A 'Golden Age' Of Global Free Trade Is Over. Smaller Alliances Can Meet The Moment

(MENAFN- The Conversation) The global trade landscape is shifting, and not in the way free traders had hoped. For decades, the belief that economic openness could foster peace and stability reigned supreme. Trade, it was argued, could transform authoritarian regimes into more peaceful players. But Russia's invasion of Ukraine has shattered this way of thinking. Rather than mourning the end of a multilateralism based on states' commitments to jointly agreed trade rules, we should see it as a necessary adjustment to a world where economic security takes precedence over market efficiency, and resilience over cost minimization.

The World Trade Organization (WTO), which has constrained protectionism since its inception in 1995, is no longer the linchpin of global trade it once was. Multilateral trade talks have stagnated , and the WTO's dispute settlement system is in paralysis . The US, once a champion of rules-based trade, now finds strategic advantage in a world where power dynamics outweigh legal frameworks. Years of negotiations on agriculture and fisheries subsidies have yielded little progress, underscoring the difficulty of reaching consensus among increasingly divergent national interests.

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Consider the Uruguay Round negotiations in the 1990s that led to the establishment of the WTO – a rare moment when 123 countries found common ground on liberalizing trade in goods, services and intellectual property. That success stemmed from a broad agenda that offered enough variety to create win-win scenarios for all. Today, narrow negotiation agendas make compromise far harder to achieve.

Free trade agreements are emerging less frequently: the average number of new trade agreements per year since 2020 is less than half the average of the previous decade. Meanwhile, protectionist measures have proliferated: there were about five times as many in 2023 as in 2015. Regardless of US President Donald Trump's tariff frenzy , governments are erecting trade barriers and adopting policies that favour domestic industries, driven by the need to secure critical supply chains .

The trend is clear: trade liberalization is no longer the top priority for most countries. Instead, security concerns are reshaping trade policy, echoing the arguments of the 18th-century philosopher Adam Smith. In The Wealth of Nations, Smith argued that national defence is more valuable than economic wealth. (“Defence,” he wrote, “is of much more importance than opulence” ). This idea feels particularly relevant today. In a world of geopolitical conflict, trade is often yielding to strategic concerns.

The United Nations, despite its mission to maintain peace, has struggled to prevent conflict. If international law cannot deter aggression, economic policy must step in.

Security-driven trade

For the EU, this translates into using its trade policy instruments, especially vis-à-vis China, on the basis of a careful dependency analysis that identifies strategic commodities and products. As the European Commission sets self-sufficiency benchmarks for green technologies following the bloc's Net-Zero Industry Act , it errs if it sees the substitution of domestic products for imports as the right way to reduce dependencies. In most cases, reducing import concentration will require diversifying suppliers rather than European self-production.

Security-driven trade requires shifting away from fragile multilateralism toward more selective, regional alliances. These“trade clubs” would align economic interests with shared security priorities. The EU's strengthening ties with the South American Mercosur states , a group of non-hegemonic countries reliant on open trade, exemplify this approach. Intensifying trade with targeted countries could be the best response to Trump's tariffs, avoiding the lose-lose outcome of tit-for-tat tariff wars. The goal of autonomy from an unpredictable US offers a good framework for crafting new bilateral relationships.

Another example is the idea of a “climate club” , which policy-makers have discussed for some time. Climate clubs would consist of countries that agree on joint strategies to reduce carbon emissions while fostering energy security and protecting their economies from competitors without adequate carbon pricing .

Read more: Trump protectionism and tariffs: a threat to globalisation, or to democracy itself?

The challenge is to distinguish between“legitimate” and“illegitimate” security claims. The latter refer to countries' growing abuse of the national security card to justify trade policies. WTO dispute settlement panels ruled against the “self-judging” character of national security claims, hence subjecting them to legal scrutiny, but this“rule of law” approach has only heightened rejection of the WTO system on the US side. To limit abuse, the EU should seek alignment with the US on issues of common concern, such as responding to industrial overcapacity or preventing technology leaks. A joint approach could avert nationalist unilateralism.

A new focus for the WTO

Some worry this shift away from multilateralism could disadvantage poorer nations, leaving them vulnerable to the whims of powerful ones. However, regional trade alliances can empower smaller states. For example, the African Continental Free Trade Area (AfCFTA) gives African nations collective bargaining power they might lack individually. Since its inception with 22 signatories, AfCFTA has grown to include 48 countries, enhancing the continent's influence in global trade.

Abandoning multilateralism doesn't mean sidelining the WTO entirely. Instead, the WTO can refocus on smaller,“plurilateral” agreements among like-minded countries. This“coalition of the willing” approach has already proven effective in areas like e-commerce and investment facilitation . The WTO can remain a forum for building consensus, but its future lies in fostering flexible partnerships rather than pursuing grand, all-encompassing trade deals. In a fragmented world, these smaller agreements could yield the most meaningful progress. Nascent but promising plurilateral efforts are under way to tackle fossil fuel subsidies and environmentally sustainable plastics trade .

The golden age of global free trade may be over, but that doesn't spell disaster. As nations grapple with security challenges, trade policy must evolve to reflect new priorities. Strategic alliances, diversified supply chains and targeted trade agreements will shape the future of global commerce. Rather than lament the decline of multilateralism, we should embrace this shift as a necessary response to a more volatile world. In doing so, we can craft a trade policy that prioritizes resilience and security, safeguarding both economic stability and national interests.

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