Abstract

Since the end of the Second World War, the global trading system has been made on ideas of liberalisation, non-discrimination and cooperation. These ideas were later shaped into formal rules through the World Trade Organization (WTO), which was created in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT). One of the most important features of the WTO is its Dispute Settlement Understanding (DSU), a system designed to solve trade conflicts fairly and to ensure that all members, big or small, follow the rules. For many years, this system was praised as a success because it gave smaller countries a platform to challenge unfair practices and helped maintain stability in global trade. However, the last decade has revealed serious weaknesses in the WTO, especially during the United States-China trade war. This paper explores how protectionism, mainly through the use of tariffs, has challenged the WTO’s ability to act as a fair referee in world trade. It begins by explaining the history of protectionism, showing how countries have often turned to tariffs and other barriers to protect their industries during difficult times. The paper then looks at the background of U.S.-China trade relations, from China’s entry into the WTO in 2001 to the rising tensions that led to the 2018-2020 trade war. During this period, both countries imposed heavy tariffs on each other’s goods and accused one another of breaking global trade rules. The study also examines the WTO’s response to these disputes. Although the WTO ruled that U.S. tariffs violated its rules, the United States refused to accept the decision. At the same time, the WTO’s Appellate Body stopped functioning because the U.S. blocked new judge appointments. This left trade disputes unresolved and showed that powerful countries can ignore WTO rulings without facing real consequences. Finally, the paper discusses the wider effects of this conflict. Smaller economies that depend on fair trade rules have been left vulnerable, while global supply chains have faced uncertainty and rising costs. Many experts now argue that the WTO must be reformed so it can better deal with issues like subsidies, state-owned enterprises and digital trade. Without reform, the WTO risks losing its relevance as more countries turn to regional or bilateral agreements instead of relying on the multilateral system. The main argument of this paper is that the WTO is both essential and fragile. It is still the only global institution that can manage trade disputes, but its inability to enforce rules against the most powerful states has badly damaged its credibility. Unless meaningful reforms are made, the world trading system could become more fragmented and unstable, with serious effects for both developed and developing countries.

1. Introduction

Since the Second World War, global trade governance has been structured around principles of liberalisation, non-discrimination and multilateralism. The World Trade Organization (WTO), established in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT), was meant to institutionalise these principles and provide a formal dispute settlement mechanism to ensure that international trade rules were observed. At the heart of this system lies the WTO’s Dispute Settlement Understanding (DSU), a judicial-like mechanism that allows member states to challenge each other’s trade practices and obtain binding rulings.

For many years, the WTO was hailed as one of the most successful international institutions. By offering smaller economies a platform to contest unfair practices and by ensuring that even great powers abided by trade rules, the WTO seemed to embody the triumph of multilateral cooperation. However, the past decade has witnessed growing disillusionment with the organisation. Critics argue that the WTO has failed to adapt to the challenges of globalisation, state capitalism and digital trade. More alarmingly, the institution has faced paralysis in its dispute settlement mechanism, particularly after the United States blocked appointments to the Appellate Body, the final court of appeal for trade disputes.

The U.S.-China trade conflict illustrates these tensions vividly. Starting in 2018, the two largest economies in the world embarked on a trade war characterised by reciprocal tariffs, unilateral measures and a fundamental rejection of multilateral dispute resolution. While both the United States and China turned to the WTO to challenge each other’s actions, neither side was willing to fully comply with rulings, and the paralysis of the Appellate Body further undermined enforcement. This dispute, often described as the most significant trade conflict in decades, raised profound questions about the future of the multilateral trading system.

This paper examines how rising protectionism, exemplified by the U.S.-China trade war, has tested the WTO’s ability to resolve tariff disputes. The discussion unfolds in three stages. First, the origins and escalation of the U.S.-China trade conflict are explored, with particular attention to how tariffs were imposed and justified. Second, the analysis turns to the WTO’s role in addressing these disputes, highlighting both procedural interventions and structural limitations. Finally, the paper considers the broader implications of this episode for the WTO, the future of trade multilateralism and the ongoing debates over institutional reform.

