The Eye of the Storm: Currency Manipulation and the WTO-IMF Regulatory Gap Behind the Tariff Resurgence

The 2025-2026 U.S. tariff escalation is often dubbed “unprecedented,” and considered an unanticipated byproduct of the capricious storm that is electoral turnover. It has devastated the fragile multilateral trading order the United States spearheaded in 1947 and, in its wake, left a global question of what is next for trade policy. However, when the skies clear, the legal context will reveal that the contemporary resurgence of tariffs did not arrive without warning, and its clouds had been gathering for decades. The regulatory gap between two international institutions, structurally incapable of monitoring the shifting climate of trade law on the horizon, has always existed. This article analyzes the legal statutes that permit and reflect the changing culture of trade law, offering an alternative to understand the post-2025 expansion of tariff measures. Beyond its evident status as a political development, I argue that it is the product of a structurally inevitable legal vacuum at the international level.

Importantly, this approach to analyzing the legal context of trade policy revolves around currency manipulation. This trade-distorting policy acts as tariff policy in disguise, mimicking its cheap export and expensive import objective by manipulating a central mechanism of the global economy: exchange rates. Currency manipulation refers to government or central bank actions to influence the value of a country’s currency, typically through foreign exchange interventions or monetary policy. The monetary system and its policies constitute part of the vast array of distortionary trade policy tools that countries wield to influence the international trading system. While the World Trade Organization (WTO) imposes judicially enforceable constraints on traditional trade measures, currency manipulation remains weakly disciplined under Article IV of the International Monetary Fund (IMF) Articles of Agreement. This asymmetry produces a structurally inevitable fragmentation between the WTO and IMF regimes, permitting unfair trade practices to escape multilateral discipline and shifting the burden of regulation onto each individual country. 

While the WTO’s Dispute Settlement Understanding establishes a rules-based mechanism for enforcing free and equitable trade, its jurisdiction is limited to traditional trade instruments, leaving a critical regulatory gap that falls under the authority of the IMF. Annex 2 of the 1994 WTO Agreement establishes a legally enforceable multilateral dispute settlement mechanism that  adjudicates trade disputes, promotes compliance amongst all members of the WTO, reduces arbitrary trading decisions, and prevents many unfair trade practices. This mechanism therefore requires all WTO members to resolve trade disputes through this multilateral system, rather than through unilateral tariffs. The WTO enforcement framework notably lacks jurisdiction over currency manipulation practices, as currency devaluation is structurally different from traditional tariff measures. Control over monetary policy is traditionally treated in international law as a core attribute of national sovereignty, constraining the jurisdiction of international institutions like the WTO to regulate these important economic forces. As a result, the WTO alone cannot fully shield its members from all methods of unfair trading practices that are often wielded to gain trading advantages. Article XV:4 of the General Agreement on Tariffs and Trade highlights this compliance gap by deferring authority to the IMF, requiring members to consult the IMF on matters concerning monetary reserves, balance-of-payments conditions, or foreign exchange arrangements. Yet, the WTO’s lack of jurisdiction over the international monetary system does not reflect a disregard for its importance, with the Tokyo Declaration of 1973 explicitly noting that “the efforts which are to be made in the trade field imply continuing efforts to maintain orderly conditions and to establish a durable and equitable monetary system.” Importantly, the Tokyo Declaration emphasizes that without parallel efforts to establish a stable international monetary system, trade liberalization through tariffs alone cannot be successful nor maintained. This recognition was paired with deliberate allocation of monetary issues to the IMF framework to support the international trading system in tandem.

Where the WTO’s jurisdiction ends, the IMF’s begins, and it is precisely at this boundary that shortcomings in the IMF’s enforcement framework open the international trading system to manipulation. Section 1 of Article IV of the IMF’s Articles of Agreement specifically addresses currency manipulation, prohibiting manipulation of exchange rates or the international monetary system to gain an unfair competitive advantage over other members. The mandate here is clear, yet its enforcement is not. Section 3 of Article IV of the Articles of Agreement acknowledges that the IMF exercises these mandates through “firm surveillance” rather than binding legal measures, primarily referring to Article IV consultations to regulate the international monetary system. The Article IV consultations function as regular assessments of member states' monetary, fiscal, and regulatory policies as well as perceptions of growth and exchange rate stability. Following these assessments, the IMF provides policy recommendations, which are submitted to the Executive Board for discussion and review. The publication of these summaries remains at the discretion of individual member states, although it has become standard practice for member states to allow the IMF to release the final Article IV reports and the views of the Board on its website. While failure to follow IMF advice can result in reduced access to economic resources provided by the IMF such as lending programs, these IMF surveillance reports are non-binding and member states are not required to act on these recommendations, diminishing the ability to compel compliance on the international level. The limitations of this surveillance framework in addressing currency manipulation are reflected in the fact that the IMF has never determined that a member country has manipulated its currency in nearly eighty years of operation. This illustrates not the lack of observable exchange rate misalignment but an absence of the legal authority and evidentiary standard necessary to establish manipulative intent and enforce compliance. This legal absence does not solely reflect a shortcoming in the IMF’s legal framework itself, but also the difficulty in regulating the complex and volatile economic forces at the heart of international trade law. 

