Trading places: China and the US swap positions on free trade

Trading places

As Washington ripped up the free trade playbook, China began portraying the WTO as a "cornerstone of multilateralism," calling for its reform, not destruction.

Countries once accused of gaming the global system now insist that its rules be enforced. And the nation that led the way in writing the rules is now routinely ignoring them, setting up tariff barriers and trying to repatriate globalised production to wipe out a domestic trade deficit.

At a broader level, the WTO appears to be among the first victims of a new era of post-globalisation. Its authority is waning, increasingly eclipsed by national sovereignty and protectionism. Ironically, the most grievous blow ever dealt to the WTO has come not from a sworn enemy but the nation that was its leading architect.

When Trump announced the details on the tariffs he intends to apply to almost every country in the world, on 2 April, he called it "Liberation Day", although he later placed the measures on hold for 90 days, apart from those targeting China. It amounted to a systematic assault on the WTO. Ever since, the world has been asking if the organisation can survive.

There is another question reverberating in global capitals: Can the shattered trust between historic trading partners be restored before addressing the wider consequences of the economic clash between the two superpowers, the US and China?

Globalists lash out

Thomas Friedman, the veteran American columnist and author of The World Is Flat: A Brief History of the Twenty-First Century, summed up today's reality in a New York Times headline: "I Just Saw the Future. It Was Not in America." Comparing innovation and progress between the US and China, he concluded: "You can't tariff your way to prosperity, especially at the dawn of the AI."

In response to Trump's "Liberation Day," The Financial Times noted that while tariffs had been raised, the result was far from celebratory: inflation and unemployment had both increased, global economic growth forecasts were deteriorating, and the US economy had slipped back into stagflation, with expectations of declining corporate earnings and worsening economic indicators. The paper questioned what might follow this troubling trajectory.

Douglas Irwin, economics professor at Dartmouth, tweeted: "We have a 20th-century president in a 21st-century economy who wants to take us back to the 19th century." For its part, The Economist noted, "The scale of the shock to global trade set off by Mr Trump is still, even now, unlike anything seen in history."

Political and economic leaders alike sounded alarm bells. Heads of state, chief executives, and financial officials—from IMF Managing Director Kristalina Georgieva to World Bank President Ajay Banga and Federal Reserve Chairman Jerome Powell—have all expressed concern.

The WTO's Director-General Ngozi Okonjo-Iweala went further, warning that a prolonged US-China trade war could slash goods trade between the two largest economies by up to 80% and cut the size of the global economy by around 7% in the long term.

It threatened the flow of trade, not just between adversaries but even among partners. It marked the start of a new era of protectionism—Trump's main weapon—not for negotiation but arguably a form of blackmail.

Deepening mistrust

The result is a deepening climate of distrust among global powers—politically, economically, and militarily—the consequences of which remain unknown. Canada has already announced it is stepping back from economic integration and halting defence cooperation with the US, once considered its closest ally. For her part, European Central Bank President Christine Lagarde has warned of growing "uncertainty" and stated plainly: "In a so-called trade war, driven by reciprocal increases of import tariffs, nobody wins, one generally finds losers on both sides."

China has chosen to stand firm and fight. But it has escalated the confrontation beyond mere tariffs. It has targeted core resources, including natural materials and semiconductors, the oxygen of the modern economy. It raises the terrifying prospect of a global trade conflict that could rewrite history altogether.

Perhaps the world is now witnessing the processes that will shape the WTO's successor. It could be the dawn of a "Sovereign World Trade Organisation," infused with a new realism, where political and diplomatic strength—and maybe even military threats—all replace the old order of negotiated rules. Tariffs may prove to be the main weapon.

Perhaps the time has come to revisit Karl Marx's famous phrase—with a slight twist: "History repeats itself, first as tragedy… and second as a trade farce, on Trump's terms."