The New World Trade (Dis)Order: Implications and The Way Forward

Mauritius in the Global Economic Landscape

By Dr Sunil Boodhoo

The end of World War II in 1945 led world leaders to rethink the global political and economic architecture with the creation of multilateral institutions. Economic stability was considered as important as political alliances. The war itself had shown how protectionism, competitive devaluations, and trade rivalries in the 1930s fuelled resentment and conflict. To prevent history from repeating itself, nations came together to design a new global economic order — one that would bind economies together, reduce trade frictions, and ensure prosperity was shared more widely.

Out of this determination came the Bretton Woods institutions, the General Agreement on Tariffs and Trade (GATT) in 1947, and later the World Trade Organization (WTO) in 1995. The philosophy was simple but profound: instead of a chaotic marketplace where power dictated outcomes, trade would be governed by rules. Transparency, non-discrimination, and reciprocity would ensure predictability. Disputes would be settled by arbitration, not retaliation.

For decades, this rules-based order worked remarkably well. Tariffs fell across successive negotiating rounds. Global trade expanded faster than global GDP. Supply chains linked continents in ways previously unimaginable. Above all, trade became a stabilizing force, helping integrate former adversaries like Germany and Japan into a cooperative world economy.

But today, the very foundations of that order are cracking. And one of the clearest triggers has been the return of tariffs as political weapons. The tariff war unleashed by President Trump, justified in the name of fairness and national security, have not only disrupted global trade flows but also undermined the very principle of multilateralism. It has led from a world characterized by trade order to trade disorder.

The Erosion of Multilateral Rules

What make these tariffs particularly destabilizing is not just their scale, but the fact that they have bypassed the WTO’s rules. The organization, designed precisely to prevent tit-for-tat retaliation, has been sidelined. The formula used to calculate the reciprocal tariff has left economists and observers bewildered, which is obtained for each country by dividing the US trade deficit by total exports. Even if President Trump wanted to deliver on his promises to re-industrialize the US and bolster Domestic Manufacturing, one would have expected small exporters to be exempted from his reciprocal tariff. But surprise, they have been caught full swing in the disorder caused by the tariff. 

The WTO Dispute Settlement Mechanism has become dysfunctional since the US has blocked the appointment of new judges to the WTO’s Appellate Body, effectively paralyzing the whole system. Without a functioning court of appeal, the WTO’s enforcement arm has been neutralized. It is a blow from which the institution has yet to recover.

The very foundation of the WTO system – the most-favoured nation (MFN) clause at the heart of multilateral trade has been eroded. This vital principle is meant to discard discrimination and to ensure that all WTO Members are treated equally in terms of trade. It does make provisions, though, for exceptions and waivers that allow countries to conclude preferential trade agreements, and for developed countries to grant unilateral preferential treatment to developing countries to enable them access their markets. One such initiative is the AGOA which operates under a WTO waiver.

Implications for Mauritius

The implications for Mauritius are likely to be dramatic.

First, because of the reciprocal tariff of 15% levied on Mauritian exports which exposes our products to competitive pressure on the US market. When compared to the tariffs of 19% applicable to our direct competitors like Bangladesh and Vietnam, we seem to be in a relatively better position. However, under the AGOA, Mauritian products were exempted from tariffs compared to Bangladesh and Vietnam which were taxed at the prevailing MFN rate of duty, for instance 16% for cotton garments and 30% for garments made from synthetic fibers which provided a high margin of preference for our products. For cotton garments, for e.g., the margin of preference stood at 100% [(16/16) x100], but now with the reciprocal tariff, it has now dropped to 21% [(19-15/19)]x100

Second, if AGOA is not re-authorised by 30 Sept, the prevailing MFN tariff will add on to the reciprocal tariff, implying that cotton garments made in Mauritius will be taxed at 31% (15 +16), and synthetic garments at 45% (15+30), compared to 19% for both Bangladesh and Vietnam, providing them an effective margin of preference of 30% for cotton garments and 45% for manmade fibres respectively. If measures are not taken to mitigate the tariff impact in Mauritius, we risk to lose the US market which absorbs 10% of our exports, with the ensuing consequences of firm closures and job losses.

