We use an advanced model of the global economy to consider a set of scenarios consistent with the proposal to impose a minimum 60% tariff against Chinese imports and blanket minimum 10% tariff against all other US imports. The model’s structure, which includes imperfect competition in increasing-returns industries, is documented in Balistreri, Böhringer, and Rutherford (2024). The basis for the tariff rates is a proposal from former President Donald Trump. We consider these scenarios with and without symmetric retaliation by our trade partners. Our central finding is that a global trade war between the United States and the rest of the world at these tariff rates would cost the US economy over $910 billion at a global efficiency loss of $360 billion. Thus, on net, US trade partners gain $550 billion. Canada is the only other country that loses from a US go-it-alone trade war because of its exceptionally close trade relationship with the United States.

We provide context in terms of the current trade conflict, primarily between the United States and China, and enumerate a set of scenarios based on the proposed blanket tariffs. Results suggest the United States is the biggest loser in a comprehensive trade war with the rest of the world. We also consider a potential transatlantic alliance, where Europe joins the United States in tariffs against China. Transatlantic cooperation reduces US losses and leads to sharp losses for China, highlighting the benefits of cooperation relative to the proposed go-it-alone strategy.

State of Play

The 2018 US-China trade war was a major economic conflict initiated by the United States that targeted alleged unfair trade practices by China, such as intellectual property theft, forced technology transfers, industrial subsidies, and currency manipulation. The conflict escalated through rounds of tariff impositions, retaliatory measures, and negotiations, significantly affecting global markets and supply chains.

The United States imposed tariffs on over $250 billion worth of Chinese goods, targeting industries like technology, machinery, and consumer products. China responded with tariffs on about $110 billion of US goods, affecting agriculture, automobiles, and other sectors.

Multiple rounds of negotiations occurred between 2018 and 2019. The two countries reached a temporary truce with the “Phase One” trade deal in January 2020, where China agreed to purchase more US goods, particularly agricultural products, and address some intellectual property concerns. China did not, however, meet any of the additional purchase commitments. China made some progress toward greater intellectual property protection in certain areas yet continues to tolerate flagrant intellectual property theft in others. Both economies have suffered from reduced market access and higher costs for businesses and consumers. The conflict also disrupted global supply chains, particularly in consumer technology products, and hit US farmers hard due to China’s retaliatory tariffs.

Also, in 2018 the United States imposed a 25% tariff on steel and a 10% tariff on aluminum imports, affecting a wide range of countries, including EU members, South Korea, and Japan. The US administration justified the tariffs on the grounds that a robust domestic steel and aluminum industry was necessary to ensure the availability of critical materials for defense and infrastructure projects despite a memorandum from the Secretary of Defense stating that the “[Department of Defense (DoD)] does not believe that [steel and aluminum imports] impact the ability of DoD programs to acquire the steel and aluminum necessary to meet national defense requirements”.

The steel and aluminum tariffs sparked significant backlash, leading to retaliatory tariffs by several countries. Eventually, the United States negotiated managed trade deals with some countries, such as Canada, Mexico, and the EU. Australia escaped relatively unscathed, but other 3 countries were forced to negotiate exemptions or quota systems, such as South Korea, Brazil, and Argentina.

The tariffs increased costs for US manufacturers that rely on imported steel and aluminum, leading to higher prices for US manufacturers, and consumer goods like cars and appliances. US steel and aluminum producers saw benefits in terms of higher domestic prices. The overall effect on jobs was mixed, with some gains in the metal industries but larger losses in sectors reliant on metal imports and in the sectors that were targets of retaliation, namely US agriculture.

In sum, the 2018 trade war generated losses for China and the US economy. The Biden-Harris administration kept the punitive tariffs on China and the steel and aluminum (national-security) tariffs in place, which remains a point of contention in US trade policy.

Recent proposals

In 2024, during his campaign for a second term, former President Donald Trump proposed imposing a 60% tariff against imports from China and a 10% tariff against imports from everyone else in an apparent effort to increase the number of manufacturing jobs in the United States and boost domestic industries. Most economists would agree that tariffs at this scale will backfire by undermining US economic performance.

