Although the Supreme Court has declared illegal President Donald Trump’s claim of unlimited powers to impose worldwide tariffs, the damage done to the bedrock of multilateral trade rules will prove lasting. The combination of China’s abusive trade practices and Trump’s indiscriminate response to them has made it all but impossible for the World Trade Organization (WTO) to continue acting as guardian of the system the United States fashioned nearly 80 years ago. A look back at the defining political episodes over those years sheds light on the challenges a future U.S. administration would face in restoring an international trading order.
During and immediately following World War II, under Presidents Franklin D. Roosevelt and Harry S. Truman, U.S. foreign policy was grounded in what was then known as the “One World” vision. Officials sought to construct political and economic institutions in which the United States and the Soviet Union, as the world’s two most powerful nations, could cooperate productively. But this vision quickly buckled under vastly different conceptions of effective collective security and beneficial economic exchange. This dynamic is illustrated in the process leading to the creation of the General Agreement on Tariffs and Trade (GATT).
FDR and Truman pursued the creation of a global trade body under the presumption that international economic integration required systemic compatibility. Boosting trade through multilateral tariff reduction necessarily presupposed autonomous profit-seeking firms, convertible currencies, and non-discriminatory treatment. A state-monopoly trading system, such as that operated by the Soviet Union, would make tariff concessions meaningless, since trade flows would be directed by government fiat rather than price signals. And so while Washington sought no formal prohibition on state ownership, it placed the burden on Moscow to adapt its system to the practical premises of the GATT.
The Soviets, for their part, also sought postwar cooperation—but with different objectives. On the economic front, they aimed to secure billions of dollars of concessionary reconstruction loans, which they thought—as faithful Marxists—that Washington would necessarily extend to bail out its own export industries during the final collapse phase of capitalism. Kremlin-friendly assets in the Treasury Department—most notably Harry Dexter White, architect of the International Monetary Fund and an admirer of Soviet planning—buoyed their faith. More mainstream figures, such as Ambassador to Moscow Averell Harriman, however, insisted that loans should carry policy and behavioral conditions. Truman ultimately agreed—insisting on Soviet financial transparency, multilateral economic integration, and political moderation in Eastern Europe.
But a Soviet commission on postwar economic cooperation concluded that “creation of a mighty trade body might become a weapon aimed at the USSR.” They therefore never budged in the face of American demands for constraints on overcapacity, export subsidies, and the like, deeming them intolerable interference with state planning and pricing.
When the United States supported China’s accession to the WTO … it accepted systemic diversity, wagering that WTO disciplines and market integration would gradually reshape China’s political economy. Washington lost its bet—badly.
By early 1947, Truman’s State Department, alarmed by Stalin’s brutal efforts to dominate Eastern Europe, Iran, Turkey, Manchuria, and Korea, concluded that the “One World” vision was no longer tenable. A narrower order would be necessary. The 23-nation GATT, inaugurated in October 1947 without the USSR, therefore represented a more limited rendering of the postwar trade project than originally imagined. The agenda of deepening international integration was refocused on the capitalist economies of Western Europe by way of the Marshall Plan.
This proved a wise decision. Had countries been admitted into the GATT on Soviet terms, three structural tensions would likely have undermined it. First, reciprocity would have eroded: Tariff concessions are meaningful only where prices and production respond to market incentives. Second, the most favored nation (MFN) principle—under which concessions granted to one member are extended to all—would have faced constant pressure for carveouts against state-directed exporters immune from cost constraints and import competition. Finally, trade negotiations would have become arenas for ideological battle rather than reciprocal tariff bargaining.
The GATT was, in the end, neither universal, owing to Soviet objections over foreign interference, nor institutionally powerful, owing to Congress’ own unease with sovereign intrusion. It was therefore a much leaner version of the International Trade Organization (ITO) than FDR and Truman had hoped to create. But what it gave up in breadth of power it more than made up for in cooperative spirit and coherence. It operated broadly within a market-price system and under transparent forms of protection. And by any reasonable metric, it achieved great success.
Average industrial tariffs fell from approximately 35 percent in the late 1940s to 10 percent at the end of the “Kennedy Round” of negotiations (1967). They then fell to 7 percent at the end of the “Tokyo Round” (1979) and to under 4 percent by the early 1990s. Between 1950 and 1990, annual world goods trade grew by about 7 percent—outpacing global gross domestic product (GDP). Though the GATT’s formal dispute-settlement regime was weak, most panel reports were adopted, retaliation was rare, and norms of fair-trade practice embedded themselves organically. Notwithstanding Cold War conflicts, oil shocks, financial turbulence, and periodic recessions, the GATT system, which grew to 128 contracting parties, not only endured for nearly half a century but was given a major upgrade in 1995.
