Introduction

Governments continue to enact policies that restrict global trade. When a tariff is imposed, the affected country often responds with reciprocal tariffs. This leads to a chain of protectionist policies, known as retaliation. The effects of these policies over the last couple of years are becoming increasingly evident. At the same time, the world of tariffs and taxes is changing. Recent developments in Digital Service Taxes (DSTs) and ongoing trade wars are showing governments and the World Trade Organization (WTO) that it may be time to adapt their frameworks.

Recent Changes to Digital Services Taxes (DSTs)

A DST is a tax that a state imposes on a foreign digital service corporation. These taxes act much like traditional tariffs. They change the prices of online services and help local companies compete. Some experts believe the tax burden stays with the businesses. This helps governments by making foreign software less attractive. Others argue that the costs fall on the users. Large firms often see DSTs as a trade barrier and raise their prices to protect their profits.

DSTs are now key tools in modern diplomacy. France, the United Kingdom, and Italy argue that taxing firms only at their headquarters is outdated. Traditional tax rules fail to capture the vast profits these companies earn from users and digital activity in foreign markets. By late 2025, more than 25 countries had implemented or announced their own DSTs, allowing states to tax a firm’s revenue where its users live. Most rates range between 2 and 7 percent on digital advertising or online marketplace services. This has led to major trade tension with the United States. In 2025, the US launched new trade probes into these taxes and threatened retaliatory tariffs. This shows a global effort to modernize tax rules by focusing on where sales occur.

The DST debate has been eased partially by the continuing efforts of the Organization for Economic Co-operation and Development (OECD). The OECD, an international body that shapes global trade and economic policy, sought to bridge the divide between countries imposing DSTs and those that viewed them as unfairly targeting their corporations. In late 2025, the OECD renewed negotiations among 140 member states to finalize implementation of its global tax framework. As a result, the OECD proposed a two-pillar solution.

Pillar One aimed at establishing taxing rights where the consumer was. This formalized the idea that profits should be taxed in the country where the user is located, not in the company’s headquarters. By 2025, several governments had begun drafting domestic laws based on Pillar One principles while awaiting a global agreement. The US was pressured to agree to this first pillar, as states would continue to place high DSTs if they did not agree. This showed a shift in how tariffs are used in digital markets. It also directly addressed the concerns that made most states place DSTs.

Pillar Two introduced a global minimum corporate tax rate to limit harmful tax competition. It also tried to prevent companies from shifting revenues to places with extremely low tax rates. Together, the two pillars represented the first major reform of international taxation in nearly a century. The OECD’s recent work shows that the digital tax debate is shifting from isolated national measures to a coordinated global framework. Pillar Two remains under negotiation, but many countries have begun applying Pillar One principles domestically while awaiting a broader international agreement.

Recent South American Retaliation to American Protectionism

In 2025, trade relations between the United States and Brazil faced a period of intense pressure. Early in the year, the US government applied high tariffs on several major Brazilian exports. These taxes reached as high as 50 percent on goods like steel, aluminum, beef, and coffee. The US justified these moves by citing national security and the need for fair trade. However, the tension was also allegedly fueled by disagreements over Brazil’s internal court rulings and its growing role in the BRICS economic group.

This conflict exposed deep flaws within the WTO. Brazil tried to resolve the dispute through the WTO’s legal system, but the process has stalled. The WTO’s “Appellate Body” was not functioning, so there was no international judge to make a final decision. Members of the Appellate Body must be appointed by consensus, but since 2017, the United States has repeatedly blocked the appointment of new members, saying it disagrees with how the body interpreted WTO rules. As judges’ terms expired, the number of members fell below the minimum required to hear cases, and by December 2019, the Appellate Body could no longer function at all. Now, the US argued that its trade actions were a private matter of national security. Meanwhile, Brazil claimed that using tariffs to influence a country’s domestic laws set a dangerous example. Since the global legal system was stalled, both states had to find a different way to negotiate.

By late 2025, diplomatic communication between the two governments increased. Following talks in November and December, President Donald Trump and President Luiz Inácio Lula da Silva reached a partial agreement. The US removed tariffs on many Brazilian agricultural goods, such as coffee and meat. Despite this, higher taxes on industrial metals remained in place. This outcome shows a shift where trade disputes are settled through bilateral meetings rather than through international organizations.

Looking forward, this settlement between the two largest economies in the Americas may reshape regional alliances. While the partial deal provides relief for Brazilian farmers, it has pushed Brazil’s industrial leaders to seek stronger trade ties with China and the European Union. Further, the US has begun offering “special access” deals to other countries, like Argentina, that align more closely with US policies. The future of regional trade may depend less on global consensus and more on individual diplomatic ties.

Conclusion

Recent developments in protectionism highlight the need to balance retaliation with negotiation. The DST debate shows that states may turn to protectionist measures to defend their economic interests when existing rules fall short. Coordinated frameworks, such as the OECD’s two-pillar system, offer a path to reducing these tensions by updating how global markets are taxed. However, as the US-Brazil dispute demonstrates, unresolved weaknesses within the WTO continue to push countries toward bilateral solutions. Without meaningful reform, trade conflicts are likely to be managed through power and diplomacy rather than through a shared, rules-based system.

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