Results

The results show both the United States and China suffer losses from the 2018 tariffs, with US losses equivalent to $81.3 billion and $63.3 billion for China. Imposing a 60% tariff on China and 10% tariff on everyone else unequivocally leads to additional losses for the United States. As a technical note, the economic model evaluates policies based on changes in household welfare, so we can interpret the $81.3 billion loss for the United States as the dollar value of the extra consumption that private households could have had in the absence of the tariffs.

United States

Specifically, with a 60% tariff on China, US losses grow to $560.7 billion; and, if China retaliates, US losses are $665.4 billion. If the United States were to impose the 60% tariff on China and a 10% tariff on everyone else, US losses are $511.0 billion; and, if everyone retaliates in kind, US losses grow to a shocking $911.8 billion.

China

China suffers across almost all scenarios, and China’s losses are greatest when the United States and EU cooperate. Specifically, if the United States were to impose the 60% tariff on China, China’s estimated losses are equivalent to $70.6 billion. But if China retaliates, their losses reduce to $50 billion because the retaliation shifts the terms-of-trade in their favor. As with any large country, tariffs increase export prices relative to (net-of-tariff) import prices. If the United States were to impose the 10% tariff on other countries, China’s losses shrink to $26.2 billion, reflecting a further improvement in the terms of trade as European and other goods become relatively less expensive due to less US demand. When everyone retaliates against the United States, the closest scenario here to a US-led go-it-alone global trade war, China actually gains $38.2 billion. As discussed in the introduction, a global trade war between the United States and the rest of the world creates significant opportunities for China in terms of new export opportunities in Europe and less expensive non-US imports. China suffers the most when the United States and EU cooperate. Specifically, welfare losses for China are between $26.2 billion and $70.6 billion when the US pursues a go-it-alone strategy. When the United States and EU cooperate, China’s welfare losses reach $261.3 billion to $464.1 billion.

European Union

The EU economy gains from the US-led trade wars mostly because of trade diversion. That is, with the United States and China imposing tariffs on each other, the EU has greater access to lower priced imports from China, and effectively gets preferential treatment for its goods in both the US and Chinese markets. The EU benefits the most ($234.6 billion) when they let the United States go it alone, under the “ALL6010” scenario. In that scenario, the United States imposes tariffs against China and all other countries, and everyone retaliates in kind against the United States, which is the closest scenario to a US-led global trade war. EU importers benefit from lower prices and EU exporters benefit from greater preferential market access.

Other countries

Other countries such as Canada, Mexico, South Korea, and the rest of the world mostly experience net gains from a US-China trade war. Canada and Mexico, however, experience losses when the United States imposes 10% tariffs on all other countries and they retaliate in kind, reflecting the tightly knitted supply chains across North America.

Specifically, Canada and Mexico experience a loss when the United States imposes tariffs on China and all other countries. When other countries retaliate, Mexico goes back to a net gain while Canada continues at a loss. This is attributed to the fact that, although both Mexico and Canada have strong ties to US markets, Canada’s trade with the United States is biased toward increasing-returns-to-scale sectors. In this regard, shrinking trade between the United States and Canada implies a greater cost for Canada. South Korea and other OECD countries gain from the US-China trade war scenarios—South Korea’s net gains reach $48.9 billion

US-EU Cooperation

Transatlantic cooperation on tariffs against China, as a punitive measure for intellectual-property violations and other unfair-trade practices, are more effective in terms of greater losses for China and easing the burden on the United States. Specifically, if the United States and EU were to cooperate and impose tariffs against China simultaneously, with the United States imposing 60% tariffs and the EU imposing a minimum of 25% tariffs, US losses reduce to $435.6 billion and China’s losses increase to $261.3 billion. If China retaliates against the United States and EU in kind, US losses remain mostly the same, but China’s losses increase to $464.1 billion.

EU cooperation, however, comes at a cost for the EU’s economy. The EU goes from a $234.6 billion gain (in “ALL6010”) to a $77.8–$103.8 billion gain in the cooperation scenarios.

These results highlight three important nuances of US-EU cooperation: (a) securing EU cooperation eases US economic losses from the trade wars; (b) US-EU cooperation sharply increases the net losses to the Chinese economy; and, (c) cooperating with the United States comes at a cost for the EU and reduces their net gains from the trade wars.

