The future of the multilateral trading system: fragmentation, power shifts and the challenge for development
Economist Enterprise, 7 Jun 2026
The multilateral trading system (MTS) created in the early 1990s with the establishment of the World Trade Organisation (WTO) was designed for a world economy very different from today’s. Built around market access, tariff liberalisation and legally binding dispute settlement, the system reflected the priorities of a period marked by expanding globalisation. Three decades later, that framework has struggled to adapt to the realities of a 21st‑century economy shaped by digitalisation, climate change, geopolitical rivalry and concerns over economic and national security.
Despite growing calls to reform and modernise the WTO, progress has been limited. Efforts to update rules for trade in services, including digital, and investment have fallen short of expectations. Consensus‑based decision‑making and deep political divisions among major economies continue to hinder timely, substantive reform.
The difficulties of the MTS preceded recent crises, but external shocks have fundamentally altered the trading landscape. The Doha Development Agenda, launched in 2001, effectively stalled well before the WTO’s Tenth Ministerial Conference in Nairobi in 2015, when members failed to agree on its future direction. Since then, a succession of crises, including the covid‑19 pandemic, the Russia-Ukraine conflict, escalating tariffs, the proliferation of unilateral restrictive measures and the broader intensification of strategic competition among major powers, has been reshaping international trade policy.
These developments have elevated geopolitics and economic security above traditional considerations of efficiency, specialisation and cost competitiveness. Trade policy is increasingly used as a strategic instrument to reduce dependencies, secure access to critical inputs and protect domestic industries. Export controls, investment screening, industrial subsidies and unilateral trade measures are now central features of the global trade environment.
The WTO’s institutional challenges have compounded these pressures. Its negotiating function has largely stagnated, while its dispute-settlement system, often described as the “crown jewel” of the multilateral trading system, has remained partially non‑functional since December 2019, following the paralysis of the Appellate Body. While interim arrangements such as the Multi‑Party Interim Appeal Arbitration Arrangement (MPIA) exist, they cover only a subset of members and do not fully replace a binding, universal system.
At the same time, consensus decision‑making has made it exceptionally difficult to finalise and implement agreements. This has been visible in repeated ministerial outcomes where important initiatives, such as extending the WTO moratorium on customs duties on electronic transmissions, have faced political deadlock. The result is a growing perception that the WTO lacks the capacity to respond to urgent and emerging trade challenges.
Yet the stagnation of multilateral negotiations does not imply a freeze in trade rule‑making. On the contrary, trade diplomacy has shifted decisively towards bilateral, regional and plurilateral formats. Changes in United States trade policy, marked by greater tariff use and trade restrictions justified on national and economic-security grounds, have favoured targeted bilateral arrangements rather than broad, multilateral commitments.
In contrast, many major economies have sought to preserve elements of a rules‑based order through expanded preferential trade agreements. The European Union has concluded or advanced major agreements with partners, including Mercosur, India, Australia and Mexico, and is negotiating with Indonesia, the Philippines and the United Arab Emirates. The European Free Trade Association (EFTA) has finalised a free trade agreement with India, linking two significant trading blocs. The United Kingdom has concluded negotiations with India, while Canada is pursuing trade talks with India and ASEAN partners. Parallel efforts are under way in Africa through the African Continental Free Trade Area (AfCFTA), which aims to deepen regional integration.
Beyond traditional trade agreements, a new generation is emerging. Digital-trade agreements, negotiated among economies such as the EU, the United Kingdom, Singapore, Chile, Australia and ASEAN members, are creating rules for key issues of the digital economy, such as data flows, privacy issues, e‑commerce and e-signature, source-code protection and digital identities, among others outside the WTO framework. Similarly, critical-minerals and green-technology co-operation agreements increasingly incorporate trade instruments such as export controls, subsidies and investment screening to address supply-security concerns.
By 2026, trade negotiations have become dominated by bilateral, regional and sector‑specific initiatives rather than multilateral WTO processes.
This evolution carries significant risks
First, the proliferation of overlapping and asymmetric trade rules may create a new “spaghetti bowl” of regulations, raising compliance costs for firms operating across multiple jurisdictions. Developing countries and SMEs will be the hardest hit when having to comply with them.
Second, countries unable to participate in these agreements risk exclusion from emerging rule‑making processes. This is particularly acute for least developed countries and small island developing states, which together account for barely 2% of global exports, raising the risk of marginalisation from preferential trade architectures and global trade.
Third, rule-making outside the WTO may result in a reconfiguration or even fragmentation of supply chains. Global value chains account for roughly two‑thirds of international trade, reflecting the deep integration of production across borders. As trade agreements increasingly shape access to these networks, developing countries outside key arrangements face a heightened risk of marginalisation.
Fourth, as a result, the negotiating leverage of developing countries vis‑à‑vis major economies may be weakened. In bilateral or sector‑specific negotiations, smaller economies often face asymmetric bargaining power and limited alternatives, which can constrain their policy autonomy. In this context, the WTO has traditionally played an important role in helping to level the playing field by providing a multilateral framework based on common rules and collective disciplines.
Future scenarios for world trade
Looking ahead, several scenarios emerge. Developing countries have the most to lose from a weakened multilateral trading system, yet they have the least leverage to drive WTO reform. Acting collectively could strengthen their position, but divergent interests among developing economies have repeatedly hindered unified action.
At the same time, national-security and geopolitical considerations are now firmly in the driver’s seat of trade policy. This shift will influence how, and whether, trade can continue to serve as a tool for development. Supply chains in critical sectors such as food, energy, critical minerals and semiconductors, to name a few, may increasingly operate as “clubs”, where access is determined not by comparative advantage but by strategic alignment.
One of the WTO’s core strengths has been its role as an inclusive rule‑maker, providing smaller economies with predictability and protection against power‑based outcomes. In the absence of effective multilateral rule‑making, new trade norms for the digital and green economy risk emerging without adequate consideration of developing-country interests.
In a world increasingly shaped by security and geopolitical rivalry, trade has become subservient to broader strategic objectives. This shift carries profound implications for development and for developing countries’ ability to use international trade to improve living standards. Whether a fragmented system can be reconciled with inclusive growth will depend on the choices governments make in the coming years, both inside and outside the WTO. The challenge is no longer simply to reform the multilateral trading system, but to ensure that it remains relevant in a global economy increasingly impacted by geopolitical and national-security considerations.
Views or opinions expressed are those of the author and any individuals cited, and do not necessarily reflect those of Economist Enterprise or any other member of The Economist Group.
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