Navigating the effects of trade protectionism

Editor's Note: Geopolitical tensions and tariff wars are reshaping global trade dynamics and economic strategies. Recently, at the Boao Forum for Asia Annual Conference 2026, panelists held discussions under the theme "New Global Trade Landscape under Tariff Wars". Below are excerpts from the speeches of three panelists who were explaining how the world can tide over tariffs and increasing fragmentation.

Politicizing tariffs introduces uncertainty

Global trade has entered a new phase where geopolitical competition increasingly shapes economic decisions. Tariffs are no longer just economic tools, but instruments of statecraft with significant ripple effects. Tariffs affect us in three ways.

The first is the loss of predictability. Tit-for-tat tariffs erode planning certainty. Investment slows, partnerships become cautious, and trust weakens. Countries reassess whom they trade with and how exposed they are to geopolitical risk, reshaping global trade patterns.

Second, costs go up and supply chains get reconfigured. Tariff wars force rapid, expensive restructuring. Governments reduce strategic dependencies through subsidies, investment screening, and friendshoring.

Businesses diversify suppliers, build regional hubs, and sometimes duplicate supply chains — raising costs that hit smaller economies and the Global South hardest.

Furthermore, fragmentation amplifies the disruption as companies face conflicting regulatory regimes. Large firms are able to cope, but small and medium-sized enterprises struggle. Governments drift into competing blocs with divergent tech standards, digital systems, and parallel supply chains — pushing the world toward a bifurcated economy.

Tariff uncertainty acts like a hidden tax on global commerce. It delays investment, increases duplication, and adds regulatory friction. Governments lose policy space, businesses lose efficiency, and consumers lose affordability — all in an already fragile global economy. The World Trade Organization, once the anchor of predictable global trade, is struggling: negotiations have stalled, dispute settlement has broken down, and unilateral measures have surged.

To regain relevance, the WTO must adapt in three ways. It must restore trust through a functioning dispute settlement system. With the WTO Appellate Body paralyzed, confidence in rule enforcement has eroded. The Multi-Party Interim Appeal Arbitration Agreement — now covering 60 percent of global trade — keeps appeals alive and helps rebuild trust. It's not a full solution, but it reopens the "neighborhood court" and stabilizes expectations.

Second, the WTO should demonstrate that it can still write rules for today's economy. Digital trade, investment facilitation, and supply chain resilience define modern growth, but the WTO rule book remains stuck in the 1990s. Multilateral agreements — "coalitions of the willing" — allow progress without requiring full consensus. This flexible multilateralism is gaining support across major economies and keeps the WTO responsive to the challenges of the 21st century.

Lastly, the WTO must modernize rules in a way that feels fair to all members. Fairness means different things to different economies: updated rules for advanced economies, and policy space for developing ones. Balancing these expectations is essential for the WTO to remain relevant to both sides.

A credible dispute settlement system, flexible rule making, and a modernized, balanced rulebook are the pillars on which the WTO can operate effectively in a fragmented world. If these are achieved, the WTO can once again anchor global stability while supporting the regional integration that drives growth, especially in Asia.

If there is one lesson from the past year of tariff wars, it is that no country can navigate this turbulence alone. The global trading system is more polarized, more unpredictable, and more fragmented than it has been in decades. In this environment, regional cooperation is essential. Asia has a real opportunity to anchor stability in the post-tariff war landscape. By deepening regional integration, strengthening trade architecture and tackling the new frontiers of digital and green growth, this can be achieved.

Wong Kan Seng is the former deputy prime minister of Singapore and the chairman of CLA Real Estate Holdings.

Chain reaction of tariffs has greater impact

It's really important to understand that tariffs are being applied in a very integrated global system. When you apply tariffs, or other trade-related policies, they propagate both upstream and downstream, through trade and input-output linkages in different countries and raise costs. This ultimately affects investment decisions. The uncertainty caused by these tariffs probably has a bigger impact on long-term economic growth than the actual increase in the tariffs themselves.

Tariffs and other trade policies often operate in ways that are typically not anticipated by their designers. When the United States imposed tariffs last year, the US administration probably did not realize that the move would not necessarily reduce the US trade deficit. In fact, the US trade deficit increased after the tariffs came into force. While direct trade from China decreased in products where tariffs applied, trade increased in products where tariffs did not apply. Moreover, China's indirect exports to the US through global supply chains actually increased in trade and value-added terms.

