Global trade is undergoing a troubling transformation, marked by an erosion of foundational principles such as non-discrimination and Most Favoured Nation (MFN) treatment. This shift, led by the United States’ move toward a power-based, interest-driven approach, may be mirrored by other economies. The unraveling of these long-standing norms threatens the predictability and benefits for all that have underpinned the international trading system since 1947.

It is important to recall that the multilateral trading system, established by the General Agreement on Tariffs and Trade (GATT), was built on the core principles of transparency, security, stability, predictability, and reciprocity. The post-World War II period, marked by the creation of the GATT and later the WTO, ushered in an unprecedented era of peace between major powers, largely due to the deep economic interdependence fostered by open trade. While the United States was a principal architect of this system, it began to shift its approach in the late 1980s, introducing "fairness" as a central objective through the Trade Act of 1988. This marked a move away from the primacy of free trade towards an emphasis on "fair trade," and laid the legal groundwork for the use of unilateral measures under Section 301 of the Trade Act. 

The principle of differential treatment -ensuring that countries at different stages of development are not held to the same reciprocal obligations- remains fundamental to the multilateral system. GATT/WTO provisions on special and differential treatment, including the concept of "non-reciprocity," were designed to allow developing countries to increase their share of global trade without being disadvantaged by the rules that apply to more advanced economies. When recent U.S. administrations criticize non-reciprocal treatment and claim the U.S. is a "victim," it is important to remember that such provisions were intentionally built into the system to enable positive discrimination in favour of developing countries, recognizing that many face structural barriers -such as geographic, economic, or institutional constraints- that require tailored approaches to trade liberalization. There are still many nations that require this support to improve their economic standing, particularly the small vulnerable economies and the least developed countries members of the WTO.

A strong, open trading system anchored by robust multilateral rules, and complemented by regional trading arrangements, is essential. Restoring the full functionality of an improved WTO dispute settlement mechanism is also critical, as no trading system can operate in an orderly manner without effective means for resolving disputes. Trade frictions are inevitable, but without a strong, objective and independent dispute settlement body, a world of unilateralism and escalating trade tensions becomes unavoidable.

US Power-Based Trade Policy and Its Systemic Impacts

The current  U.S. administration has employed unilateral tariff measures at an unprecedented scale. Tariffs on Chinese imports have reached up to 145%, minimum global tariffs are 10%, and there are even steeper duties on sectors like autos and steel, to name a few.. These actions are rationalised through overlapping and sometimes contradictory objectives: national security, redressing unfair trade practices, addressing trade imbalances, raising revenue, and restoring domestic manufacturing. 

Frequent and often abrupt shifts in the (recent) U.S. trade policy -commonly described as ‘flip-flops’- have created deep uncertainty for global supply chains. Companies are increasingly confused about where to relocate their operations, source from, and how to manage cost fluctuations, as the policy environment lacks predictability and stability.

From an economic perspective, using a single policy tool (tariffs) to serve conflicting goals is inherently flawed. More fundamentally, they reflect a retreat from rules-based negotiation, in favour of unilateralism and coercive bargaining. The result is systemic fragmentation, as the MFN principle -the core of WTO non-discrimination- erodes. U.S. violations of MFN obligations set dangerous precedents, encouraging others to abandon multilateral rules in favour of bilateral or interest-based trade relations.

In addition to raising the costs for producers, traders and consumers in the rest of the world, the United States is doing at least as much damage to itself as to others economically through higher and distorted prices. Also in the short run, the complexity of the current U.S. tariff structure has placed considerable strain on businesses, investment markets, ports, and U.S. customs operations. The need to constantly update IT systems to reflect rapidly changing tariffs has led to inefficiencies at ports and customs offices. This has resulted in delays, higher costs, and widespread confusion throughout the supply chain, further exacerbating the challenges businesses and logistics providers face.

Imitation by Other Major Economies: Pragmatic Responses

The U.S. approach has emboldened other major players to adopt similarly interest-driven, pragmatic strategies that challenge multilateral norms. The UK’s willingness to lower tariffs on U.S. car imports in pursuit of a partial scope bilateral deal, which would not hold up to the spirit of Articles XXIV of the GATT and V of the GATS, and without MFN extension, signals a readiness to deviate from WTO norms. In response to U.S. tariffs, China imposed its own retaliatory tariffs and non-tariff measures (NTMs), such as export controls on critical minerals and restrictions on U.S. firms.

Recent high-level discussions between the U.S. and China  (11–12 May 2025) resulted in China suspending or reducing some retaliatory measures, including a temporary reduction of new tariffs on U.S. goods to 10% for 90 days. Although these bilateral arrangements may formally comply with the MFN, they underscore a broader shift toward ‘transactionalism’. Another indication that these bilateral trade discussions happened outside the framework of agreed trade rules is that while they were held in Geneva, it was neither at the WTO nor at the UN, but in a private residence.