The central argument is that the rise of protectionism, embodied in the U.S.-China tariff disputes, has revealed both the indispensability and the fragility of the WTO. On the one hand, the WTO remains the only universal forum for adjudicating disputes and promoting transparency. On the other hand, its inability to enforce rulings against powerful states has undermined its credibility, highlighting the urgent need for reform. In addition, the WTO has struggled to remain effective in a rapidly changing global economy. The rise of digital trade, e-commerce and new technologies has created challenges that the organisation’s existing rules, many of which date back to the 1990s, were not designed to address. Disagreements over agricultural subsidies, intellectual property rights and environmental standards have also exposed deep divisions between developed and developing countries, making consensus increasingly difficult to achieve. Furthermore, the growing influence of state-owned enterprises, especially in emerging economies like China, has highlighted the gap between the WTO’s market-oriented framework and the realities of state-led capitalism. These issues have fuelled the perception that the WTO is outdated and unable to manage the complexities of modern trade.

1.1 What is the WTO?

The World Trade Organization has long been regarded as the cornerstone of the international trading system, tasked with promoting free trade, mediating disputes and ensuring compliance with multilateral trade rules. Since its establishment in 1995, the WTO has served as the primary institution for resolving trade disputes and mitigating conflicts between states. Furthermore, the WTO also plays a critical and important role in establishing and imposing global trade standards, including rules on tariffs, subsidies and intellectual property rights. Moreover, it provides a platform for member countries to negotiate trade agreements and encourages transparency, predictability and accountability in international trade commerce. Additionally, the organisation controls regular monitoring of trade policies to ensure that nations attach to settled rules, helping to prevent protectionism and trade deformities that could harm the global economy. By providing cooperation and dialogue among its members, the WTO aims to create a fair and solid trading environment that benefits both developed and developing nations alike.

Even though the WTO plays an important role, it has also faced a lot of criticism in recent years. One major problem is that all members need to agree before decisions are made, which makes the process very slow and sometimes ineffective. Developing countries often feel that their concerns are not treated equally because bigger economies have more influence in negotiations. At the same time, many countries are now focusing on regional or bilateral trade agreements instead of relying only on the WTO, which reduces its importance. The growth of global supply chains and the rise of digital trade have also created new challenges that the WTO’s old rules do not fully cover. These issues have raised doubts about whether the WTO can keep up with modern trade and have increased calls for the organisation to reform in order to remain relevant.

1.2 The History of Protectionism

Protectionism is an economic policy where governments place restrictions on international trade in order to protect domestic industries from foreign competition. Usually, this includes tariffs, quotas, bans on imports and subsidies to local firms. Essentially, the main point of these measures is to stop domestic producers from being destroyed by cheaper or more efficient foreign rivals, thereby safeguarding jobs and supporting national industries.

Protectionism has a very long history in global trade, stretching back hundreds of years. The earliest form can be found in the mercantilist era of the 16th to 18th centuries. Mercantilism was an economic theory that argued a nation’s strength depended on its wealth, especially gold and silver. Countries such as Spain, Portugal, France and England believed that controlling trade was the best way to grow wealth and power. They tried to export as much as possible and limit imports, so they would bring in money without sending too much out. During this time, governments used heavy tariffs on foreign goods, banned certain imports and established colonies that provided raw materials exclusively to the mother country. Colonies were also forced to buy manufactured goods only from their colonisers, which further supported protectionist policies. In the 19th century, protectionism continued to play an important role in industrial development. The United States and Germany are often used as examples of countries that grew their economies behind high tariff walls. Both nations wanted to protect their “infant industries” from stronger competitors, particularly the United Kingdom, which was the world’s leading industrial power at the time. For instance, the United States imposed high tariffs on imported manufactured goods so that domestic industries like textiles, steel and machinery could grow without being overwhelmed by cheaper British products. This strategy, sometimes called “infant industry protection”, was justified by the argument that young industries needed time to become competitive before being exposed to full international competition. Germany also followed a similar model under Chancellor Otto von Bismarck, who promoted protective tariffs to strengthen the economy and ensure national self-sufficiency. These protectionist measures helped both countries catch up to Britain and eventually become major industrial powers themselves.

The early 20th century brought both the rise and the negative consequences of protectionism. During the Great Depression of the 1930s, countries around the world turned inward and tried to shield their economies from the global collapse. The most famous example is the U.S. Smoot-Hawley Tariff Act of 1930, which placed very high tariffs on thousands of imported goods. The intention was to protect American farmers and manufacturers from foreign competition at a time of economic crisis. However, the effect was disastrous because many other countries retaliated by imposing their own tariffs on U.S. exports. As a result, world trade collapsed, making the Depression worse and leading to a prolonged period of economic stagnation. This experience taught policymakers that extreme protectionism could harm not only the global economy but also the very countries that tried to use it. After World War II, world leaders were determined not to repeat the mistakes of the interwar years. This led to the creation of the General Agreement on Tariffs and Trade (GATT) in 1947. The main goal of GATT was to reduce protectionist barriers and encourage free trade through negotiation rounds. Over the decades, these rounds gradually lowered tariffs and created more predictable trading rules.

