It’s the End of the World (TO) as We Know it

Revealed Preferences Matter

China, the EU (European Union), and the U.S. have in recent weeks all tabled in writing their views regarding the future of the WTO.[1] The end result should leave no one in doubt that coordination costs between the three dominant players in the trading sphere are very high (if not insurmountable altogether):

• China and the EU share a commitment to compulsory third-party adjudication;
• EU and US are roughly in the same wave-length as far as the future shaping of the MFN (most-favored-nation) clause is concerned: it should be conditional, the contingency being the extent of trade deficit of the granting nation, an attitude reminiscent of previous times, as reported in Bhagwati and Irwin (1987);
• China and US agree on none of the above. 

Why did I single out MFN and compulsory third-party adjudication? Well, arguably these are the two quintessential features of the multilateral edifice. One could imagine a WTO where antidumping is replaced by enforcement of domestic competition laws. It is hard to imagine a WTO without MFN. And what is the use of negotiating and signing the WTO if enforcement is not on the cards? 

A recent McKinsey report shows that in the last two years (2024, 2025) trade has grown faster than the world economy, even though trade between “geopolitically distant” players has been reduced, substantially so. Disagreements between U.S. and China have translated in reduced trade between them. So has trade between Ukraine and Russia, the EU and Russia etc. Trading nations have been engaging in a quest for security in supplies through either intense preferential integration with like-minded players, or recourse to industrial policy, or both.[2] 

To be fair, the world economy has shown remarkable resilience, were one to take into account the multiple hits it has suffered: AI (artificial intelligence)-related shipments have increased considerably; China has managed to find new markets (since the U.S. market has been closed in part to its exports); U.S. has increased its volume of imports from other South East Asian countries; and finally, because President Trump does trade policy for “optics, not for outcomes”, as Baldwin (2026) put it. A number of announced tariff-restricting measures were either not implemented, or simply abandoned.

But for how long?

What matters most for this discussion, is that the world economy has shown resilience, despite the absence of a provision on economic security in the WTO framework. And if the current trend were to be confirmed, then trade risks evolving away from a multilateral dimension. Economic security is the revealed preference of the world trading community, and this by construction implies trade should be conducted with countries that represent no threat to the attainment of this objective. The WTO, as is, makes no room for that. 

The link between trade and power was known before the advent of the multilateral system. First Hirschman (1945), and then Viner (1948) warned that trade openness is welfare-enhancing but comes with vulnerabilities.[3] The ITO (International Trade Organization) did include a Chapter (Chapter V) dealing with Restrictive Business Practices (RBPs) which could be used in cases of refusal to sell and other market-segmenting measures which could be costly from a trade-perspective, but could increase the power of the implementing actor. The ITO never saw the light of day. During the GATT-era (General Agreement on Tariffs and Trade), the predecessor of the WTO, the absence of provisions on economic security proved to be no issue, as those with bargaining powers did not abuse. After all, the GATT was a trade-cum-security agreement. It was in no one’s interest to weaken the alliance. The WTO did not buy insurance policy against the risk of linking trade to power, either. It was negotiated at a moment in history where all believed we were moving into a unipolar world. “Weaponization” of trade was simply not in the cards anymore.[4]

And now? Well, Evenett et al. (2025) have provided sufficient data to demonstrate that economic security tops the agenda as justification for industrial policy worldwide. 

Can WTO Address What it Must?

Personally, I was not swayed by the (lack of) outcome in MC14. I was not expecting anything anyway, so I would not call it a “failure”. It was the natural consequence of an ongoing “waning” of the multilateral framework. In part, this is due to the fact that the WTO is not in sync with today’s anxieties of trading nations, which find a safe haven in FTAs (free-trade areas), and not in the WTO anymore. For the WTO to become relevant again, this trend must be corrected. 

Trading nations will not give up on economic security. The “trust” between some of the leading trading nations has been severely damaged. Trust is hard to build and easy to break. The “negativity bias” suggests that (risk-averse) nations will find it hard to behave paying no heed to what they have gone through in recent years. There is a definite need to bring in “economic security” within the four corners of the WTO.[5] But how? Should we try to define it? There is a risk that when doing so, one might end up equating economic security to autarky, and thus issue a death knell on trade openness. 

