By Geraldine C. Nzulumike, MCIArb
INTRODUCTION
Trade wars are not fought with bombs or bullets, but with tariffs, embargoes, and regulatory barriers. They occupy the space between diplomacy and economic self-preservation. They are quiet battles that unsettle markets, disrupt supply chains, and strain international relations. Nonetheless, amid the noise of political posturing and retaliatory measures, arbitration offers a quieter, more deliberate path. It provides a structured forum for addressing disputes through dialogue rather than escalation.
Recent global events such as the protracted U.S.–China tariff conflict and the trade uncertainties following Brexit have exposed the vulnerabilities of the current global trade order. They have also highlighted the limits of traditional mechanisms like the World Trade Organization’s (WTO) Dispute Settlement Body (DSB), now weakened by procedural gridlock and diminishing legitimacy.
This article examines whether arbitration can do more than merely resolve disputes. Can it serve as a stabilising force in the midst of trade hostilities? Can it offer a viable alternative to retaliation by fostering negotiation and restoring trust in international trade relations?
WHAT IS ARBITRATION?
Arbitration is a form of alternative dispute resolution (ADR) where parties agree to resolve their disputes privately, that is, outside of national courts, before a neutral arbitrator or panel. In other words, it involves a confidential process where a neutral arbitrator makes a legally binding decision based on the evidence provided by the parties.
Often favoured for its speed and adaptability, arbitration is especially well-suited to the complexities of cross-border commerce. Unlike litigation, which follows rigid court procedures, arbitration allows parties to tailor the process to fit the nuances of their dispute. A typical arbitration process includes the following steps:
- An agreement to arbitrate (often embedded in a contract or treaty),
- Selection of arbitrator(s),
- Preliminary procedural arrangements,
- Exchange of written submissions and evidence,
- A hearing (if necessary), and
- Issuance of a final Award, which is generally enforceable across jurisdictions under instruments like the New York Convention.
One of arbitration’s main advantages is its flexibility. Parties can choose arbitrators with specialised expertise, modify procedural timelines to suit commercial needs, and keep proceedings confidential. Arbitration also fosters dialogue and reasoned decision-making, offering a structured path to resolution that can preserve commercial relationships even in the face of serious disagreement.
However, arbitration does have its limits. Unlike the World Trade Organization’s (WTO) Dispute Settlement Body (DSB), it does not create binding precedent or shape international trade policy. Furthermore, arbitration resolves individual disputes, it does not regulate broader market conduct. Still, in a world where multilateral frameworks are strained and retaliatory instincts are on the rise, arbitration’s adaptable case-by-case approach may prove to be its most valuable asset.
WHAT ARE TRADE WARS?
Trade wars are economic conflicts between countries, often sparked by protectionist policies[1] such as tariffs, quotas or import bans. Essentially, they involve retaliatory cycles: one country imposes tariffs to protect its domestic industries, and another responds with its own set of barriers. The result is often escalating tension that hurts businesses, raises consumer prices, and unsettles global markets.
Unlike economic sanctions, which may be driven by humanitarian or geopolitical concerns, trade wars are rooted in commercial interests. They are often framed as measures to address trade imbalances, combat unfair competition, or promote local industry. Still, the consequences can be far-reaching, including disrupted supply chains, reduced investor confidence, inflation, and diplomatic tensions.
THE IMPACT OF TRADE WARS ON INTERNATIONAL COMMERCE
At the core of trade wars is the struggle between state sovereignty and the obligations imposed by international trade agreements. Treaties such as those under the WTO or bilateral investment frameworks demand predictability and compliance (pacta sunt servanda – “agreements must be kept”). However, in practice, when political pressure mounts or strategic industries are at stake, states often revert to self-preservation, prioritising domestic interests above global commitments.
The ripple effects of trade wars are rarely contained. In our deeply interconnected global economy, a tariff imposed in one country can disrupt a factory’s operations halfway across the world and raise prices for consumers in yet another. What starts as a bilateral dispute can rapidly escalate into a regional or global trade crisis, with consequences that span industries and continents.
Modern trade wars are no longer confined to disagreements over a single product or sector. They reflect broader, more complex rivalries such as economic, technological, and geopolitical ones. The U.S.–China conflict, for example, has touched everything from semiconductors to soybeans, reshaping global supply chains and investment patterns. Likewise, Brexit has redefined decades of trade integration within Europe, altering the flow of capital, changing custom regulations, and limiting labour mobility.
In short, modern trade wars are not isolated incidents, they are systemic disruptions. And their impact is not just felt by governments, it is felt by businesses, workers, and consumers navigating the uncertain terrain they leave behind.
CAN ARBITRATION RESOLVE TRADE WARS?
Arbitration was not originally designed to address geopolitical standoffs or retaliatory state actions. Its traditional role lies in resolving commercial disputes. However, when trade wars stem from Investor-State agreements or treaty violations, arbitration becomes a credible and increasingly valuable tool.
In many cases, initiating arbitration is faster and more adaptable than pursuing dispute resolution through the WTO or commencing litigation.[2] Investor-State arbitration, particularly under Bilateral Investment Treaties (BITs) or frameworks like the United States-Mexico-Canada Agreement (USMCA), has given private entities a platform to challenge unfair state measures that distort market access or breach treaty obligations.
Institutions such as the International Chamber of Commerce (ICC), the International Centre for Settlement of Investment Disputes (ICSID), the Chartered Institute of Arbitrators (CIArb UK), the Abuja Chamber of Commerce and Industry (ACCI), and the UNCITRAL Arbitration Rules offer neutral forums for resolving such disputes.[3] Arbitration in this context brings several advantages:
- Neutrality. Decisions are made outside national systems, free from local bias,
- Confidentiality. Proceedings are shielded from public scrutiny, which can reduce political posturing,
- Enforceability. Awards are generally recognised and enforceable under the New York Convention, and
- Flexibility. Parties can customise rules, choose arbitrators, and adjust timelines to fit the commercial realities of their dispute.