In 1995, GATT evolved into the World Trade Organization, which provided a stronger institutional framework for managing global trade and resolving disputes. The WTO symbolised a move away from protectionism and towards multilateral cooperation. Despite this shift, protectionism never disappeared completely. In fact, it has reappeared many times during periods of economic stress. For example, in the 1970s and 1980s, many countries used tariffs, quotas and voluntary export restraints to protect industries such as steel and automobiles from foreign competition, particularly Japan.

In more recent years, the global financial crisis of 2008 triggered a new wave of protectionist measures. Although large-scale tariff increases were avoided, many governments offered subsidies, bailouts and other forms of support to their domestic industries. These policies were designed to save jobs and prevent economic collapse but also sparked criticism for distorting global competition. Today, protectionism continues to play a big role in international trade. The rise of emerging economies, especially China, has caused tensions with developed countries like the United States and members of the European Union. China’s use of state-owned enterprises, subsidies and industrial policy has led to accusations of unfair competition. In response, many Western countries have imposed tariffs, tightened investment rules and adopted policies aimed at securing domestic industries, particularly in technology and strategic sectors.

The U.S.-China trade war that began in 2018 is one of the clearest modern examples of protectionism, as both countries placed tariffs on hundreds of billions of dollars worth of goods. This conflict highlighted how protectionism can resurface even in a supposedly globalised economy. Protectionism is also closely linked to politics. Governments often use it to appeal to domestic voters, especially in industries that are struggling to survive against foreign competition. For instance, tariffs on agricultural goods or steel may protect a small number of jobs but can carry a strong political impact because they are highly visible sectors. On the other hand, the hidden costs of protectionism, such as higher consumer prices and reduced international cooperation, are less obvious to the general public. This makes protectionism a popular tool for short-term political gain, even though it may weaken the economy in the long run.

The history of protectionism shows that it has been a constant feature of global trade, changing form depending on the period and circumstances. From mercantilism in the early modern era to infant industry protection in the 19th century to the disastrous tariffs of the 1930s, governments have repeatedly used trade barriers to protect domestic interests. Although international institutions like the WTO were created to limit protectionism, it continues to resurface whenever economies face crises or governments prioritise national industries over global cooperation. Understanding this long history is important for analysing present-day trade conflicts and the challenges facing the multilateral trading system.

2. The United States-China Trade War and WTO Challenges

2.1 China Trade Tensions

U.S.-China trade relations have always been characterised by a mixture of cooperation and conflict. When China joined the WTO in 2001, many in Washington believed that Beijing’s integration into the global trading system would encourage it to embrace market-oriented reforms and abide by global rules. Indeed, China’s entry into the WTO opened vast new markets for American companies and contributed to an unprecedented expansion of global supply chains.

However, U.S. industries, particularly manufacturing, soon complained that the benefits of globalisation were unevenly distributed. American policymakers accused China of manipulating its currency, subsidising state-owned enterprises (SOEs), failing to protect intellectual property rights and maintaining barriers to foreign investment. The trade deficit between the U.S. and China widened dramatically, fuelling domestic criticism that China was exploiting the global trading system.

Successive U.S. administrations attempted to address these concerns through dialogue and WTO litigation. While some cases succeeded, such as those involving Chinese export restrictions on rare earth elements, others revealed the limitations of the WTO in disciplining a state-led economy. The perception grew in Washington that the WTO was ill-equipped to handle disputes involving large-scale subsidies and industrial policy, setting the stage for unilateral action.

2.2 Escalation of the Trade War (2018-2020)

The trade war formally began in 2018 under President Donald Trump, whose administration pursued an explicitly protectionist agenda. Using Section 232 of the Trade Expansion Act of 1962, the U.S. imposed tariffs on steel and aluminium imports, citing national security. This decision, which affected not only China but also U.S. allies, was criticised for abusing national security justifications to impose protectionist barriers. Shortly thereafter, the U.S. invoked Section 301 of the Trade Act of 1974 to impose tariffs on Chinese goods worth $50 billion, claiming that China engaged in unfair trade practices, particularly regarding intellectual property and forced technology transfers. China responded swiftly with retaliatory tariffs on U.S. goods, including soybeans, automobiles and chemicals.

