The General Agreement on Tariffs and Trade (GATT), established in 1947, was a pivotal response to the economic turmoil and protectionism that preceded World War II. High tariffs and trade barriers during the interwar period led to economic isolation, contributing to global conflict. GATT aimed to foster international trade by reducing tariffs and promoting economic cooperation, operating on principles such as the “most favored nation” status, ensuring non-discriminatory trade practices among member countries. In 1995, the World Trade Organization (WTO) succeeded GATT, enhancing the framework with a formal dispute resolution mechanism to address trade disagreements.
The theory of comparative advantage underscores the benefits of free trade, positing that countries should specialise in producing goods where they have a relative efficiency, leading to mutual gains from trade. Lowering import tariffs allows nations to capitalise on these efficiencies, resulting in a more optimal allocation of resources and increased economic welfare for all parties involved.
Recent US trade policies, particularly under President Donald Trump, have raised concerns regarding their alignment with GATT/WTO principles. The imposition of tariffs on steel and aluminum imports, justified on national security grounds under Section 232 of the Trade Expansion Act of 1962, has been contentious. While GATT permits exceptions for national security, the broad application of these tariffs has been criticised for potentially violating WTO rules, as they may not fit neatly into exemptions for anti-dumping and countervailing duties. China, notably affected by these tariffs, has initiated WTO dispute proceedings against the United States, arguing that such measures disrupt the multilateral trading system and could precipitate a global recession.
The WTO’s dispute resolution mechanism, designed to adjudicate such conflicts, has faced challenges due to the US blocking appointments of key judges, leading to a paralysis in the system. This impasse undermines the effectiveness of the WTO in resolving trade disputes and maintaining global trade order.
Ukraine’s accession to the WTO in 2008 has provided the country with access to international markets and a platform to address trade disputes, bolstering its economic integration into the global economy. However, the current US trade policies and the potential erosion of the WTO’s authority pose risks to the stability and predictability that member countries, including Ukraine, rely upon for economic development.
While President Trump has threatened to impose across-the-board tariffs on various countries, such actions could destabilise the global trading system reminiscent of the 1930s, characterised by economic isolationism and military conflicts. It appears that these threats may serve as leverage to renegotiate trade terms, aiming to protect domestic industries and address trade imbalances. However, the pursuit of such strategies must be balanced against the potential costs of undermining established international trade frameworks that have historically contributed to global economic stability and peace.