A Disrupted Global Trading System and the Future of Multilateralism

1. Introduction

The global trading system has undergone profound changes in recent years, especially since the beginning of the second Trump administration in the United States. The all-front tariff war initiated by the US has posed a series of challenges to the long-standing and seemingly well-functioning global trade order governed by the GATT/WTO system, which had represented a stable multilateral trading framework (MTS) for decades since the end of the Second World War. It is an irony of history that these challenges have coincided with the 30th anniversary of the WTO, established as a result of the Uruguay Round (UR) negotiations on trade liberalization in 1995.

Indeed, the GATT/WTO system, underpinned by three guiding principles—non-discrimination, freer and fair trade, and support for economic reform and development—has been facing immense pressure from the increasingly unilateral and protectionist stance of the US. There is wide consensus among trade experts that the dynamism of the world economy over the past seven decades has been largely driven by the expansion of international trade, which in turn was stimulated by the continuous liberalization efforts of the global trading community represented through the GATT/WTO system. This trade–growth linkage is now in jeopardy, as argued by Conteduca et al. (2025). If the tariff war persists and expands, the world economy may risk plunging into a large-scale recession or depression, reminiscent of the Great Depression of the 1930s.

Against this backdrop, this paper investigates the current state of the global trading system and explores potential future scenarios for multilateralism. Following this introduction, Section 2 outlines the main principles that have governed the global trading system over the past seven to eight decades. Section 3 analyzes the major disruptions currently confronting the system, focusing on the US-initiated tariff war and the responses of key trading nations. Section 4 examines how these disruptions have affected multilateralism and evaluates the prospects for its revival. Section 5 presents several possible scenarios for the future of multilateralism, based on critical determining factors. Section 6 concludes the paper with key policy implications for the international trading community.

2. Main principles and guardians of the global trading system

The global trading system has existed since 1948, when the General Agreement on Tariffs and Trade (GATT) was adopted as a foundational legal framework for international trade. As the number of signatories grew, GATT evolved into an increasingly multilateral trade regime. The establishment of the World Trade Organization (WTO) in 1995 formalized this evolution into a permanent institutional framework.

Since the adoption of GATT, three guiding principles have defined the multilateral trade regime: (i) non-discrimination, (ii) freer and fair trade, and (iii) support for economic development and reform. The principle of non-discrimination has been regarded as the cornerstone of the system, considering the growing number of member countries under both GATT and WTO. It was broadly recognized that once discriminatory trade practices were tolerated, the system would become unmanageable.

The principle of freer and fair trade has been pursued through successive rounds of multilateral trade negotiations and through the adoption of complementary rules designed to reduce unfair trade practices such as dumping and subsidies. Because trade liberalization often entails structural adjustments, the international trading community also recognized the special needs of developing and transitional economies by granting them flexibilities in both liberalization schedules and rule implementation.

Throughout the past seven to eight decades, two trading powers have emerged as the principal guardians of the multilateral trading system: the United States and the European Union. By liberalizing trade and lowering barriers faster than most participants, they have played a pivotal role in maintaining the system. Although both occasionally resorted to protectionism during periods of adjustment, they have largely upheld a liberal policy orientation. This guardian role has been one of the most distinctive features in the history of global trade. Together with Canada and Japan, the US and EU have also played central roles within the Quad, which provided a platform for leadership in advancing trade liberalization and developing acceptable international trade rules.

3. Disruptions in the global trading system

Significant disruptions had already begun to affect the global trading system even before the first Trump administration assumed office in 2017. One major example is the paralysis of the WTO’s dispute settlement mechanism (DSM), which had long functioned as a core enforcement tool ensuring member compliance under GATT and later WTO rules. Whenever one party committed a trade violation, the complainant could file a case before the DSM, which would produce a panel report. Dissatisfied parties could appeal to the Appellate Body, whose decisions were final.

