Trade Wars and the WTO: Navigating Trump’s 2025 Tariffs

Introduction

In 2025, President Donald Trump’s reimplementation of aggressive tariff policies significantly disrupted the global trade landscape. These measures have strained bilateral relations, particularly between the United States and China, and tested the resilience and relevance of the World Trade Organization (WTO).

Legal and Institutional Constraints of the WTO

The WTO’s Dispute Settlement Mechanism (DSM) has long been considered the cornerstone of the organization’s ability to enforce trade rules. However, since 2019, the Appellate Body, which serves as the final arbiter in trade disputes, has been incapacitated due to the United States blocking the appointment of new judges. This has effectively rendered the DSM non-functional, as any panel decision can be appealed into a legal void, preventing the enforcement of rulings. The situation has been described as a “limbo,” undermining the WTO’s credibility and its capacity to resolve disputes effectively. (Howse, 2023).

In response to the 2025 tariffs, several countries, including China, have initiated disputes against the United States at the WTO. However, the current dysfunction of the DSM means that these challenges are unlikely to lead to enforceable outcomes. The absence of a functioning appellate mechanism allows the United States to appeal panel decisions indefinitely, effectively blocking the resolution of disputes. This has led to concerns about the WTO’s ability to uphold its rules and maintain a rules-based international trading system. The figure illustrates that the period from 2020 onwards saw a significant drop in dispute settlement activities, with only 5 consultations initiated in 2020—the lowest since the WTO’s inception in 1995. This decline is attributed to the paralysis of the Appellate Body.

Economic Impact of the 2025 Tariffs

According to a WTO report, a country’s gain from improved terms of trade is smaller than the economic harm it causes to its trading partners (WTO, 2007). Additionally, a trade war can be seen as a Nash equilibrium because once countries impose protectionist tariffs, none has an incentive to lower their tariffs on their own. Therefore, short-term gain of deviating from the commitment must be balanced by the long-term loss from retaliation.

In this sense, rising trade tensions and high policy uncertainty are expected to significantly affect the global economy. According to the April 2025 IMF forecast, global growth is projected to fall to 2.8 percent in 2025 and 3 percent in 2026 (IMF, 2025). These figures are down from the 3.3 percent forecast for both years in the January update, marking a total downgrade of 0.8 percentage point. This is also well below the 2000 to 2019 average of 3.7 percent. For 2026, it projects growth at 3 percent, also below the previous estimate.

Importantly, the outlook for the world’s two largest economies has worsened. The U.S.-China trade relationship has been particularly affected, with projections indicating an 80% drop in merchandise trade between the two nations.  The U.S. is expected to grow by only 1.8 % this year, a sharp drop from the earlier forecast of 2.7 in 2024. China’s growth is also projected to slow. The forecasts highlight how both the tariffs and the uncertainty they caused are having broad and negative effects on the global economy (Rugaber, 2025). This decoupling is expected to have significant negative impacts on global economic growth and stability.

Implications for the WTO

The broad scope and unrestricted application of tariffs during Trump’s first term largely conflicted with key principles of international trade law. These measures were unlikely to be justified under the limited exceptions permitted by WTO rules (Zimmermann et al., 2025). Several WTO members formally objected to his tariff measures, arguing that they exceeded agreed limits. These members brought their complaints to the WTO Dispute Settlement Body for Resolution which is currently dysfunctional in 2025.

The current dysfunction of the DSM underscores the necessity for WTO reform, particularly in restoring the functionality of its dispute settlement mechanism. Efforts such as the “Molina Process” in 2023, aim to find practical solutions to the WTO’s dispute settlement crisis. However, without the participation of major players like the United States, these efforts face significant challenges. Rebuilding trust in the WTO’s processes and ensuring the enforcement of trade rules are critical for the organization’s future relevance (Van den Bossche, 2024).

Lastly, the WTO is a member-driven organization, while other influential organizations like the IMF and World Bank are staff-driven. Narlikar (2005) argues that if there is any international organization whose structure ensures that it is made of its members, for its members, and by its members, the WTO is it. The WTO’s member-driven structure is important because it gives all member states, regardless of their size or power, a voice in shaping global trade rules. This model promotes inclusivity and fairness, enabling countries to negotiate trade agreements and engage in decision-making together. Therefore, the WTO remains the only option for maintaining the global economic order. While it has weakened and lost some of its prominence, relying on individual governments or staff-driven institutions to ensure fair global trade would be too optimistic. Rising economic nationalism cannot be ignored, as it increases the vulnerability of smaller economies to the influence of major economic powers.

Conclusion

The return of aggressive U.S. tariff policies in 2025 under the Trump administration marks an important turning point for global trade and the future of the World Trade Organization (WTO). These tariffs not only disrupt trade but also challenge key principles of the WTO, such as multilateralism, non-discrimination, and binding dispute settlement. The United States’ imposition of tariffs outside the negotiated WTO rules signals a broader retreat from the liberal international economic order that the WTO was meant to protect. The WTO’s failure to act effectively, mainly because its Appellate Body is not functioning and its rulings cannot be enforced, shows serious weaknesses in the organization. This puts the WTO’s credibility at risk, especially if other countries follow the U.S. lead and ignore established rules in favor of unilateral protectionism.

References

Howse, R. (2023). Unappealable but not unappealing: WTO dispute settlement without the appellate body | International Institute for Sustainable Development. International Institute for Sustainable Development. https://www.iisd.org/articles/policy-analysis/wto-dispute-settlement-without-appellate-body

Narlikar, A. (2005). The WTO: Very Short Introduction, pp. 22-41

Rugaber, C. (2025, April 22). US and global economic outlook deteriorates in Trump Trade War, IMF says. AP News. https://apnews.com/article/recession-imf-economy-tariffs-5ec37492c9fac499923c094776b87552

Van den Bossche, P. (2024). Can the WTO Dispute Settlement System Be Revived? Constitutionalism and Transnational Governance Failures, 308–335. https://doi.org/10.1163/9789004693722_013

World Economic Outlook, April 2025: A critical juncture amid policy shifts. IMF. (2025, April 22). https://www.imf.org/en/Publications/WEO/Issues/2025/04/22/world-economic-outlook-april-2025

WTO Dispute settlement activity — some figures . World Trade Organization. (2024). https://www.wto.org/english/tratop_e/dispu_e/dispustats_e.htm

WTO World Trade Report 2007: Six decades of multilateral trade cooperation, pp.50-79

Zimmermann, C., Ventura, G., Etz, E., & Schwartz, N. (2025, January 8). The return of the trump tariffs – navigating the challenges of Trump’s return to the White House and his next strike on Global Trade. Lexology. https://www.lexology.com/library/detail.aspx?g=4e6ef5bb-de98-4b6d-8f4e-ece14a41d680