Trump tariffs and their effect on world trade and economy with particular reference to Sri Lanka – Part IV

President Trump's tariffs have also highlighted fundamental inequities in the international trade and financial architecture that governs economic relations between wealthy and developing nations.

- BY M. U. M. ALI SABRY

The World Trade Organization, theoretically designed to provide a rules-based trading system that benefits all members, has proven largely powerless to prevent unilateral actions by powerful economies like the United States. While China has urged the WTO to investigate President Trump's tariffs as violations of the "most favoured nation" principle that forms the bedrock of the multilateral trading system, the organization lacks effective enforcement mechanisms against major powers.

Similarly, international financial institutions like the IMF have failed to adequately account for trade shocks in their lending programmes and debt sustainability analyses. As discussed earlier, the IMF's approach to Sri Lanka's debt restructuring focused primarily on fiscal consolidation while paying insufficient attention to the country's

structural trade deficit and vulnerability to external shocks. When Trump's tariffs suddenly reduce Sri Lanka's export earnings, the IMF program offers no automatic adjustment mechanisms to accommodate this changed reality.

This situation stands in stark contrast to historical examples of more equitable treatment of indebted nations. The London Debt Agreement of 1953, which restructured West Germany's external debts, explicitly linked repayment obligations to the country's trade performance and capped debt service at a sustainable percentage of export earnings. Such an approach recognised the fundamental importance of trade capacity to debt sustainability, a recognition largely absent from contemporary debt restructuring frameworks.