This long-standing process, however, was effectively undermined by the US refusal to approve new Appellate Body appointments, leading to the paralysis of the entire dispute resolution system. While this negative stance was already apparent under the Obama administration, the DSM became effectively non-operational by 2019. Some WTO members attempted to bypass the impasse by creating the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). However, because the MPIA is limited in scope, it cannot fully replace the DSM.

With the onset of the first Trump administration in 2018, disruptions accelerated. The US launched a comprehensive trade war, primarily targeting China. Both countries engaged in a series of retaliatory protectionist measures, adopting a ‘tit-for-tat’ approach. The US notably abandoned its long-standing role as a guardian of the global trading system in favor of unilateral and nationalistic trade policies, prioritizing bilateralism over multilateral cooperation. This further weakened the global trading framework, already strained by the DSM crisis.

Although the Biden administration temporarily revived multilateral tones in trade policy, these efforts were short-lived. Following the return of President Trump to office in 2025, the US adopted an even stronger protectionist agenda, triggering widespread disruptions throughout global trade networks. As of October 2025, the multilateral trading system has lost much of its functionality. Major economies have been compelled to pursue bilateral negotiations with the US, sparking concerns that Washington seeks to reshape the global trade order itself.

Meanwhile, the US–China bilateral talks have yielded no tangible results. China responded to US tariffs by tightening control over rare-earth exports, while the US imposed an additional 100 % tariff on Chinese imports beginning November 1, effectively halting Chinese exports to the US. While both sides have signaled interest in compromise, considerable uncertainty remains over their future trade relationship.

In contrast, the EU and Japan have successfully concluded bilateral negotiations with the US, securing relatively low tariff rates of 10 % in exchange for substantial investment pledges in the US economy. The stability of these agreements, however, depends on the fulfillment of these commitments.

Negotiations with South Korea remain unresolved. The US has reportedly demanded an upfront investment of USD 350 billion—roughly 80 % of Korea’s foreign reserves—prompting Seoul to propose a reciprocal currency-swap arrangement, which Washington has thus far rejected. Korea’s position in these talks may depend on the scale of its investment pledges and cooperation in strategic industries such as shipbuilding and semiconductors, where it holds global competitiveness.

A defining feature of the current US trade policy is its rejection of new free trade agreements—aside from the USMCA—since the launch of its protectionist agenda. Korea, among others, has been adversely affected by this shift.

4. Current state of multilateralism

The disruptions triggered by the unilateral and protectionist trade policies of the United States have significantly undermined the global trading system. The key principles outlined in the previous section—non-discrimination, freer and fair trade, and support for economic development—are no longer being observed. Alarmingly, the US, once a chief architect and defender of the multilateral order, now stands at the center of its destabilization. To date, no other major trading powers, including the EU and China, have been able to reverse or effectively counter this American retreat from multilateral norms.

Another major force fragmenting global trade flows is the resurgence of regionalism. The trend toward regional arrangements was already evident in the early 1990s, leading to a co-existence of regionalism and multilateralism, as analyzed by Park (1996) and Grilli (1997). This increasing regionalism tendency has now intensified amid growing uncertainty within the multilateral trade system, with the increasing risk of collision against the multilateral trading system, as Quah (2025) warns. Many countries have revived or expanded their regional trade initiatives as strategic buffers against the negative effects of the US-led tariff war. For example, several major economies—including China and South Korea—have expressed interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to mitigate the impact of a shrinking global trade volume. The European Union has also reportedly contemplated potential membership in the CPTPP.

Originally conceived as a mega-regional free trade agreement designed to complement and reinforce the multilateral trading order, the CPTPP lost much of its significance following the US withdrawal. Ironically, however, rising US protectionism has revived interest in expanding CPTPP membership, as countries seek alternative frameworks to sustain open trade and reduce dependency on the United States.