Conclusion

In conclusion, the analysis presented here reveals that escalating US tariffs, particularly the proposed 60% tariff against China and 10% tariff against all other trade partners, would impose substantial economic costs on the United States. We show that while China and other US trade partners may experience some losses, the United States would bear most of the global efficiency cost, with potential economic losses surpassing $910 billion if all countries retaliate. Interestingly, many of the US’s trading partners, including the EU, South Korea, and other OECD countries, stand to benefit from trade diversion as US goods become less competitive globally

The findings further underscore that transatlantic cooperation in imposing tariffs against China would mitigate some of the US’s losses while amplifying the economic pain for China. This cooperation comes at a cost, however, for the EU in terms of the forgone benefits of letting the United States go it alone. Overall, the results highlight the complexities and far-reaching consequences of a “fortress America” protectionist trade policy, where, in the context of a global trade war, the United States stands to lose the most, both in terms of economic welfare and global competitiveness.

To read the article as it was published on the Yeutter Institute webpage, click here.

To read the full article, click here.

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The Dangers of Trade Fragmentation

At the end of World War II, policy architects sought to reduce the incentives for armed conflict by creating a web of economic interdependencies that would render supply-chain disruptions too expensive to contemplate. By the 21st century, however, new challenges have emerged. Geopolitical tensions stoked by authoritarian countries such as China and Russia have highlighted the risk: Economic interdependence also creates vulnerabilities to autocratic regimes.

Efforts to diversify supply chains away from authoritarian regimes are rational from a national-security perspective. But the resulting protectionism and the fragmentation of trade flows can also incur risks by increasing economic costs, dampening growth prospects, reducing real incomes, and weakening international cooperation. A World Trade Organization (WTO) riven by deep geopolitical divisions has been unable to address these challenges.

A Realigned US Trade Policy

The United States can face these challenges by realigning its trade policy with two major steps.

(1) Recommit to first principles by seeking to

• treat imported goods the same as domestically produced goods,
• treat other countries as “most favored nations,” and
• find the least trade-restrictive ways to pursue domestic policy goals.

(2) Engage in plurilateral agreements to

• find agreement where unanimous consensus cannot be reached,
• eliminate tariffs and costly trade distortions,
• promote trade creation and minimize trade diversion, and
• tackle policy challenges in the energy, fisheries, and other sectors.

The Status Quo Is Stunting Economic Growth

To continue with the status quo means to accept a paralyzed WTO and a steady stream of trade initiatives that can only impair economic growth. Prioritizing pragmatic policies that promote cross-border economic cooperation can revitalize economic growth. A realignment in US trade policy around first principles and plurilateralism can provide a positive way forward and an example for other nations to follow.

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To read the Research Summary published by the Mercatus Center, click here.

To read the full Special Study, click here.

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International trade has been a pillar of U.S. foreign and domestic policy for most of the post–World War II era. Policymakers from both major parties have treated strong international economic relationships built on expanding international trade as central to advancing economic growth at home and achieving American goals on international development and security abroad. Secretary of the Treasury Janet Yellen captured the old consensus position well in an April 2023 speech explaining that “our economic power is amplified because we don’t stand alone. America values our close friends and partners in every region of the world, including the Indo-Pacific. In the 21st century, no country in isolation can create a strong and sustainable economy for its people.” Her words echoed those of one of her predecessors, Henry Paulson, who remarked sixteen years earlier on the benefits of open economic exchange that “countries that weren’t afraid of competition, that opened themselves up to trade, competition and trade, investment and finance, benefited, [whereas] the rest of the world, others were left behind. And opening . . . up to this competition leads to innovation, it leads to better jobs, more jobs, it leads to a higher standard of living.”

But in a very different April 2023 speech, U.S. President Joe Biden’s national security adviser, Jake Sullivan, laid out the administration’s case against globalization as it had been pursued in the past and argued for a new economic approach. While acknowledging that international economic cooperation “lifted hundreds of millions of people out of poverty” and “sustained thrilling technological revolutions,” he also argued that it all came at a price. To wit: “A shifting global economy left many working Americans and their communities behind.” The inexorable push for scrapping trade barriers had other costs, too, he continued—among them, the hollowing out of America’s industrial base, inequality that has threatened U.S. democracy, increasing environmental consequences, and geopolitical risks created by dependence on rivals such as China.