The IMF’s limited legal capacity to enforce rules against currency manipulation stems from the intrinsic interdependence between domestic macroeconomic policy and exchange rate management, with no reliable legal standard to differentiate between them. The IMF’s 2025 China Article IV Consultation Press Conference illustrates this tradeoff, noting that China’s low inflation and resulting reliance on exports have contributed to external imbalances that risk distorting the global trading system. At the same time, it reflects the exceptional difficulty of distinguishing whether China’s deflationary economic conditions function as instruments of trade advantage or as responses to legitimate domestic economic pressures. This ambiguity can explain the IMF’s advisory approach, as Managing Director Kristalina Georgieva recommended at the 2025 press conference “more forceful measures to be implemented with greater urgency,” referring to economic policy suggestions to combat the imbalance rather than legal measures. An emphasis on stronger economic policy suggestions rather than formal compliance mechanisms illustrates the IMF’s lack of legal capacity. Importantly, the Article IV consultations are diagnostic and advisory tools, non-coercive by design and lacking enforcement tools. As a result, the IMF’s reliance on surveillance rather than sanction emerges as a structural consequence to the difficulty in determining proof of intent in these cases, producing an inevitable fragmentation between the WTO and IMF regimes that neither institution has the authority to resolve. This permits countries to avoid the overt protectionist signal associated with tariffs under the guise of currency manipulation policies and reap the economic benefits of stronger exports, reduced imports, and increased stabilization of currency that it offers in the international trading system. 

As a result of the regulatory gap between the WTO and IMF, enforcement of currency manipulation has shifted into the realm of domestic law, particularly in the United States where a series of statutes empower unilateral investigation, monitoring, and punitive tariff action against offending states. The Omnibus Trade and Competitiveness Act of 1988 mandates that the U.S. Trade Representative take action to eliminate foreign actions, policies, or practices that restrict or burden U.S. commerce, with Section 3004 paying particular attention to currency manipulation practices. U.S. law marks a critical divergence from multilateral institutions in that it authorizes the use of unilateral penalization, often in the form of tariffs, for noncompliance. The Trade Facilitation and Trade Enforcement Act of 2015 similarly requires the U.S. Treasury Department to report on macroeconomic policies and exchange-rate policies of other countries, clearly stating criteria to identify unfair exchange-rate practices, trade surpluses, and persistent one-sided foreign exchange markets. Specifically, the act authorizes the President to take remedial actions against countries that deliberately undervalue their currency, most notably in the form of tariffs on imports. These acts, in conjunction with other U.S trade legislation such as Section 301 and Section 122 of the Trade Act of 1974, Section 232 of the Trade Expansion Act of 1962,  and the International Emergency Economic Powers Act have legally authorized the United States’ assumption of retaliatory measures in the international trading system and provided a legal framework for unilateral disruption when deemed necessary. In the absence of a sufficiently robust and enforceable multilateral regime, states protect domestic interests under their own authority. 

This dynamic culminated on April 2, 2025, with the imposition of the “Liberation Day” tariffs, a 10 percent tariff applied to all trading partners with higher reciprocal duties for some countries and justified, in many instances, as a response to perceived unfair trade advantages that the multilateral system had proven structurally unable to address. These measures reflect the consequences of institutional fragmentation at the multilateral level, which has prompted the U.S. to resort to unilateral action rather than rely on the international trading system. 

In the eye of this ongoing storm, it remains unclear whether the remnants of the former multilateral trading system will be rebuilt to its former grandeur or whether the United States has pioneered the transformation to a new epoch, ushering in a new international trading system. Currency manipulation is not responsible for the recent U.S. tariff resurgence alone, nor can it be solely attributed to any legal framework that may have facilitated this shift. This article does not seek to establish a complete account of the current tariff crisis, but an analysis of the underlying legal dynamics driving the evolution of the contemporary international trading system. Any attempt to close the regulatory gap between the WTO and the IMF would require a structural transformation of the IMF’s Article IV surveillance framework to include binding legal obligations. However, such a shift would conflict with the consent-based nature of international economic law. The inability to close this regulatory gap reflects an inherent quality of the international legal order which prioritizes sovereign autonomy over centralized economic enforcement. The defining question for the coming decade is not only whether these tariffs will persist, but whether the legal architecture of global trade can survive the forces that are now reshaping it.

Edited by Renee Jiang.

This piece was reviewed and finalized by Gabi Fabozzi, Qizhen (Kiara) Ba, and Jasmine Lianalyn Rocha.