The conflict escalated in successive rounds. By late 2019, the U.S. had imposed tariffs on over $360 billions of Chinese imports, while China had retaliated with tariffs covering $110 billion of U.S. exports. Both countries expanded the scope of tariffs to target politically sensitive industries: the U.S. aimed at Chinese technology firms, while China targeted U.S. agricultural exports, particularly soybeans, to pressure Trump’s rural voter base. Although a “Phase One” agreement was signed in January 2020, it was limited in scope. China pledged to increase purchases of U.S. goods and improve intellectual property protection, but the deal did not address deeper concerns over industrial subsidies, SOEs and China’s broader development model.

2.3 WTO Involvement in the Dispute

Both China and the United States sought to challenge each other’s measures at the WTO. China filed a case against U.S. tariffs under Section 301, arguing they violated the WTO’s most-favoured-nation (MFN) principle and exceeded U.S. bound tariff commitments. In 2020, a WTO panel ruled in China’s favour, concluding that U.S. tariffs were inconsistent with WTO rules. However, the U.S. rejected the ruling, arguing that the WTO lacked the authority to adjudicate its national security and unfair trade concerns. On the other side, the United States challenged Chinese retaliatory tariffs, arguing that they too violated WTO commitments. China defended its actions as legitimate countermeasures to unlawful U.S. measures.

However, because the WTO’s Appellate Body had been paralysed by U.S. refusal to appoint new judges, these cases remained unresolved at the appeals stage. This paralysis created a fundamental enforcement gap: while panels could still issue reports, losing parties could appeal into a void, preventing rulings from becoming binding. With the Appellate Body not functioning since December 2019, a losing party can “appeal into the void”, which essentially prevents a panel ruling from becoming binding.

2.4 How Protectionism Undermines WTO Mechanisms

Protectionist measures, such as tariffs, fundamentally challenge the WTO’s core mission of reducing trade barriers. When the world’s largest economies openly defy WTO rulings or exploit loopholes in trade law, the authority of the institution is weakened. In the U.S.-China case, protectionism was justified on grounds of national security and “fair trade”, creating a precedent for other states to impose unilateral tariffs without regard for WTO obligations.

The WTO was designed to handle disputes through legal procedures and compromise, but the U.S.-China conflict demonstrated that when political and economic stakes are high, powerful states may prioritise unilateral action over multilateral rules. This undermines the WTO’s legitimacy and raises questions about its relevance in a world of intensifying trade wars.

3. Implications for WTO Reform and the Global Trading System

3.1 Credibility of the WTO

The WTO’s inability to effectively resolve the U.S.-China dispute has created a crisis of credibility. For smaller states, the WTO is the only forum that allows them to challenge powerful economies on equal footing. If major powers can disregard rulings, the very legitimacy of the rules-based system is called into question. This crisis also undermines the predictability of international trade. Businesses rely on WTO rules to plan investments and supply chains; when disputes escalate into trade wars without effective mediation, uncertainty increases, deterring long-term investment and harming global growth.

3.2 Impact on Smaller Economies

Although the trade war was primarily bilateral, its ripple effects were global. Countries integrated into U.S.-China supply chains, such as Vietnam, Malaysia and Mexico, experienced both opportunities and disruptions. Some firms relocated production out of China to avoid U.S. tariffs, benefitting alternative hubs. However, global markets also faced rising costs and uncertainty. Developing countries that relied on predictable trade flows suffered disproportionately, illustrating why reforming the WTO is critical not just for great powers but also for the broader international community.

3.3 Calls for WTO Reform

The trade war fuelled widespread calls for WTO reform. Analysts and policymakers argued that the organisation must adapt to address challenges posed by state-capitalist economies, digital trade and industrial subsidies. Proposals included strengthening rules on subsidies and state-owned enterprises, improving transparency requirements and restoring the functionality of the Appellate Body. Some have also suggested creating alternative mechanisms for dispute resolution, such as the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), as a stopgap measure. However, reform efforts face significant obstacles. The consensus-based decision-making structure of the WTO makes it difficult to implement changes, especially when the United States remains sceptical of the institution. Moreover, deep divisions between developed and developing countries complicate negotiations on issues such as agricultural subsidies, market access and intellectual property rights.