India, too, appears to be aligning its trade posture to this evolving environment, signalling flexibility in lieu of multilateral rigidity. 

This trend risks entrenching power-based practices and undermining prospects for WTO reform and a rule-based revival. While some argue that unilateralism is to be expected from large powers, it is precisely this logic that the post-war trade system was designed to prevent. Many countries, not just those of the UK and India, are or might be negotiating bilateral agreements with the U.S. to avoid high tariffs that restrict access to the U.S. market, without offering the same to other members of the WTO.  Aside from Canada and China, few countries have resorted to the WTO’s legal framework -despite the dispute settlement mechanism paralysis-  as a means of signalling continued support for multilateral rules. 

Limits of Retaliation and Strategic Risks for Asia-Pacific Developing Economies

Retaliation is often seen as a natural response to trade aggression. For large economies, retaliatory tariffs can disrupt trade flows, shift price signals, and demonstrate resolve. However, for most Asia-Pacific developing economies, unilateral retaliation is an impractical option. Their relatively limited market leverage renders such actions ineffective and potentially counterproductive.

Instead, these countries must seek alternative strategies, such as aligning with coalitions or engaging in coordinated diplomacy, to safeguard their trade interests. Retaliation alone does not resolve underlying tensions and often reinforces fragmentation.

Asia-Pacific developing countries face a particularly delicate challenge. They are economically dependent on both the U.S. (as a key export market) and China (as a source of investment, technology, and intermediate goods). By responding to U.S. trade pressures through narrow, self-interested concessions, large regional economies risk further weakening the multilateral system without regard for broader consequences.

What seems like a prevailing hint -"meet U.S. demands to maintain market access"- illustrates the strategic drift toward acquiescence over autonomy. While market access is critical for many developing economies, it must not come at the price of ceding long-term policy autonomy or surrendering to an unstable, coercive trade architecture.

A Better Response: Alignment, Reform and Strategic Diplomacy

Faced with these challenges, Asia-Pacific developing countries must pursue forward-looking alternatives rooted in cooperation, resilience, and rule-based engagement. As suggested by many commentators, this may require (at least in the foreseeable future) behaving as if the U.S. has left the global system and treating it as a non-member while applying (and improving) the multilateral rules among themselves. 

Therefore, the right response to U.S. assertiveness is not tit-for-tat retaliation but a renewed commitment to reform and strategic alignment. For smaller Asia-Pacific economies, tactical compromises may be unavoidable in the short term. However, these should be treated as transitional responses,  not permanent concessions.

In the long run, the focus must shift to:

• Collective action: Partnering with like-minded economies to uphold multilateral rules and counter unilateralism. Given the apparent inevitability of bilateral tariff negotiations with the U.S., collective regional engagement may improve prospects for more balanced outcomes. 
• Domestic reform: Improving regulatory environments, digital and services liberalization, and investment conditions to build resilience – drawing on lessons and good practices from APEC. With the emergence of artificial intelligence (AI), many Asia-Pacific economies have an advantage in leapfrog development, given their young populations and natural resources needed to build AI infrastructure. 
• Leveraging regional institutions: Cooperation frameworks under the ESCAP, ASEAN, CPTPP and RCEP and various tools for improving policy-making developed in collaboration with ARTNeT offer underutilised mechanisms for policy dialogue, cooperation, and rule-alignment.
• Diplomatic coordination: Active engagement through WTO mechanisms and regional coalitions can amplify the collective voice of small and medium-sized economies.
• Reforming the WTO: Asia-Pacific countries should work together to fundamentally reform the WTO multilateral trading system and update its rules, thus making it relevant again. Given the challenges the WTO Members face in concluding multilateral trade agreements, they should strongly consider supporting plurilateral trade agreements. 

Conclusion: Defending the Rules-Based Order

The current trajectory, marked by the erosion of MFN treatment and normalisation of power-based trade, is destabilising. For Asia-Pacific developing countries, the solution is not reactive retaliation, but proactive engagement: deepening reforms, strengthening alliances, and defending a rules-based system through coordinated, strategic diplomacy.

While short-term flexibility may be necessary, long-term resilience lies in recommitting to predictable, fair, and non-discriminatory trade practices. The alternative is a fragmented and volatile trade landscape, where power dictates outcomes and cooperation gives way to coercion. Without a course correction, the future of global trade risks being shaped not by cooperation and shared rules, but by division and fragmentation, threatening not only economic stability, but also the hard-won peace that the multilateral, rules-based trading system has helped sustain since World War II. History shows that trade conflicts can heighten geopolitical tensions and increase the risk of broader conflict.

* This commentary is a joint product of ARTNeT Advisors. The views expressed herein are solely those of the authors and do not necessarily reflect the positions or opinions of ARTNeT member institutions, partner organizations, the United Nations, or any organizations with which the advisors are affiliated.