In Palacios and Mavroidis (2026), we advance a modest proposal on how to make economic security a negotiable instrument, inspired by the attitude of the GATT framers who instead of defining “protection” reduced it to one negotiable instrument. But to do even that, the political impetus is necessary. In the absence of a hegemon, who will push for similar solutions? Carvalho, Monte and Ornelas (2026) have persuasively argued that in the world we currently live in, where there are three dominant players (instead of one hegemon), a return to a rules-based system is unlikely. Practice so far confirms. The best bet for rules-based regimes at this stage, is that offered by FTAs. The wider they are, the better. In the meantime, there is value in preserving the WTO even as a “talk club” with little enforcement powers while awaiting better days ahead.

References

Baldwin, Richard. 2026. Why Didn’t Trump Tariffs Wreck the World Trade System, Richard Baldwin Substack, available at https://rbaldwin.substack.com/p/why-didnt-trumpian-tariffs-wreck

Bhagwati, Jagdish, and Douglas A. Irwin. 1987. The Return of the Reciprocitarians: US Trade Policy Today, The World Economy, 10: 109-130.

Carvalho, Cecilia, Daniel Monte, and Emanuel Ornelas. 2026. Equilibrium Trade Regimes: Power- vs. Rules-Based, Mimeo. Sao Paulo School of Economics.

Evenett, Simon, A. Jakubik, J. Kim, F. Martín, S. Pienknagura, M. Ruta, S.Baquie, Y. Huang, and R. Machado Parente. 2025. Industrial Policy Since the Great Financial Crisis, IMF Working Paper 2025/222.

Gertz, Geoff. 2025. Guest Post: The Case for Bringing Economic Security Priorities into U.S. Trade Agreements, Part I, available at https://ielp.worldtradelaw.net/2025/11/guest-post-the-case-for-bringing-economic-security-priorities-into-u-s-trade-agreements-part-i/

Gertz, Geoff. 2025a. Guest Post: The Case for Bringing Economic Security Priorities into U.S. Trade Agreements, Part II, available at https://ielp.worldtradelaw.net/2025/12/guest-post-the-case-for-bringing-economic-security-priorities-into-u-s-trade-agreements-part-ii/

Hirschman, Albert O. 1945. National Power and the Structure of Foreign Trade, California University Press: Berkeley, California.

Lester, Simon. 2025. Economic Security in Trade Agreements: My Response to Geoff Gertz, available at https://ielp.worldtradelaw.net/2025/12/economic-security-in-trade-agreements-my-response-to-geoff-gertz/

McKinsey. 2026. Geopolitics and the Geometry of Global Trade, McKinsey Global Institute: New York City, New York, available at https://www.mckinsey.com/mgi/our-research/geopolitics-and-the-geometry-of-global-trade-2026-update

McLaren, John. 1997. Size, Sunk Costs, and Judge Bowker's Objection to Free Trade, American Economic Review, 87: 400- 420.

Palacios, Mario, and Petros C. Mavroidis. 2026. Reviving the WTO, A Sectoral Agreement on Semiconductors to Promote Economic Security, Elgar Publishing: Cheltenham, United Kingdom (forthcoming)

Rotunno, Lorenzo, and Michele Ruta. 2025. Trade Partners’ Responses to US Tariffs, IMF Working Paper WP/25/147, IMF: Washington, D.C., available at https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025147.pdf

Viner, Jacob. 1948. Power versus Plenty as Objectives of Foreign Policy in the Seventeenth and Eighteenth Centuries, World Politics, 1: 1-29.

[1] WTO Docs. WT/GC/W/989 of February 18, 2026 (China); WT/GC/W/984 of December 15, 2025 (US); and WT/GC/W/986 of January 21, 2026 (EU). The U.S. came back with a second paper (WT/GC/W/998 of March 23, 2026).

[2] Rotunno and Ruta (2025).

[3] For a recent exposé, see the excellent contribution of McLaren (1997).

[4] We discuss this point in detail in Palacios and Mavroidis (2026).

[5] Gertz (2025) and (2025a) and Lester (2025) offer an excellent basis for debating this point.