Free trade or freeloaders in the global trade row
As Trump abandons the rulebook, does the global trading system have a future elsewhere?
The global trading system that promoted free trade and underpinned global prosperity for 80 years now stands at a crossroads.
Recent policy developments have introduced unprecedented levels of uncertainty – not least, the upheaval caused by US President Donald Trump’s sweeping tariff regime. This is presenting fundamental changes to the way nations interact economically and politically.
Free trade envisions movement of goods and services across borders with minimal restrictions. That is in contrast to protectionist policies such as tariffs or import quotas.
Yet free trade has never existed in pure form. The rules-based global system emerged from the ashes of the World War II. It was designed to progressively reduce trade barriers while letting countries maintain national sovereignty.
This system began with the 1947 General Agreement on Tariffs and Trade, which was signed by 23 countries in Geneva, Switzerland. Through successive rounds of negotiation, this treaty achieved substantial reductions in tariffs on merchandise goods.
It ultimately laid the groundwork for the establishment of the World Trade Organization in 1995. The WTO introduced binding mechanisms to settle disputes between countries. It also expanded coverage of rules-based services, intellectual property and investment measures.
National security
Colloquially known as “the plumbing of the trading system,” this framework enabled global trade to expand dramatically. Merchandise exports grew from US$10.2 trillion in 2005 to more than $25 trillion in 2022.
Yet despite decades of liberalisation, truly free trade remains elusive. Protectionism has persisted, not only through traditional tariffs but also non-tariff measures such as technical standards. Increasingly, national security restrictions have also played a role.
Economist Richard Baldwin has argued the current disruption stems from the Trump administration’s “grievance doctrine,” which does not view trade as an exchange between countries with mutual benefits.
Rather, it sees it as as a zero-sum competition, what Trump describes as other nations “ripping off” the United States.
Trade deficits, where the total value of a country’s imports exceeds the value of its exports, are not regarded as economic outcomes of the system. Instead, they are seen as theft. Likewise, international agreements are seen as instruments of disadvantage rather than mutual benefit.
Trump has cast himself as a figure resetting a system he has insisted is rigged against the US. Once, Washington provided defence, economic and political security, stable currency arrangements, and predictable market access. Now, it increasingly acts as an economic bully.
This shift – from “global insurer to extractor of profit” – has created uncertainty that extends far beyond its relationships with individual countries. Trump’s policies have explicitly challenged core principles of the WTO.
Examples include his ignoring the principle of “most-favoured nation,” where countries can not make different rules for different trading partners, which limit global tariff rates.
Some policy analysts have even suggested the US might withdraw from the WTO. Doing so would complete its formal rejection of the global trading rules-based order.
Fundamental clash
China’s emergence as the world’s manufacturing superpower has fundamentally altered global trade dynamics. The country is on track to produce 45% of global industrial output by 2030.
Its manufacturing surpluses are approaching $1 trillion annually, aided by big subsidies and market protections. For the Trump administration, this represents a fundamental clash between US market-capitalism and China’s state-capitalism.
Many countries maintain significant relationships with Beijing and Washington. This creates pressure to choose sides in an increasingly polarised environment.
Australia exemplifies these tensions. It maintains security ties with the US, notably through the AUKUS agreement. But Canberra has also built significant economic relationships with Beijing. Despite recent disputes, it remains Australia’s largest two-way trading partner.
This fragmentation, however, creates opportunities for cooperation between “middle powers.” European and Asian nations are increasingly exploring partnerships, bypassing traditional Washington-led frameworks.
Yet these alternatives cannot fully replicate the scale and advantages of the US-led system. At a summit this week, China, Russia, India and other non-Western members of the Shanghai Cooperation Organization voiced their support for the multilateral trading system.
A joint statement reaffirmed WTO principles while criticising unilateral trade measures. This represents an attempt to claim global leadership while the Trump administration pursues its own policies with individual countries.
The larger BRICS+ bloc – including Brazil, Russia, India, China, South Africa and Indonesia – has frequently voiced its opposition to Western-dominated institutions and called for alternative governance structures.
But it lacks the institutional depth to function as a genuine alternative to the WTO-centred trading system. It also lacks enforceable trade rules, systematic monitoring mechanisms, or conflict resolution procedures.
Great powers
The global trading system has been instrumental in lifting more than a billion people out of extreme poverty since 1990. But the old system of United States-led multilateralism has ended. What replaces it remains unclear.
One possible outcome is that we see a gradual weakening of global institutions like the WTO, while regional arrangements become more important. This would preserve elements of rules-based trade while accommodating competition between great powers.
“Coalitions of like-minded nations” could set high policy standards in specific areas, while remaining open to other countries willing to meet those standards.
These coalitions could focus on freer trade, regulatory harmonisation, or security restrictions depending on their interests. That could help maintain the plumbing in a global trade system.
Peter Draper is a professor and executive director of the Institute for International Trade, and Jean Monnet Chair of Trade and Environment at the University of Adelaide. Nathan Howard Gray is a senior fellow of Institute for International Trade at the University of Adelaide.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.