Trade policy

Four things to watch in global trade policy in 2025

Henry Gao

Gao Four Things To Watch In Global Trade Policy 2025 Min

Published 07 January 2025

Trade policy in 2025 will not only shape the immediate economic landscape but also redefine the fundamental rules of international commerce for years to come. Expect a resurgence of the US-China trade war, a potential breakthrough in the WTO’s dispute settlement reform, new developments in China’s CPTPP bid, and the continued rise of plurilateral trade agreements.

As 2025 begins, trade has once again taken center-stage in global policy and strategy as Donald Trump, often nicknamed the "Tariff Man," returns to the White House. Known for wielding tariffs and other trade tools as his primary instruments for tackling challenges — real or perceived — Trump’s presidency signals a turbulent period ahead for global trade.

Yet, amid these challenges, opportunities for progress and transformation in global trade policy remain. Despite the dark clouds of looming trade conflict, a few silver linings are apparent in four areas:

1. The resurgence of the US-China trade war

The US-China trade war is set to return with even greater intensity, likely overshadowing the first iteration. While this escalation appears concerning, it may not necessarily result in a zero-sum outcome for the parties involved.

China’s assertive behavior in recent years — ranging from economic coercion to its combative "wolf-warrior diplomacy" — has solidified a global consensus among major economies on the need to reduce trade dependence on China. A shift toward "de-linking" or at least "de-risking" their economies from China is now viewed as both necessary and achievable. This sentiment could rally greater support among US allies for America’s new China policy, smoothing the path for more coordinated trade strategies, if Washington doesn’t alienate its allies too much.

Conversely, China’s internal economic policies, manifested in its overly stringent zero-Covid measures, tech industry crackdowns, and an overemphasis on supply-side reforms, have left its economy vulnerable and in a deep structural rut. These missteps have curtailed its ability to mount significant retaliatory actions, potentially nudging Beijing toward negotiating compromises. A transition from China’s investment-led growth model to a more demand-driven economy could alleviate concerns about China’s global trade dominance while steering a more sustainable path toward development at home – if Chinese policymakers have the political will to pull off this difficult task. So far, they have not given much indication that they do.

2. WTO dispute settlement reform: A potential breakthrough

The World Trade Organization’s dispute settlement system has been paralyzed since 2019 due to the US blocking appointments to its Appellate Body (AB). Despite pledges at the WTO’s 12th Ministerial Conference in 2023 to restore a "fully and well-functioning" system by 2024, progress on restoring the system remains elusive, with ambiguity surrounding the AB’s fate.

In September 2023, US Ambassador to the WTO Maria Pagan, in answering my question at an event in the Swiss Alps on WTO reform, made it clear that the US remains opposed to reinstating the AB. With Trump back in office and still openly antagonistic toward the AB, the prospects for its revival remain slim.

This might prompt WTO members to pursue bolder solutions, such as invoking Article IX.1 of the Marrakesh Agreement to force a vote on AB appointments, a solution I have been advocating for the past five years. Concerns about a formal US withdrawal from the WTO, a longstanding deterrent to such a vote, carry less weight as the US does not appear intent on such a course and would likely have done so in Trump’s first term had Washington wanted this. In light of Trump’s unilateral trade measures, including high tariffs threatened against almost everyone, it is clear that the US intends to continue a pattern of trade policy already ruled a violation of WTO rules. This means that the US already sees itself as being outside of the WTO in all but name, which might propel other WTO members to act decisively to resolve the longstanding AB crisis.

3. CPTPP: Navigating China’s accession amid US absence

As the largest free trade agreement in the world, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) set a "gold standard" for trade deals from its inception, ironically nurtured and established by the US itself before Trump pulled the US out of its membership. On 16 September 2021, China formally applied to join the CPTPP.

Despite much fanfare, its accession negotiation has not made much progress in the past three years. Of course, this does not mean that China is not ready. To the contrary, as I noted three years ago, China has been studying the rules of the CPTPP and its predecessor the Trans-Pacific Partnership (TPP) very carefully since 2013. It was only when China decided that it was ready that it submitted the application to CPTPP.

Yet, the fact that China is able to meet the standards should not be confused with China’s willingness to implement such standards upon accession. Probably in recognition of this, the CPTPP Members announced the “Auckland Principles” in 2023, which is composed of three principles that govern the accession of new members, namely:

• "The aspirant economy must be willing and able to meet the CPTPP’s high standards;
• The aspirant economy must have a demonstrated history of compliance with their existing trade commitments; and
• There is a consensus among the CPTPP parties that negotiations with the aspirant can begin."

Apparently, China would have problem meeting any of the three principles, as demonstrated from its track record, especially at the WTO.

As I discussed in my 2022 book "Between Market Economy and State Capitalism: China's State-Owned Enterprises and the World Trading System", while China is able to move toward market economy standards in its WTO accession package, it reversed market reforms in recent years and moved back closer toward state capitalism. Thus, many CPTPP members have doubts as to whether China would comply with its commitments, which makes it hard to form the necessary consensus to kickstart the negotiation process with Beijing.

Meanwhile, a US return to the CPTPP remains highly unlikely under any US administration. Ironically, over time, this could ease China’s path to membership, as CPTPP members may abandon hopes of US re-entry and instead focus on integrating China.

As I have mentioned numerous times over the past three years, China’s accession does not depend on China nor any of the current CPTPP Members. Instead, it depends on the US. If the US were to announce its intention to return to the CPTPP, then China is essentially shut out. During the past four years, some have been waiting for the Biden administration to announce the US return, which did not happen as it cuts against the bipartisan and bicameral political grain on US trade policy. However, people were hoping that, if Joe Biden got re-elected, he will be able to ignore the political costs to return to the CPTPP in his second term. In view of this, fatigue over the prolonged "waiting for Godot" strategy of anticipating US involvement may give way to pragmatic decision-making at CPTPP, which could accelerate China’s accession process.

4. The rise of WTO plurilaterals: Breaking the deadlock

For over two decades, the WTO has struggled to conclude new agreements due to its consensus-based decision-making model. To sidestep this paralysis, members turned to plurilateral agreements through Joint Statement Initiatives (JSIs) to address issues like services regulation, investment facilitation, and e-commerce.

Despite these plurilateral agreements, resistance to any progress on such deals from certain members, notably India and South Africa, has hindered the integration of JSI outcomes into the broader WTO legal framework. Looking ahead, there is growing recognition among WTO members that accommodating obstructive behavior only hampers the WTO’s own interests. A shift toward implementing plurilateral agreements without unanimous consent could enable the WTO to adapt and remain relevant in a rapidly changing trade landscape.

Conclusion: A year of challenges and opportunities ahead

As 2025 unfolds, the global trade system faces significant disruptions from the intensification of the US-China trade war to ongoing reform debates within the WTO and regional trade agreements like the CPTPP. While challenges abound, these developments also present opportunities for innovation, collaboration, and the modernization of trade governance.

Trade policy in 2025 will not only shape the immediate economic landscape but also redefine the fundamental rules of international commerce for years to come.

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