According to Sullivan, the Biden administration was forging a new path: not one that entirely rejected trade liberalization, but also not one that embraced traditional free trade agreements or tariff reductions as the main destination. He framed the approach as a middle ground, focused on advancing economic cooperation by pursuing nontrade priorities such as supply chain resilience, secure digital infrastructure, sustainable clean energy transition, and job creation. Sullivan described a new economic model that would be worker-centric, combining industrial policy to support high priority sectors with efforts to harmonize labor and environmental standards and integrate supply chains with close allies and partners—but without offering new market access.

Admittedly, Biden has achieved a measure of success in working toward this vision. Domestically, there were important wins included in the Bipartisan Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act. Appropriated funding is being doled out to boost semiconductor production and spark investment in other cutting-edge technologies. Money in these bills will also support infrastructure development that creates manufacturing jobs and helps to rebuild parts of the industrial base, including those that support national defense.

On the other hand, success abroad has been more limited, even if not absent. The Biden administration has improved coordination with European allies in areas such as green technologies and artificial intelligence, supply chain integration, and critical minerals, for example. In Asia, Biden’s team has advanced the Indo-Pacific Economic Framework (IPEF) with thirteen other participants and reached agreements on issues such as supply chains, clean energy and infrastructure, and tax and anti-corruption efforts.

But there is a larger story. Whatever the intention of these narrow efforts, Biden’s economic approach has resulted in a doubling down on the harder turn away from relatively free trade that began under former president Donald Trump’s administration—a set of outcomes different from what Sullivan’s speech appeared to imply. The promised middle ground has remained elusive. Although Biden’s team has not officially “sworn off” market liberalization, expanded market access appears to have been almost completely shelved as a foreign policy tool—even when it would have significant benefits or could serve as an incentive to push progress toward key security and geopolitical objectives.

Nowhere has this been clearer or more consequential than in Asia—home to many of the fastest-growing economies in the world. Though the administration has signed trade “mini-deals” based on executive orders with Japan and Vietnam in limited sectors and encouraged continued U.S. leadership in private investment, it has relied on the IPEF as the main vector of U.S. economic policy in the region. The IPEF has explicitly excluded market access from negotiations across all four pillars, a decision that has limited its scope and durability. For example, without trade as an incentive, IPEF members have been hesitant to commit to costly reforms related to issues like climate change or worker protection, resulting in a set of agreements that are mostly aspirational and without credible enforcement mechanisms. The evolution of the IPEF’s trade pillar is also telling. Not only did the trade pillar’s draft framework agreement exclude tariff reductions but the United States pulled out of negotiations on this agreement in November 2023, leaving the pillar stalled indefinitely.

Washington’s reliance on the IPEF as its main economic lever in Asia has magnified other risks as well, including lost opportunities to consolidate geopolitical influence and strengthen relationships with allies and partners. Though the United States remains a major economic force in the region, private investment and executive trade agreements cannot replace a more expansive approach to trade in Asia when it comes to integrating the United States more deeply into the region’s multilateral economic networks.

Without a more robust trade agenda, Washington misses out on economic opportunities. For example, the United States has limited leverage to shape the rules for economic exchange in Asia while they are being rewritten to incorporate new global realities like the economic power of India, Japan, and South Korea, the spread of fast-evolving technologies and digital trade, and the pressures of climate change and global migration. Even U.S. security goals in Asia are compromised by American policymakers’ decision to eschew trade policy as a foreign policy tool. U.S. allies and partners, who are heavily dependent on trade with China and lacking many economic alternatives, are limited in how closely they can align with Washington in the security domain for fear of economic retaliation from Beijing.

A different approach to trade in Asia—and globally—can exist in the space between past policies and those of the present, one that would truly represent a middle way between the current approach and the so-called Washington Consensus of old. Such a strategy would amount to a more reflective version of global integration that attends carefully to domestic realities alongside interests abroad while retaining trade as a key foreign policy tool that links the economic and security domains.