5. Future scenarios of multilateralism

Considering the ongoing disruptions and rising regionalism that now burden the multilateral trade regime, a fundamental question arises: Can the traditional multilateral system be revived? This question raises related issues: Will revival only be possible after the Trump administration ends? What initiatives could restore vitality to the multilateral order? And under what conditions could it once again become a driver of global economic growth? Even though the Trump administration attempts to remake the global trade order, as Jamieson Greer, the US Trade Representative recently stated (Greer, 2025), there still are plenty of conditions conducive to restoring the multilateral trade order that functioned effectively over the past seven to eight decades.

To address these questions, this section develops four potential scenarios based on two determining variables: (i) the persistence or weakening of US protectionism, and (ii) the degree of liberalism or protectionism adopted by major trading partners. The interaction of these two factors yields four plausible scenarios (Table 1): 

This scenario unfolds if the major trading partners of the United States respond with reciprocal protectionism, triggering a “domino effect.” Recent developments lend credibility to this outcome: for example, the EU’s introduction of reinforced safeguard measures in the steel industry—through higher tariffs and tighter tariff-rate quotas (TRQs)—and China’s new export control measures on rare earths, critical for semiconductor production.

If similar retaliatory measures proliferate globally and the US does not scale back its protectionism, a widespread escalation of barriers could ensue. This global protectionist spiral could mirror the economic devastation caused by the Smoot–Hawley Tariff Act of 1930, precipitating a depression-like downturn. Developing countries, in particular, would suffer disproportionately, undermining their progress toward integration into the world trading community.

2. Scenario 2: Slow Process of Restoring the Multilateral Trading System Scenario 2

would emerge if the US gradually relaxes its protectionist stance in response to domestic inflationary pressures and strong external resistance from its major trading partners. Continued protectionism would inevitably fuel higher consumer prices, weakening political support at home, while retaliation from trading partners would further damage US export competitiveness.

Facing such internal and external constraints, Washington could be compelled to revert to a more moderate trade policy. A credible and consistent policy reversal would encourage partners to lower their retaliatory barriers as well, allowing for the gradual reactivation of the multilateral trading system—albeit at a slow pace. The US might eventually regain its traditional role as a guarantor of global trade stability.

3. Scenario 3: Expanded and Interlinked RTAs Pressuring the Aggressive US Trade Policy

In Scenario 3, the US maintains its strong protectionism, while its major trading partners preserve liberal trade stances. To offset restricted access to the US market, these partners deepen trade liberalization among themselves by establishing or expanding regional agreements such as the CPTPP or new cross-regional free trade areas.

This “minus-US” strategy would result in increasingly interconnected regional trade networks that might collectively pressure Washington to reconsider its unilateralism. Such developments could also partially restore the disrupted trade–growth linkage by fostering open trade among liberal economies. In this sense, expanding regionalism would act as both a substitute for, and a potential stepping stone toward, a renewed multilateral order.

4. Scenario 4: Multilateral Trading System Restored after a Short Period

This most optimistic scenario would materialize if the United States swiftly returns to its traditional liberal trade policy after a short protectionist phase—possibly following the end of the current administration. If US trading partners maintain their liberal orientation and tolerate temporary protectionist setbacks, the damage to the world economy could remain limited and short-lived.

Historically, global trade and output have proven resilient to temporary shocks, as seen after the oil crises of the 1970s and the global financial crisis of the late 2000s. Thus, even though both the US and the broader world economy might sustain short-term injuries, the experience could serve as a valuable reminder of the costs of protectionism and reinvigorate long-term commitments to trade liberalization.

6. Conclusion

This paper has examined the disruptions reshaping the global trading landscape and threatening the integrity of the multilateral trading system. Grounded in a review of recent policy developments, it has assessed the strategic responses of major economies and projected potential pathways for the future of multilateralism. By presenting four scenarios of possible future development, the paper argued that the global trading system still has the potential to be restored, under certain conditions.

While the immediate outlook remains uncertain, one fundamental insight emerges clearly: the stability and prosperity of the global economy continue to depend on the preservation of an open, rule-based trading system. The international community must therefore resist unilateralism and protectionism and instead coordinate efforts to restore and strengthen the multilateral order that has underpinned global economic growth for the past seven to eight decades.

main