At the end of September, trade ministers from the world’s largest economies met in Milwaukee with an agenda that would have sounded unusual at a G20 trade gathering a generation ago. The United States put forced labor, structural excess capacity, the weaponization of food trade and the future of the most-favoured-nation principle on the table. A week later, the United States and fourteen other economies signed a statement calling for coordinated work on excess capacity in several manufacturing sectors.
It is tempting to read that sequence as another sign that globalization is breaking apart. The more difficult evidence points somewhere else. The World Trade Organization estimates that about 72 percent of global merchandise trade still takes place on non-discriminatory most-favoured-nation terms. World trade also remained highly resilient in 2025, with goods and services trade reaching a record level even after years of tariffs, sanctions, export controls and geopolitical tension.
The important change is therefore not that countries have stopped trading. It is that access to markets is becoming more dependent on who the trading partner is, what is being produced, how production is financed and whether governments consider the supply chain strategically acceptable.
The old system was built around a default
The WTO was never a system of perfectly free trade. Governments retained tariffs, trade remedies, product standards, health rules and exceptions for national security, and free-trade agreements have always allowed some partners to receive better treatment than others.
Its central achievement was more modest. Members bound many tariffs, published rules and accepted a broad presumption of non-discrimination. Under the most-favoured-nation principle, a trade advantage granted to one WTO member generally had to be extended to the rest, subject to established exceptions.
That default reduced the importance of political identity at the border. A small exporting country did not have to negotiate every concession on its own. Companies could plan around a set of baseline rules that did not change entirely with each bilateral relationship.
That system still covers most merchandise trade. But the WTO estimates that the MFN share has fallen from around 80 percent at the start of 2025 to roughly 72 percent by the end of July 2026, with the organization attributing much of the decline to the increased use of tariff actions. The U.S. decision to put “updating” the MFN principle on the G20 agenda matters in that context. It is no longer only a dispute over the level of one tariff. It is a debate about when equal treatment should remain the default.
The hardest disputes now begin before a product reaches the border
Traditional tariff bargaining is comparatively easy to describe. One country charges a certain rate, another wants it reduced, and negotiators bargain over the number.
Many of the most important disputes today are about what happened before a product reached customs.
Governments subsidize semiconductor plants because they consider chips strategically important. They support clean-energy manufacturing to accelerate an energy transition or establish domestic supply chains. They provide grants, tax advantages, cheap financing and procurement preferences. Other governments restrict technology exports because of military risks, exclude products associated with forced labor, or question whether state-backed production has created capacity far beyond domestic demand.
The OECD’s 2026 MAGIC database illustrates the scale of the policy shift. In the firms and fifteen industrial sectors covered by the database, measured industrial subsidies reached $108 billion in 2024, the highest level since the global financial crisis. Solar equipment, semiconductors and heavy industry were among the most subsidized sectors. Manufacturers based in China received relatively more measured support than competitors in other jurisdictions, although the database also documents substantial industrial support elsewhere.
An IMF working paper published in July uses a multi-country model to examine how strategic-sector subsidies can alter trade. The paper estimates that subsidies can increase net exports in targeted industries while imposing losses on competitors abroad; it also finds that tariffs used in response can partly offset those trade effects while creating additional global welfare losses in the model. Those are model-based results, not a direct measurement of every subsidy program, but they capture why the current argument cannot be reduced to “tariffs versus free trade.”
The disputed object is increasingly the production system itself. A related China-focused analysis on this site follows the same movement from individual chips to system-level competition in its discussion of the Ascend 960 supernode.
Conditional trade can address real problems
There is a strong argument for moving beyond a trade regime that looks only at border tariffs.
Forced labor is not made harmless because a product enters under a low tariff. Heavy state support can distort competition. Dependence on a single foreign source for critical medicines, energy equipment or military technology can create genuine strategic vulnerabilities. Climate policy can also create legitimate reasons for governments to care about how goods are produced, rather than only about their price when they arrive.
