International Trade: The Rise of Bilateralism

Over the past decade, international trade has shifted from multilateralism toward bilateralism, a trend fueled by protectionism, President Trump’s “America First” policy, dysfunction in the World Trade Organization (WTO), and a perceived downfall of regionalism.

Protectionism & “America First”

Under Trump’s leadership, the United States adopted aggressive tariffs and unilateral trade measures aimed at reducing bilateral deficits in goods—a strategy widely criticized by economists for neglecting services trade and global supply chains. The U.S. imposed tariffs as high as 30–50% on partners including the EU, Canada, Brazil, and China. As one commentator noted, “Trump’s trade policies…externalized domestic nationalism” and undermined global trade norms.

This protectionist turn paired with the U.S.’s repeated blockages within the WTO decision‑making process, which relies on consensus, led to global disappointment in the multilateral approach. Today, WTO members are pushing reforms to allow decisions by subsets and reduce veto power highlighting a system that has lost its effectiveness. (Source: Reuters)

The Decline of Regionalism

Regional multilateral frameworks such as SAFTA (South Asia Free Trade Area) have suffered from limited implementation. In South Asia, intra‑regional trade remains at just 5%, far below ASEAN’s 25%. Political tensions—especially India‑Pakistan and India‑China disputes – have weakened SAARC and stalled integration projects, making bilateral deals a more attractive alternative for policymakers.

India’s Strategic Turn to Bilateralism

India has embraced bilateralism through a series of CEPA and CECA agreements. These deals typically span goods, services, investments, visas, and dispute resolution.

• India–Singapore CECA (2005) expanded access in finance, IT, aviation, and led to investment in SEZs and mutual tourism growth.
• India–South Korea CEPA (2010) eliminated tariffs on 90% of product lines and boosted trade in autos, electronics, services, and steel.
• India–UAE CEPA (2022) targets bilateral trade worth $100 billion within five years and is driving start‑up and innovation exchanges.
• India–Australia (2022) cuts tariffs on engineering goods, gems, textiles, and agriculture and aims to double trade by 2030.

India is in talks with the UK, anticipating an FTA that re‑launches negotiations aiming to double bilateral trade to USD 120 billion by 2030. The deal lowers duties on textiles, leather, processed food, and autos, while UK‑India trade might rise by £25.5 billion (≈ $34 billion) by 2040 (Source: The Economic Times+6India Seatrade News+6The Economic Times+6.). There are so many examples of bilateral agreements, between nation to nation and between nations to regional organization. Further, India–ASEAN trade is undergoing a review to modernize their FTA for fairness. However, India’s trade deficit with ASEAN has more than doubled since 2010—from ~$25.6 billion in exports versus $30.6 billion in imports in FY 2010–11 to exports of ~$44 billion and imports of ~$87.6 billion in FY 2022–23. This suggests benefits of the multilateral ASEAN FTA have not been evenly distributed (source: Reddit.)

Gains from Bilateralism

1. Custom-tailored terms: Bilateral agreements let countries negotiate protections, services openings, and industrial support mechanisms suited to their economies.
2. Speed & flexibility: Unlike WTO or regional deals that require consensus, bilateral treaties can be negotiated faster and updated regularly.
3. Mutual visibility in sensitive areas like labor mobility and dispute resolution mechanisms ensure enforceable commitments.

For example, the UK‑India FTA reduces whisky tariffs in India from 150% to 75%, with plans to drop further to 40%—while eliminating import duties on ~99% of Indian textile, food, and jewelry exports to the UK (source: AP News.)

Risks & Criticisms

Despite benefits, a pivot toward bilateralism risks fragmenting the global trade regime:

• Erosion of WTO relevance: As countries prioritize bilateral deals, the WTO’s role as the global arbiter dwindles. Reform efforts highlight its current limitations but may come too late.
• Neglecting small regional partners: As major powers like India and the U.S. focus on big‑ticket bilateral agreements, smaller neighbors may be left out, widening inequality.
• Duplication and complexity: Multiple overlapping bilateral agreements can lead to conflicting rules of origin, regulatory standards, and creditor protections—raising compliance costs.

The Indian Context: A Case Study

India leverages bilateralism to expand its global reach while steadily reevaluating regionalism:

• As part of Act‑East strategy, India pursued bilateral agreements with Australia, UAE, UK, Singapore, South Korea and others, each designed to boost specific sectors like textiles, pharmaceuticals, services, and IT.
• Despite the ASEAN FTA’s early promise, Indian policymakers now openly question its deficit‑heavy impacts and demand a modern framework that is truly mutually beneficial.
• Recent multilateral platforms like the Supply Chain Resilience Initiative (with India, Japan, Australia) show hybrid cooperation, but trade outcomes still rely on bilateral mechanisms.

Conclusions

The ascendance of bilateralism reflects a broader reaction to protectionism, America First policies emanating from the U.S., and institutional failures of multilateral trade frameworks, particularly the WTO. While regional integration models have struggled amid political tensions and implementation gaps, bilateral agreements offer nations tailored, enforceable, and rapid pathways to deepen economic ties.

In India’s case, bilateralism has enabled strategic diversification of partners—from the UAE and South Korea to Australia and the UK—providing measurable trade and investment benefits. But the balance between bilateral depth and multilateral coherence remains unresolved.

If WTO reformists succeed in 2026’s ministerial meeting in Cameroon or beyond, multilateralism may regain some vitality. Until then, bilateralism remains the default tool for nations seeking mutually beneficial trade in an era of regional decline. Let us hope that International Trade remains an engine of growth.

Abbreviations

ASEAN – Association of Southeast Asian Nations; CECA – Comprehensive Economic Cooperation Agreement; CEPA – Comprehensive Economic Partnership Agreement; FTA – Free Trade Agreement; FY – Financial Year; IT – Information Technology; SAARC – South Asian Association for Regional Cooperation; SEZ – Special Economic Zone; UK – United Kingdom; UAE – United Arab Emirates; WTO – World Trade Organization