3.4 The Future of the Global Trading System

The implications of the U.S.-China trade war are far-reaching. The rise of protectionism threatens the broader principle of multilateralism in global trade. As countries increasingly turn to bilateral or regional trade agreements, the WTO risks marginalisation. If the organisation cannot effectively resolve disputes between major powers, its relevance as the arbiter of international trade will continue to decline.

Equally, the persistence of global interdependence underscores the need for a strong multilateral framework. Trade wars create inefficiencies, reduce economic growth and increase uncertainty. Smaller economies, in particular, rely on the WTO to ensure fair access to global markets. Without meaningful reform, the global trading system may become fragmented, leading to increased instability and conflict.

4. Conclusion

Rising protectionism, epitomised by the U.S.-China trade war, has severely tested the WTO’s ability to resolve tariff disputes. Shorter appellate timelines, narrow national-security guidance and an opt-in appeal arbitration default would reduce incentives to appeal into the void while politics around AB appointments remain unresolved. The conflict has revealed fundamental weaknesses in the dispute settlement mechanism, including the inability to enforce rulings against powerful states and the paralysis of the Appellate Body. More broadly, it has demonstrated how political considerations and economic nationalism can override multilateral trade rules, undermining the credibility of the WTO.

The future of the global trading system depends on whether the WTO can adapt to these challenges. Reform is essential to restore confidence in the institution and ensure that it remains capable of managing disputes in an era of rising protectionism. While the WTO has survived crises before, the U.S.-China dispute highlights the urgent need for a revitalised multilateral approach to trade governance. Without such reforms, the international trading system risks fragmentation and instability, with profound consequences for global economic order.

Bounds, A. (2025) US declaration of world trade war tests resolve of WTO members, Financial Times [online]. <https://www.ft.com/content/ecfaf8bf-2d96-4f80-a4cb-c97f33ef5434>

Drabek, Z. (2024) Is the WTO terminally ill? Threats to the international trading system, Asia and the Global Economy, 4(1), 100078.

Filippino, M., Beattie, A. & Chávez, S. (2025) Transcript: How to rebuild global trade, Financial Times [online]. <https://www.ft.com/content/a1a6beb2-ca0c-46a1-baec-2ce3c3d4d670>

Focus Economics (2025) Understanding the Implications of Trade Protectionism for the Economy, Focus Economics [online]. <https://www.focus-economics.com/blog/effects-of-trade-protectionism-on-economy/>

Green, R. (n.d.) US-China trade war intensifies as WTO reaches “debilitating” dispute settlement impasse, International Bar Association [online]. <https://www.ibanet.org/article/82ef576b-48cd-4e24-a202-4343fbae0f28>

Kerstens, E. & Reinsch, W.A. (2023) The WTO Panel Report on Chinese Tariffs: Consequences of a Broken Appellate Body, Center for Strategic & International Studies [online]. <https://www.csis.org/analysis/wto-panel-report-chinese-tariffs-consequences-broken-appellate-body>

Keskin, G. (2025) Trade Wars and the WTO: Navigating Trump’s 2025 Tariffs, Atlas Institute for International Affairs [online]. <https://atlasinstitute.org/trade-wars-and-the-wto-navigating-trumps-2025-tariffs/>

Magaji, T. (2025) The Role of the World Trade Organization (WTO) in Promoting Free Trade and Reducing Protectionism, Wukari International Studies Journal, 9(2), pp. 206-216.

Portanskiy, A. (2019) The Imperative of WTO Reform in the Era of Rising Protectionism and Trade Wars, International Organisations Research Journal, 14(2), pp. 238-251.

Reuters (2025) China says ‘rampant’ U.S. protectionism threatens agricultural ties, Reuters [online]. <https://www.reuters.com/world/us/china-says-rampant-us-protectionism-threatens-agricultural-ties-2025-08-24/>

Witts, N.N. (2025) An Analysis of the Successes and Failures of the World Trade Organization (WTO), Journal of Advanced Management Science, 13(2), pp. 41-49.

World Trade Organization (2020) DS543: United States – Tariff Measures on Certain Goods from China, WTO [online]. <https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds543_e.htm>

World Trade Organization (2025) China initiates WTO dispute regarding US “reciprocal tariffs”, WTO [online]. <https://www.wto.org/english/news_e/news25_e/dsrfc_08apr25_e.htm>

Wolff, A.W. (2025) The WTO at 30: The return of higher tariffs, Peterson Institute for International Economics [online]. <https://www.piie.com/commentary/speeches-papers/2025/wto-30-return-higher-tariffs>