The new approach would allow for some heterodoxy in economic policy across regions and sectors and would aim to revitalize the Biden administration’s current industrial policy with a series of trade innovations, such as mini-lateral and sectoral trade agreements with key partners, efforts to integrate key Asian allies more deeply into existing multilateral agreements, or modifications to attach some limited market access to the IPEF. Each expansion of market access would be narrow and tied to clearly defined criteria, but together these moves would be enough to reestablish trade as a foreign policy lever in a crucial region. These trade innovations would not replace government protection for strategic industries, and a substantial and immediate increase in federal spending on government training and assistance for dislocated workers would still be required.

With this type of approach, the United States could better communicate its economic and geopolitical commitment to the region, diversify its economic role in Asia, and position itself to compete more effectively with China, even as it protects key U.S. industries. The United States would still need to manage some risks, of course, including finding the balance between engagement and competition with China, relative and absolute economic gains, and national prosperity and security. Even with these challenges, the pursuit of this true middle ground should be a top priority in Washington.

Economic Integration and Its Discontents

In the early twenty-first century, questions for U.S. policymakers about how best to approach the intertwined issues of cross-border trade, migration, flows of information, and political ties in Asia occur alongside a broader backlash against “globalization.” At a time of major geopolitical upheaval and technological change, policymakers and the public are vigorously debating the merits of domestic policies suitable for an interconnected world. They are exploring new trade and migration rules, reviving strategies for national industrial and technological development, and reflecting on the lessons of globalization for international law and institutions substantially influenced by the United States. Discussions of “reshoring” supply chains and U.S.-China economic “decoupling” or “de-risking” are just a few examples of rising concerns in Washington about cross-border ties.

Despite occasional protestations from policymakers about the need for balance, the debate thus far has been mostly concentrated on the extremes: globalization that pushes for ever more economic cooperation or industrial policy that focuses inward to protect domestic jobs. Often lost in this debate, however, is that both of these approaches have substantial benefits and significant costs. This is true both globally and narrowly in Asia.

The U.S. commitment to comprehensive free trade has always been qualified. Even the World Trade Organization (WTO) embodies a contingent—not absolute—form of free trade. In this conditional form, globalization has had clear advantages for the United States. Most significantly, it has been responsible for tremendous domestic economic growth. The U.S. per capita GDP (in constant 2010 dollars) was about $19,000 in 1960 and $61,000 in 2021 (four times the global average per capita GDP, considerably higher than any other country with a large population)—a feat that would not have been possible without trade and international economic cooperation. Trade with Asia specifically has and continues to provide the United States with significant economic gains. As of 2019, for instance, exports to Association of Southeast Asian Nations (ASEAN) member states alone accounted for over 500,000 jobs in the United States.

Though domestic economic growth has been the primary driver of Washington’s long-running support for free trade, the United States has also profited in other ways from its perch atop a cooperative international economic order. Adam Posen, president of the Peterson Institute for International Economics, argues that “as creator and enforcer of international economic rules,” the United States gained “maximum economic traction while minimizing the need for direct conflict” and “could even occasionally flout the rules, or tweak them in its favor.” International economic integration also allowed for specialization, faster innovation, higher returns on capital investments, economies of scale, and other efficiencies that benefited the American economy and U.S. workers.

The United States has also accrued international influence through economic cooperation. Much U.S. soft power, globally and in Asia, depends on the fact that billions around the world consume the ideas and technologies produced in major metro areas around the United States—metro areas that have evolved into the key pillars of U.S. global leadership in science and medicine, media and culture, education, civic life, and digital technology. Often, they encompass diasporas from South Asia, East Asia, and elsewhere, and depend on constant influxes of new visitors and residents—including students and workers from other states and countries—who bring new ideas and investment. International economic cooperation contributes to this mobility of capital, people, and ideas.

Globalization as it was pursued and implemented over the past several decades, however, has also had costs––some real and some imagined or overstated. Most importantly, the benefits from global trade are rarely evenly distributed and contributed to a sharp drop in U.S. manufacturing jobs over several decades as corporations shifted production to countries with cheaper labor. One National Bureau of Economic Research (NBER) estimate, for instance, finds that between 1980 and 2017—a peak period in globalization—the United States lost 7.5 million manufacturing jobs, with trade being one of several drivers. Not only did this loss of manufacturing erode the U.S. industrial base, it also disproportionately affected workers with only a high school diploma. Many were left dislocated when government-promoted retraining and assistance programs were underfunded and insufficient.

