Global trade under strain: why rules still matter for nations like Switzerland

Global trade is under pressure with the United States sharply raising import tariffs on many countries and prompting a wave of bilateral deals that have revived fears of power politics overtaking established rules. The former Chief Economist of the WTO Ralph Ossa explains why small, open economies such as Switzerland need to defend and adapt the rules-based system during these turbulent times.

Over the past year, the United States has sharply raised its import tariffs, sending shockwaves through the global economy. According to the World Trade Organization (WTO), the average US import tariff has risen to around 19%, up from just 3% at the beginning of 2025. This shift is especially significant because it comes from a country that has long been a central sponsor of open, rules-based trade.

Governments around the world have responded quickly to this new reality. More than 15 bilateral deals have been concluded, typically involving substantial concessions by US trading partners, such as unilateral market-access commitments or pledges to direct large investment flows toward the US. In some cases, these concessions have been accompanied by highly visible personal gestures toward US President Donald Trump, including gifts such as a Rolex desk clock and an engraved gold bar from Swiss business representatives.

Together, these developments have contributed to the impression that the rule of law is giving way to the law of the jungle in international trade. This is particularly daunting for small open economies such as Switzerland, which stand little chance of prevailing in a world where economic relations are increasingly shaped by power rather than rules.

That impression, however, is misleading. Two facts stand out. First, the US accounts for only about 14% of global merchandise imports, meaning that 86% of import demand comes from the rest of the world. Second, roughly 72% of global merchandise trade is still conducted under the WTO’s most-favoured-nation (MFN) tariffs. This is a core principle of the WTO which requires a country to treat all its partners equally, ensuring they benefit from the same tariffs.

A further 16% of global trade benefits from additional preferences granted under preferential trade agreements that themselves operate within a rules-based framework. Taken together, nearly 90% of world merchandise trade continues to be governed by agreed rules.

Protecting this rules-based core of global trade should therefore be the central trade policy priority for governments around the world. While they cannot control US trade policy, they do control their own — and, crucially, the trade relations they maintain among themselves.

What does this mean in practice? The immediate implication is that trade deals struck to repair relations with the US should not come at the expense of trade relations with the rest of the world. If they do, they risk creating more problems than they solve. In this regard, many of the arrangements concluded so far give cause for concern, as they grant tariff reductions to the US without extending them to other WTO members. This runs counter to the WTO’s MFN principle and gives US firms preferential access to partner markets at the expense of third-country competitors. Switzerland is a notable exception, at least with respect to industrial goods, as it already applies zero tariffs on these goods on a non-discriminatory basis.

In this context, a particular risk is a deterioration in trade relations with China. No economy can afford sustained trade tensions with both the world’s largest and its second-largest economy at the same time. While concerns about Chinese overcapacity in specific industries are legitimate, the threat of trade diversion is often overstated. In 2024, bilateral trade between China and the US accounted for less than 3% of global merchandise trade, which limits the scale of any potential diversion. Moreover, trade diversion is a two-way street: firms from Europe and other economies that now face higher barriers in the US will also seek alternative markets.

Beyond these immediate challenges, the broader lesson is that governments should seek to invest in common rules rather than circumvent them. The top priority is WTO reform, ideally reinforced by a clear political commitment at the upcoming 14th Ministerial Conference. While the WTO remains the cornerstone of the global trading system, it urgently needs to strengthen its negotiating, implementation and dispute-settlement functions to remain fit for purpose.

This includes making WTO decision-making less rigid, enabling progress through coalitions of the willing, and updating the rulebook in areas such as digital trade, trade-related climate measures, and industrial subsidies. Expanding the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) could also go a long way toward containing the WTO’s Appellate Body crisis. This body which served as an appeal court to trade disputes, has been blocked since 2019 when two of its judges weren’t renewed.

Given the political and institutional obstacles facing WTO reform, it is prudent to complement multilateral efforts with a strong network of regional trade agreements. The objective should be to anchor stable and diversified trade relationships, which offer the best protection against economic disruptions and geopolitical shocks. For Switzerland, the new Bilateral III agreements with the European Union are particularly important, as they secure continued access to the EU single market. These were finalised early this year and sought to deepen economic, social and academic ties between the two trading partners.

At the same time, recent agreements with partners such as India, Malaysia, Mercosur, and Thailand are strategically significant, reflecting a deliberate effort to deepen ties with fast-growing regions that are likely to play an increasingly important role in the global economy.

In navigating this turbulent environment, Switzerland should also not lose sight of its fundamental strengths. In a world marked by growing uncertainty, political and economic stability has become a scarce and valuable asset. In an international trading system increasingly shaped by power, a strong commitment to the rule of law provides credibility and trust. And at a time of sharpening geopolitical alignments, neutrality remains a source of reliability as a trading partner across blocs.

The broader lesson extends beyond Switzerland. In a world where economic power is increasingly used as leverage, the value of stable institutions and predictable rules is rising, not falling. The rules-based trading system is not a constraint but a source of resilience, protecting economies from uncertainty, political pressure, and fragmentation. The task ahead is therefore not to abandon multilateral rules in the face of current turbulence, but to defend and adapt them, ensuring that international trade continues to be governed by law rather than power.

Edited by Virginie Mangin/sb