However, arbitration is not without its limitations. Some of its challenges include:[4]
- A lack of uniform legal standards across jurisdictions,
- Enforcement difficulties, particularly where states resist awards that touch on sensitive regulatory issues,
- Jurisdictional overlaps between national courts, arbitration panels, and international trade bodies, and
- Political reluctance to submit matters involving public policy (such as environmental regulation or national security) to a binding third-party decision.
Still, despite these hurdles, arbitration remains one of the most practical tools available for de-escalating trade-related disputes. It may not prevent trade wars, but it can offer a structured, face-saving alternative to retaliation, particularly when diplomatic negotiations stall and formal WTO processes prove too slow or politically fraught.
Importantly, international arbitration should not be viewed as a last resort.[5] It functions best as a safeguard built into agreements and treaties that offers stability and reassurance in an increasingly unpredictable global trade environment.
BEYOND THE WTO: ARBITRATION’S GROWING ROLE
The WTO’s Dispute Settlement Body (DSB) was once the gold standard for resolving global trade disputes. Its structured, rules-based system gave even smaller countries the confidence that fairness, not economic might, would prevail. But in recent years, the system has faltered. Political deadlock, particularly over appointments to the Appellate Body, has weakened the DSB’s authority and left a vacuum in global trade enforcement. [6]
In response, the international trade community has been exploring alternatives. One such development is the Multiparty Interim Appeal Arbitration Agreement (MPIA), a flexible arbitration-based model designed to uphold the spirit of the WTO dispute resolution while bypassing its current paralysis. This shift reflects a broader embrace of streamlined and adaptable approaches to managing trade conflicts.
Recent trends in arbitration reflect its growing relevance and complexity:
- The use of emergency arbitrators and fast-track procedures to provide swift interim relief,
- Increased emphasis on sustainability, labour standards, and digital trade regulation, aligning arbitration with evolving global concerns,
- Adoption of emerging technologies, such as blockchain and AI, to manage cross-border evidence and streamline case management, and
- The rise of regional arbitration hubs, especially across Asia, highlighting shifting economic power and legal innovation.
As expert commentary increasingly reveals, international arbitration is no longer just a technical mechanism. It sits at the intersection of law, politics, and global commerce. It is a field interwoven with geopolitical dynamics, economic strategy, and cultural nuance,[7] making it both a tool for dispute resolution and a mirror of international relations. The challenge now is to harmonise arbitration with the WTO framework. This may involve:
- Institutional coordination between arbitral bodies and WTO institutions,
- Legal reforms to integrate WTO principles into arbitral reasoning and outcomes, and
- Cross-recognition of decisions to reduce jurisdictional overlap and enhance consistency.
If done right, arbitration can serve as more than a stopgap. It can encourage constructive dialogue among states and restore trust in the systems that govern global trade.
CONCLUSION
Trade wars may begin in parliaments and presidential offices, but their ripple effects reach deeply into daily life, raising prices, delaying shipments, and unsettling jobs and investments. They transform abstract policies into tangible economic pain.
Arbitration does not always grab headlines, but that is also its strength. It is deliberate, legally grounded and crucially less adversarial. Where retaliatory measures escalate tensions, arbitration helps to de-escalate them. Where trade wars build walls, arbitration opens channels for communication and compromise.
Arbitration may not end every conflict, but it offers something the current system sorely needs: a process that values reason over retaliation, cooperation over confrontation. In a world increasingly defined by economic rivalries, arbitration stands as a quiet reminder that meaningful dialogue still has a place and perhaps even the power to triumph over retaliatory actions.
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DISCLAIMER
This is a publication of Lehi Attorneys solely for educational and information purposes and is not meant to serve as legal advice. For more information, contact Lehi Attorneys at:
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[1] James Chen, “Trade Wars: History, Pros & Cons, and U.S. – China Example” Investopedia 31 January 2025 <https://www.investopedia.com/terms/t/trade-war.asp> accessed 22 July 2025
[2] Eleanor Holloway, “The Role of Arbitration in the US-China Trade War” February 10 2020 <https://thearbitrationbrief.com/2020/02/10/the-role-of-arbitration-in-the-us-china-trade-war/> accessed 22 July 2025
[3] Sarah Lee, “International Trade Dispute Resolution Understanding the Role of Arbitration in Global Commerce” June 23 2025 <https://www.numberanalytics.com/blog/international-trade-dispute-resolution-arbitration> accessed 22 July 2025
[4] Alhasan Tariq, “Arbitration in the Era of Trade Wars: Balancing Sovereignty and Global Commerce.” Available at SSRN: <https://ssrn.com/abstract=5257679> accessed 22 July 2025
[5] Fredrick A. Acomb, James L. Woolard, “Using International Arbitration to Resolve Retaliatory Tariff Disputes in Global Supply Chains” The National Law Review Volume XV Number 203 posted on April 3 2025 <https://natlawreview.com/article/using-international-arbitration-resolve-retaliatory-tariff-disputes-global-supply> accessed 22 July 2025
[6] Ibid n4
[7] Tuyana Molokhoeva, “California International Arbitration Week 2024: Strategies for Navigating Trade Wars and Cross-Border Dispute Resolution” Kluwer Arbitration Blog, April 11 2024 <https://legalblogs.wolterskluwer.com/arbitration-blog/california-international-arbitration-week-2024-strategies-for-navigating-trade-wars-and-cross-border-dispute-resolution/> accessed 22 July 2022