In a nutshell, global distribution centers and value chains are not retreating, but reorganizing following the increase in tariffs. Despite all these trade headwinds, global trade has remained resilient. Global trade actually grew 4.6 percent in 2025. Services grew even faster. The forecast is 4.8 percent in 2026, down from the 5.3 percent in 2025.

Some of that growth was due to US firms accelerating imports before the tariffs were increased in 2025. Additionally, China redirected its trade to other countries, which welcomed it extensively.

As the largest integrated trading region in the world, and the biggest regional trading bloc, Asia plays a stabilizing role in global trade. Its deep production networks have underpinned globalization and are now at the center of re-globalization. Agreements such as the Regional Comprehensive Economic Partnership and forums such as the Association of Southeast Asian Nations have a significant influence and provide a firm foundation for future economic growth.

Given the turbulence in global trade, what is the future of the WTO? I believe regional trade agreements have a great opportunity to provide innovations in multilateral rules. For example, the European Union can potentially play a big role here. Increased coordination and cooperation between members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the EU can potentially counteract some US policies.

Having said that, it's important to recognize that trade policies are not the biggest drivers of trade growth. GDP growth, technological change and innovation play far more important roles in trade growth. Tariffs and other trade policies account for just 25 percent of global trade growth, while other economic factors drive the remaining 75 percent.

China has also experienced reasonably fast economic growth driven by other factors such as technological innovation, productivity growth, well-established rules and reduced uncertainty.

It needs to be acknowledged that these forces play a very dominant role in economic progress but there is a feedback mechanism. However, if the current uncertainty continues to rise and fragmentation increases, global economic growth could be negatively affected by these other forces.

Robert Koopman is former WTO chief economist and a Hurst senior professorial lecturer at the American University.

Regional cooperation can mitigate tariff impact

From the perspective of small open economies, tariffs are reshaping global trade and weighing on the world economy in a long-term manner. Frequently changing trade policies and tariffs put pressure on global economic growth.

Despite the turbulence, the International Monetary Fund's projections for global growth are relatively stable. The IMF has forecast 3.3 percent growth in 2026, and 3.2 percent in 2027. However, these projections do not take into account any further escalation in tariffs or the impact of the conflict in the Middle East.

Tariffs mainly disrupt the supply side, leading to a reorganization of supply chains and production. This is evident in the recent regionalization and friendshoring trends.

Companies are facing higher costs due to tariffs, prompting them to relocate production to politically aligned or safer markets. This often results in less optimal resource allocation compared with the pre-tariff era, ultimately increasing costs and consumer prices.

Frequent changes in tariff measures introduce unpredictability and increase uncertainty for businesses. This uncertainty undermines the confidence and willingness of companies to invest, which impacts global growth potential. We also have to adapt to the long-term scarring of labor markets and economies.

Tariffs are likely to lead to parallel industrial ecosystems. Instead of a unified global economy, we are witnessing the emergence of competing regional ecosystems with different technological standards. This fragmentation may reduce overall global productivity and growth, increase costs for companies across regions, and create global inefficiencies.

For central bankers, this is a worrying prospect. We must be vigilant about the risk of financial instability, primarily stemming from increased market volatility and heightened risk premiums. This makes monetary policy decision-making particularly challenging. Monetary policies must strike a balance between the inflation target and financial stability. While inflationary pressures and higher risk premiums would call for tighter monetary conditions at higher rates, weaker economic performance and weaker labor market and employment figures would call for accommodative monetary policies and lower rates. These disruptions represent a delicate trade-off between inflation control and growth. Larger central banks may afford to be accommodative, but it is more challenging for small open economies.

How can we mitigate the effects of tariffs in trade wars? Regional cooperation could be one answer. The Regional Comprehensive Economic Partnership (RCEP) is the largest free trade agreement in history, and a prime example of how our regional alliances can help counter tariffs.

Regional cooperation is important, and the rules-based multilateral trading system remains irreplaceable and vital for managing global challenges. The dispute resolution mechanism of the WTO is particularly important for stable trade and corporate relationships. RCEP and future agreements between regional and Asian countries can help mitigate the impact of trade wars. This is exactly what we are working toward here in Boao.

Daniel Palotai is the deputy governor of the Central Bank of Hungary (Magyar Nemzeti Bank).

The views don't necessarily represent those of China Daily.

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