These economic costs may have had political ramifications as well. Some analyses suggest that Trump’s 2016 victory was made possible by voters on the losing end of the inexorable press for trade liberalization, who had voted for former president Barack Obama in 2012 but were won over by Trump’s promise to bring back U.S. manufacturing jobs by reducing trade with China and pulling the United States out of the ambitious Trans-Pacific Partnership (TPP)—which he ultimately did.

That said, questions persist about just how much trade liberalization alone contributed to what Sullivan called the “hollowing out” of U.S. manufacturing or to Trump’s 2016 victory. A 2021 analysis by the Center for Strategic and International Studies, for instance, shows that increasing worker productivity, not trade, accounts for the greatest share of the decline in U.S. manufacturing jobs. This is supported by research from the Ohio State University that found trade was only responsible for a third of manufacturing job losses in that state. Of this total lost to trade, only a relatively smaller percentage can be linked directly to trade with China specifically—estimates of this percentage vary but most fall between 10 and 25 percent. Moreover, there is evidence that negative effects of the “China shock” occurred largely before 2010 and did not persist afterward, suggesting that fear of continued manufacturing job losses to China and elsewhere may be misplaced.

The argument that economic costs from trade drove the societal implications many observers ascribe to cross-border commerce also lacks clear support. Even if trade effects are understood to play some role in rising political tensions within the United States, a close examination of voting trends from the 2016 election recognize cultural factors—rather than purely economic hardship—to be the key factors behind changes in partisan politics.

The economic and political costs of globalization may be somewhat more measured than expected, but unchecked economic integration can raise material national security questions. Many in Congress and the executive agencies caution that too much trade creates dependencies that would turn into vulnerabilities in a conflict. These fears are especially acute, and at least partially justified, when it comes to trade in Asia and with China specifically, given the critical imports that this trade includes, the rising risk of conflict in the region, and what many view as unfair trade practices employed by Beijing. The United States remains heavily dependent on China for some critical minerals, for example, including those necessary for advanced military systems. China’s military-civilian fusion also creates the potential for U.S. exports to China to end up supporting the development of its People’s Liberation Army. And China has shown a willingness to use economic retaliation as a tool of coercion and to manipulate its currency and markets in ways that disadvantage U.S. firms.

These challenges are all reasons that the United States may need to manage trade with China carefully, including restricting certain types of exports and protecting some domestic industries. They are not, however, a reason to entirely give up further trade integration with the rest of Asia or elsewhere. In fact, geopolitical competition makes the development of a strong trade agenda globally, and in Asia especially, more important for the United States, not less. This is true for two reasons.

First, by turning away from market access as a foreign policy tool in Asia, Washington cedes much of the trade domain to Beijing, leaving its partners with fewer economic alternative and undermining U.S. influence in Asia. Second, some additional trade integration with countries across Asia (and outside of it) could help the United States build a more diversified and resilient supply chain and trade network itself, reducing its dependence on China in key sectors. Achieving this outcome would require intentional choices about how and where to increase trade access, but it cannot be achieved when trade liberalization is not an option. Biden’s economic strategy in Asia, and the IPEF in its current form especially, is not up to the job, either at the institutional level or its basic orientation to the role of trade in U.S. foreign policy.

The Risks of Biden’s Approach to Trade in Asia

The Biden administration’s reluctance to use market access as a foreign policy tool has global ripple effects but the risks are biggest in Asia, both because of the region’s high and growing economic importance across sectors and because it is home to the most important U.S. strategic and economic competitor: China. As a result, when thinking about the future of U.S. trade policy, it makes sense to start in the Indo-Pacific.

The administration’s economic strategy in the region has included a few key pieces: “mini-deals” signed at the executive level to increase bilateral trade in specific sectors with close allies and partners; initiatives to advance regional supply chain cooperation, especially in the defense sector and for technologies like semiconductors; economic incentives to spur private business investment in the region; export controls and industrial policy to protect domestic industry and national security; and, at the center, the IPEF, which is intended to unite these different initiatives.

