Bilateral reciprocal tariff arrangements between major economies erode the WTO's MFN foundation. Discuss with reference to recent U.S.–China trade agreements.

The Most-Favoured-Nation (MFN) principle in GATT Article I requires that any trade advantage given to one member be extended "immediately and unconditionally" to all members [1]. Recent U.S.–China deals set tariffs by bilateral bargaining instead. They weaken this principle, although they do not yet overturn it.

How U.S.–China arrangements erode MFN

• Discriminatory escalation: From 2018, the U.S. raised its average tariff on Chinese imports from 2.6% to 17.5%. China raised its tariff on U.S. goods from 6.2% to 16.4% [2]. These were country-specific rates, not MFN rates.
• Managed trade: Under the Phase One Agreement (January 2020), China committed to buy $200 billion more in U.S. goods and services over two years. The WTO's own analysis expected this to cause trade diversion away from other exporters [2].
• Reciprocity replacing non-discrimination: The September 2026 eight-point consensus provides for a $30-billion reciprocal tariff cut [3]. The concession applies only between the two parties and is not framed as an FTA under the Article XXIV exception [1].
• Parallel institutions: A new bilateral trade council [3] handles disputes outside the WTO. Meanwhile the Appellate Body has been unable to hear appeals since its last member's term ended in November 2020 [4]. This leaves little multilateral check on discriminatory deals.
• Demonstration effect: When the two largest economies trade on a "G2" basis, others are encouraged to bargain bilaterally too. Smaller economies like India lose the protection that MFN gives them.

Limits to the erosion

• MFN not abandoned: While raising tariffs on the U.S., China cut its MFN tariffs for other partners by about 5% on average [2].
• De-escalation is positive-sum: The WTO estimates that uncertainty from the trade conflict costs 0.34–0.50% of global GDP, well above the direct tariff effect of about 0.1% [2]. A truce, even a bilateral one, reduces this cost for everyone.
• Reversal of past discrimination: The 2026 cut partly unwinds tariffs that were themselves departures from MFN [3].

Bilateral reciprocity has therefore weakened MFN from a binding rule into a default that big powers can bargain around. Restoring the WTO dispute settlement system, bringing bilateral concessions into WTO notification and review, and building middle-power coalitions for plurilateral rules can make the multilateral order resilient again. India has a direct stake in a rules-based and non-discriminatory trading system.