Third, the Trump reciprocal tariff will automatically result in trade diversion strategies by many countries to neutralise the impact of the US tariff. There is a serious risk that Countries will compensate the loss of the US market by increasing exports to other markets, including by resorting to massive subsidization, dumping and other unfair trade practices. The result is a possible displacement of exports from Mauritius on the EU and UK and other important markets. In addition, there is now a sudden rush by many countries to open new export avenues by concluding Free Trade Agreements. The EU-MERCOSUR Agreement, India-UK FTA, India-EU FTA are cases in point. Not only will this create a new trade dynamic for the Parties to the FTAs, but it will add competitive pressure on small, high-cost producers like Mauritius with a real risk of trade displacement.

 The India-UK deal makes 99% of Indian goods duty free into the UK market. India is a high volume, low-cost clothing exporter-so price sensitive buyers and fast fashion chains can source more cheaply from India, squeezing Mauritian exporters on price and volume. The India-EU deal will follow similar concessions for textiles and other products and the pressure will extend on that market too.

The Way Forward

A change in market conditions requires a re-think of strategies both at the Government and firm levels. The new world trade disorder is here to stay. There is no fixing it unless the international community decides to revert course and put back on track the WTO and its rules at the heart of world trade. But the WTO system itself is in deep crisis. It has not reacted to the Trump tariff policy which clearly undermines the WTO system. With the multiplicity of trade negotiations under way between the US and some 90 Countries, as the US President has put it, but with no visibility on the details, it is most likely that they will create a web of conflicting trade deals that will further increase entropy or disorder. 

We have no option than to adapt to this new world trade disorder.

I had recently argued in an article that Mauritius must work with the African Union to lobby for a short-term extension of AGOA, but with a clear roadmap for African Countries to negotiate a partnership Agreement with the US, either at the continental level or with regional or sub-regional groups, modelled on the EPA between the EU and ACP Countries. US Congressman may be more willing to legislate AGOA`s extension in the short time left on this basis rather than to have a seamless extension for a long period of time as advocated by the AGOA beneficiaries. In addition, we should pursue our strategy of opening new markets such as EURASIA, EFTA, AUSTRALIA, CANADA, MERCOSUR amongst others. We may consider joining the Comprehensive Progressive Trans Pacific Partnership (CPTPP). The world has come to realise how important market access is, and we should realise it too. We should continue creating the best market access conditions for our products and services.

The Government, through the EDB and the private sector, must henceforth be more proactive in harnessing the huge trade opportunities that our vast network of Free trade Agreements provides. Mauritius is one of the few developing countries in the world, and the only one in Africa to have concluded trade deals with all the major economies in the world: the EU second largest economy with a GDP of 20 trillion USD, China, third largest economy with GDP of 19 trillion USD, India, fourth largest economy with a GDP of 4 trillion USD, African continent, combined GDP 2.8 trillion USD, Turkey GDP 1.4 trillion, UAE 537 billion USD.

Government must undertake a complete diagnostic of the industrial sector, in collaboration with industry captains to assess the competitive strengths or weaknesses and implement measures to close competitive gaps.  Mauritius can survive the competitiveness challenge if we build our production systems on a sound technological basis and produce high end products with high intellectual property content.

The sugar industry is a perfect example of how we can transform a sector by creating more value-added products, adapt to changing market conditions and use Intellectual Property to enhance quality. And so is the Rum subsector. The Mauritian speciality sugar and the Mauritian Rum are now labelled as Geographical Indications (GIs) which automatically increases the value in the eyes of consumers.  This is the way ahead. 

Mauritius Times ePaper Friday 3 October 2025