As conceived by the Biden administration, the IPEF was loosely intended to offset the U.S. decision not to join the TPP and its successor organization, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The IPEF focuses on reducing nontariff barriers to trade, especially harmonizing standards. The IPEF’s largest successes thus far have been in establishing an agreement to support supply chain integration and resilience among the thirteen other participating members and acceptance of a set of standards to advance climate goals and fight corruption.

However, the IPEF’s first set of agreements leave much to be desired. For the most part, they include only nonbinding commitments and high-level ambitions, rather than clear and actionable targets for cooperation. The IPEF’s pillars also remain weakly institutionalized, making it unclear how standards will be monitored or enforced. At this point, it remains uncertain whether the three agreements signed thus far—in the climate, tax and anti-corruption, and supply chain pillars—will advance U.S. economic integration in the region. Moreover, the trade pillar lacks a path forward after the United States pulled out of negotiations, much to the dismay of other participants. The IPEF has also failed to win the confidence of constituents across Asia. A 2024 survey of Southeast Asian states found that respondents appear to be growing more skeptical and critical of the IPEF over time, resent the high cost of achieving U.S.-promoted standards with few benefits in return, and identify China as the economic leader in the region while questioning U.S. staying power and commitment.

Beyond these institutional shortcomings, the IPEF-led approach to trade in Asia and the failure to find a real middle way in the trade domain come with three types of risk, each with potential economic and geopolitical costs. Notably, even if more pronounced in Asia, these challenges are not entirely unique to the region and exist elsewhere as well.

First, by remaining outside of all of Asia’s major trade agreements, the United States is likely to face losses in terms of GDP and domestic economic growth. In this case, much (but not all) of the U.S. economic loss is likely to translate into gains for China. As the United States has moved away from free trade, China has leaned into it. With its involvement in the ASEAN+3, ASEAN+6, bilateral trade agreements, and now the new Regional Comprehensive Economic Partnership (RCEP), China’s trade with Southeast Asia has quadrupled since 2009 (compared to a smaller but still sizeable tripling of its global trade). A study by the United Nations Conference on Trade and Development found further that the RCEP arrangement would reduce U.S. exports to Asia by over $5 billion due to trade diverting away from the United States and toward RCEP partners where tariffs are lower.

Membership in the CPTPP would have placed the United States on more equal footing and offered benefits that far exceed any RCEP-induced losses. By choosing not to join this organization, the United States misses out on billions in economic gains. A 2018 Peterson Institute report found that joining the CPTPP would have resulted in net $131 billion added to U.S. GDP by 2030, while the decision to pull out will result in a $2 billion loss. By expanding market access to Asian partners—at least in some sectors and to some partners—the United States could lay claim to some portion of this windfall. The narrow bilateral executive agreements signed under Biden move in the right direction but are too limited to offset the deficit created by the weakness of other aspects of Biden’s trade and economic strategy.

None of these observations imply that the United States should mirror China’s approach to trade in Asia or elsewhere. After all, the two countries face quite different dynamics when it comes to international trade’s inherent trade-offs. China sees in free trade agreements a way to gain access to new export markets and a solution to its large trade surpluses. The United States, in contrast, often finds itself as what economist and Carnegie Scholar Michael Pettis calls the “absorber of last resort” for its own trade partners, hence its reluctance to sign on to large multilateral trade deals. It is for this reason that a return to the more aggressive embrace of free trade seen in previous decades is not the right approach for the United States today. The Biden administration’s current strategy may go too far in the other direction, however, where a more balanced approach might capture some economic gains while still protecting relevant domestic interests.

Second, Washington’s position outside Asia’s major economic organizations undermines its efforts to increase and consolidate influence with regional allies and partners. At one level, the mechanism for this loss of influence is straightforward. Limits on market access that slow the diffusion of U.S. goods and raise prices on U.S. technology and other products limit U.S. soft power gains and constrain its geopolitical leverage at the same time.

These missed opportunities to garner greater geopolitical sway with regional allies also arise at a deeper level. For countries across Asia, the unwillingness of the United States to join the CPTPP or to offer meaningful expansion of market access through bilateral agreements signals a lack of serious commitment to the region. Many of these states are already skeptical of the durability of the U.S. focus on Asia, seeing it is as a distracted and unreliable partner. The constraints the United States has placed on the IPEF only exacerbate this perception and lead many countries in the region to look elsewhere for economic opportunities. For instance, because its framework agreements are signed at the executive level only, the IPEF lacks the longevity that would promote long-term U.S. investment. The U.S. decision to withdraw from the trade pillar negotiations did further damage to regional perceptions of U.S. credibility.

