WTO joins multilateral bodies in a free fall as Trump tariffs knock out its foundation 

The WTO is only the latest to follow the demise of the global consensus on governance.

On July 31, 2025, the U.S. government imposed a reciprocal tariff of 25 per cent on goods imported from India. On August 6, an additional ad valorem duty of 25 per cent was imposed, which is to come into effect from August 27, 2025. Thus, the overall tariff on most Indian goods exported to the US will be 50 percent, unless India stops buying Russian oil before that.

The good news in this period of turmoil is that, as of now Indian pharmaceuticals and certain electronic products (including mobile phones) will not face any tariff. Indian exports of pharmaceutical products to the U.S. totalled $8.72 billion in 2024, according to the United Nations COMTRADE database on international trade.

However, Trump’s tariff war against India is likely to harm severely, at least in the short-term, several labour-intensive and export-oriented sectors, including textiles, garments, leather goods, gems and jewellery, seafood and others.

Unravelling of multilateral institutions

America’s tariff decisions against various countries have pushed the World Trade Organisation (WTO) towards irrelevance.

After World War II, GATT came into existence to prevent the tariff wars that caused the Great Depression in the 1920s. Following the Uruguay Round of talks of  GATT, the WTO was established in Marrakesh in 1994. The goal was to achieve a global consensus on trade in goods and services, as well as to regulate the regime of intellectual property rights, services etc. India and the US joined the WTO on January 1 1995. By 1995, 128 countries had become members of the WTO. China became a member on December 11 2001, after the agreement of the Doha Ministerial Conference of the WTO.

MFN – A fundamental principle of WTO

A fundamental principle of the WTO is the principle of Most-Favoured-Nation (MFN) which means that if a member of the WTO commits to have a lower tariff with one WTO member country, it must extend the same advantage to all other members of the WTO. The idea is to ensure equal treatment among trading partners. It also brought predictability to businesses in different countries, as everyone clearly understood the terms of trade.

As of January 22 2025, more than four-fifths of international trade in goods was covered by this principle. Even the US offered zero tariff on the import of 52 per cent of goods imported from various countries.

But the situation changed on February 1,, 2025 when US President announced plans to impose “reciprocal tariffs” from April on all countries with trade barriers against the U.S. On April 2, 2025 (termed “Liberation Day” by the President),  Trump announced baseline tariffs of 10 per cent for almost all US imports, which  came into effect from April 5 . However, because of the stock market crash, the tariff increases on 56 countries were paused for 90 days from April 9.

It is not that WTO’s functioning was smooth before the tariff war on the world was started by Trump. In case of agriculture alone, Indian policies on support prices (and procurement) of wheat, rice and sugarcane were questioned by the US in the WTO.

Is it really the trade imbalance?

Initially, when Trump announced the imposition of tariffs on various countries, trade imbalance was cited as the primary reason. With India, the imbalance was approximately $41.18 billion in 2024-25. The U.S. imported $86.51 billion of goods from India, while its exports were $45.33 billion. The announcement of a ‘punishment tariff’ of 25 per cent establishes that trade imbalance was not the only reason. Forcing India to meet the strategic objectives of the US turns out to be an equally strong reason for the tariff war with India.

Tariff on India - what to expect in near term?

Over the next few weeks, despite public posturing, India and the US are likely to continue their back- channel negotiations on tariffs. India is a large and rapidly growing economy, and its strategic location in the Indian Ocean will continue to shape US foreign policy.

On its part, India is also likely to show flexibility by agreeing to increase its imports of crude oil from the US. The US knows that India cannot disengage from Russia due to its dependence on defence equipment and domestic support for close relations with Russia.  As per the Stockholm International Peace Research Institute (SIPRI) report (2025), 36 per cent of India’s weapon imports currently come from Russia. This is lower than 55 per cent in 2015-19 and 72 per cent in 2010-14, but it is still significant.

Conclusion

In the short term, the concept of MFN, the entire premise of the WTO’s objective, lies in tatters.

The WTO is not the only global organisation becoming irrelevant. The UN Security Council, the Geneva Conventions, the International Court of Justice (ICJ) and the International Criminal Court (ICC) have also not been able to prevent the unprecedented humanitarian crisis   in Gaza.

The WTO is only the latest to follow the demise of the global consensus on governance.

(Hussain is former Union Agriculture Secretary. Dasgupta is former Indian Ambassador to WTO.)

Views are personal and do not represent the stand of this publication.