The older trade order also produced gains and losses unevenly. The WTO’s own 2026 report notes that import competition caused persistent losses for some workers and regions, while the opportunities created by exports often appeared in different places. A system that ignores those distributional consequences can become politically fragile even when aggregate trade gains remain positive.
The problem begins when every government is free to define “fair,” “strategic” or “secure” in ways that conveniently protect its own industries. A subsidy that one government regards as a necessary climate investment may look like unfair competition to another. An export control can address a genuine military risk or become an unusually flexible instrument of commercial exclusion. A claim of structural excess capacity can identify a real distortion, but it can also become difficult to separate from ordinary competition.
Once market access becomes more conditional, the credibility of the conditions matters.
The shift also changes bargaining power
Universal rules do more than reduce tariffs. They limit the extent to which access to a large market depends on political leverage.
That matters most for smaller economies. The United States, the European Union and China can all bargain with suppliers and trading partners from positions of enormous market power. A smaller exporter of textiles, components or agricultural goods has much less ability to negotiate a separate regulatory settlement with every major destination.
The WTO’s MFN principle historically allowed smaller economies to benefit from market-opening concessions without possessing equivalent bargaining power themselves. A world in which more market access depends on bilateral security relationships, industrial alliances and partner-specific rules could gradually weaken that advantage even if trade volumes remain high.
This is one reason “deglobalization” is too crude a description. A world can remain deeply integrated while becoming more hierarchical.
Consumers do not disappear from the trade equation
The benefits of trade restrictions are often visible. A government can point to a factory that stays open, a strategic plant that receives investment or a supply chain that moves closer to home.
The costs are usually spread across many buyers and companies.
A New York Federal Reserve staff report examining the 2025 U.S. tariff increases estimates that about 26 percent of the tariff increase in its sample passed through to consumer prices. The researchers find that some of the effect came directly through more expensive imported goods and some indirectly through higher input costs and reduced foreign competition. The estimate is specific to the policies and goods studied; it is not a universal tariff formula.
That qualification is important. A country may decide that higher consumer costs are worth paying for a more secure supply chain or to exclude goods linked to forced labor. The policy question is not whether those goals are legitimate. It is whether governments account honestly for the cost of pursuing them.
As trade policy takes on more objectives, transparent accounting becomes more important rather than less.
Globalization may survive under a different logic
The strongest argument against the idea of a structural shift is the continued strength of the existing system. Roughly three-quarters of merchandise trade still uses MFN terms, the WTO still has 166 members, and international trade remains enormous. Companies continue to build supply chains across borders even in sectors governments describe as strategic.
That evidence rules out claims that the multilateral system has already disappeared.
A more accurate description is that the old infrastructure remains in place while governments build a growing layer of exceptions, conditions and strategic arrangements on top of it. Most ordinary trade may continue under familiar rules while semiconductors, steel, electric vehicles, critical minerals, defense technologies, energy equipment and other sensitive sectors become more managed.
Whether that produces a durable trading system will depend on what happens to the exceptions. If countries can define clear conditions, present evidence for them and allow meaningful challenge and negotiation, the system may adapt to problems the older framework handled poorly. If “strategic” and “fair” become labels that large economies invoke whenever convenient, smaller countries will face a less predictable world in which formal openness coexists with political discretion.
Globalization does not have to end for that change to matter. It can remain extensive while becoming much more conditional.
Sources
- WTO — Share of world merchandise trade on MFN tariff terms
- WTO — World Trade Report 2026, Executive Summary
- WTO — Annual Report 2026
- USTR — G20 Trade Ministerial agenda, September 2026
- USTR — Joint Ministerial Statement on Structural Excess Capacity, October 2026
- OECD — MAGIC Database of Industrial Subsidies
- IMF Working Paper — Industrial Policy and Trade Tensions in Strategic Sectors
- Federal Reserve Bank of New York — The Anatomy of Tariff Pass-Through into Consumer Prices