That upgrade, the WTO, reflected a growing belief in the United States that a supranational trade authority would entrench liberal norms. It widened substantive coverage to services, intellectual property, investment measures, agriculture, and subsidies, and deepened legalism through automatic dispute settlement and a standing Appellate Body. Between 1995 and 2007, hundreds of disputes were filed, and compliance was generally good. Major powers, including the United States and the European Union, accepted adverse rulings.
Yet liberalization stalled. The “Doha Round,” launched in 2001, foundered over rich-nation unwillingness to slash agricultural tariffs and subsidies, on the one side, and poorer-nation resistance to opening markets for industrial goods, on the other. More consequential, however, was the challenge posed by China.
China in 2001 was not the Soviet Union of 1947. It was already integrating into global markets and permitted substantial private activity. But it was—and remains—a state-capitalist system in which political authority ultimately directs credit allocation, industrial policy, and strategic sectors. When the United States supported China’s accession to the WTO, it did not demand dismantling of state-owned enterprises or an end to Communist Party control over finance and industry. Instead, it accepted systemic diversity, wagering that WTO disciplines and market integration would gradually reshape China’s political economy.
Washington lost its bet—badly. China’s accession protocol was detailed and demanding in many respects—such as binding tariffs at low levels, eliminating import quotas, and requiring publication of all trade-related laws and regulations—yet the core structure of state capitalism endured. In nominal dollar terms, China’s economy has grown 14-fold since 2001, yet the dominance of state-owned firms and state-directed credit, rather than withering away, has increased markedly under the leadership of Xi Jinping. WTO rules—designed primarily to limit tariffs and conventional subsidies—proved ill-suited to controlling pervasive industrial-policy interventions, subsidized capital for domestic firms, forced technology transfer by foreign firms, and government-incentivized industrial overcapacity. At the same time, WTO constraints limited the range of remedies available to the United States.
The domestic consequences were profound. As documented in scholarship on the “China Shock,” concentrated import competition inflicted severe adjustment costs on specific U.S. regions and sectors, fueling political polarization and strengthening anti-trade sentiment.
Beginning in 2017—during Trump’s first term, but extending into Joe Biden’s presidency—the United States blocked all appointments to the WTO Appellate Body, rendering it unable to hear appeals and paralyzing dispute settlement. Trump and Biden both invoked unchallengeable “national security” rationales for new trade barriers and increasingly turned to unilateral measures. Other members soon followed suit.
In 2025, the first year of his second term, Trump systematically violated MFN rules with sweeping new tariffs and congressionally unauthorized trade “deals.” Many of the tariffs he authorized under the 1977 International Emergency Economic Powers Act (IEEPA), declared illegal by the Supreme Court, are now being reintroduced under alternative authority.
By far the most salient difference between the successful GATT and the now-paralyzed WTO is their treatment of powerful states with non-market economies. The GATT kept the USSR out; the WTO let China in. While integral features of China’s state-capitalist system proved beyond the organization’s ability to discipline, it also denied Washington a free hand to choose the protective barriers it erected in response. In consequence, the MFN principle and dispute settlement—the core essence of the WTO system—have been strangled.
The counterfactual historical experiment—excluding China from the WTO—is, of course, impossible to run. But it is also difficult to reconcile with Washington’s determination, back in the 1990s, to universalize the postwar liberal order. That aspiration extended beyond trade to expanding NATO and transforming the U.N. Security Council into a genuine organ of collective security. Such universalist aspirations were always bound to be undermined by rising nations whose interests they did not serve.
Restoring some semblance of trade norms under a future U.S. president will require returning to a more modest international architecture. A modernized plurilateral GATT-style arrangement might focus on reciprocal liberalization among economies that share core guiding values, including transparency of subsidies and constraints on state direction of credit. The WTO might continue serving as a forum for dialogue and technical coordination, but would otherwise cease to make rules or adjudicate disputes. The world will, of necessity, carry on trading with China, but on terms set through continuous bilateral negotiations, which is effectively where we have already arrived.
Such a vision falls well short of the universalist ideal of comprehensive rules and impartial adjudication. But what it lacks in breadth and depth of aspiration it might regain in coherence—in the shared commitment to the market-based disciplines that underlay the GATT.
