATT) was established in 1947 to lower tariffs and facilitate global economic recovery. Created by 23 countries, one of its core principles was the Most-Favoured-Nation (MFN) rule, ensuring that any tariff reduction granted to one member had to be extended to all.

 

GATT oversaw several rounds of multilateral negotiations, such as the Kennedy and Tokyo Rounds, which helped significantly reduce global tariffs. The Uruguay Round, concluded in 1994, achieved an average global tariff reduction of 39 per cent.

 

However, GATT lacked strong enforcement mechanisms and did not adequately address non-tariff barriers or trade in services. To strengthen trade governance, the WTO replaced GATT in 1995, introducing binding rules and a formal dispute settlement system.

 

What are the WTO tariff commitments?

  Under WTO guidelines, member nations commit to “tariff bindings”, which set maximum tariff levels that cannot be exceeded unless renegotiated. For the US, the average bound tariff for all goods is 3.4 per cent. These commitments, outlined in each country’s Schedule of Concessions, ensure stability and predictability in trade.

 

While countries may impose lower “applied tariffs”, they cannot raise them above the bound levels without violating WTO rules.

 

What are the consequences of exceeding WTO tariff limits?

  If a country imposes tariffs beyond its agreed limit, it breaches Article II of GATT 1994. Affected members can file complaints through the WTO’s Dispute Settlement Body (DSB).

 

The process begins with bilateral consultations. If unresolved, the complainant can request WTO authorisation to impose countermeasures, including retaliatory tariffs.

 

What exemptions apply under WTO rules?

  The WTO grants developing countries Special and Differential Treatment (SDT), allowing them longer transition periods for implementing trade commitments. This gives them flexibility to gradually reduce tariffs and reform subsidies.

 

India benefits from SDT provisions, enabling it to protect key domestic sectors while progressively opening its markets to global competition.

 

Can countries increase tariff rates at will?

  According to WTO rules, countries can raise bound tariffs only if they negotiate compensation with affected partners. Alternatively, they may invoke emergency provisions—such as safeguard measures or national security exceptions.

 

In the past, the Trump administration cited national security under Section 232 of the US Trade Act to impose additional tariffs—25 per cent on steel and 10 per cent on aluminium. The WTO later ruled these measures violated trade rules, stating that national security clauses must not be applied arbitrarily.

 

Despite the ruling, the US refused to reverse the tariffs, asserting national security as a sovereign matter. Washington has also blocked appointments to the WTO’s Appellate Body, effectively paralysing the appeals process.

 

In response, India and several other countries imposed retaliatory tariffs on 28 US products.

 

Why do countries like India have higher tariffs than the US?

  Developing countries, including India, maintain higher tariffs to support domestic industries, generate revenue, and manage trade imbalances. Protective tariffs help shield nascent sectors from foreign competition and promote economic development.

 

Advanced economies like the US typically apply lower tariffs, as their industries are globally competitive. Open trade policies offer these nations broader market access with minimal restrictions.

 

What next for Trump’s ‘Liberation Day’ tariffs?

  As Trump’s reciprocal tariffs come into effect, they are likely to invite WTO challenges from affected trading partners. Whether or not countries pursue formal action, the move is expected to intensify ongoing tensions over WTO reform and the US position on global trade governance.