What’s more, for countries in the region, the more limited U.S. integration into the region’s trade networks and economic groupings is not just an economic concern (though many have chafed under the new U.S. protectionism and unilateralism). Because it leaves them more beholden to an increasingly aggressive Beijing, less U.S. trade engagement in Asia becomes an important security challenge as well—a manifestation of the often-cited link between economic well-being and national security. Countries in Asia seek to diversify their economic partnerships to reduce their dependence on China and would readily welcome more involvement from the United States to increase their resilience and economic options. Under Biden, however, even those who are members of the IPEF have been left disappointed as the United States has refused to extend any sort of market access. Countries across Asia have been left with little choice but to remain dependent on China as its primary trade partner.

These economic pressures can have real security consequences. Countries like Indonesia and Malaysia, for example, tread carefully in territorial disputes with China for fear of upsetting their trade relationships. Even countries for whom the threat from China appears more existential, such as Japan and Vietnam, are pragmatic in their dealings with Beijing to preserve economic ties. Recognizing the liability this economic dependence creates, even allies and partners that support U.S. efforts in Asia’s security domain in principle may be forced to stay on the sidelines of a U.S.-China conflict to protect their economic well-being. This could have serious implications for U.S. efforts to rally a coalition to contain Chinese aggression.

Finally, by forgoing a more robust approach to trade in the region, the United States gives up an opportunity to participate in the writing and updating of Asia’s rules on economic exchange to include things like labor and digital trade standards or climate mitigation. These issues have an outsized effect on the Indo-Pacific region, and sensible responses to all are affected by trade integration and related questions about cross-border flows of investment, technology, and people. For example, years after an American objection to WTO Appellate Body appointments threw a wrench in the gears of the global trade organization, the WTO dispute resolution process remains paralyzed. In the face of this obstacle, other WTO members have developed work-arounds. The EU and key Pacific countries and emerging powers have strung together one interim alternative that Japan just joined, and Europe is pursuing a broader trade settlement with Asian countries extending to subsidies and related issues. By standing aside, American policymakers forfeit their influence over the resulting mechanisms and reinforce the message that the United States is not the one driving Asia’s economic or diplomatic future.

Asia’s climate crisis offers another illustrative example. Its average temperature is rising at about three times the global rate, exacerbated by rapid industrialization. Elevated sea levels threaten coastal areas, putting pressure on farmland and major cities. The mining of critical minerals found in abundance in parts of Southeast Asia—in high demand by the United States and countries around the world—is of particular concern because the processes used to extract these minerals can severely damage surrounding ecosystems. While the increasing trade volumes that result from trade liberalization are not the sole or even the most prominent driver of climate disruption, the increase in economic activity and manufacturing that accompany rising trade do absorb more natural resources and contribute to air and water pollution, making an already bad situation worse. Collective solutions will be needed to balance economic demand and these environmental challenges, but the United States can only shape resulting outcomes if it is a participant in the region’s trade and economic networks.

For policymakers in places like Singapore, Hanoi, Manila, and Jakarta, the long list of looming challenges—including but not limited to climate change—also serves as a reminder that all politics are primarily local and regional. The competition between the United States and China—however important to understand and manage—ought not eclipse the broader range of security and economic questions facing the region as a whole. Addressing these challenges will require some degree of international cooperation and a new set of rules of the road for regional economic exchange that take collective costs into account. Governing the remarkably fast-evolving technologies and the rapid growth of the digital economy will also prove to be part of that story.

To have a say in this process and a seat at this table, the United States must be more active in the region’s expansive web of trade networks. In 2022, these networks accounted for about 40 percent of global exports and imports and trillions of dollars in global commerce. The United States is a country of unique global power and sway. Its unusual history of outsized influence has left an indelible mark on the frameworks for global cooperation and integration, and it was the principal architect of the post–World War II economic order. As that order confronts the reality of forced adaptation, it is not a stretch to think that Washington can and should play a role as those frameworks are updated for the realities of Asia today and contemporary global economic and political challenges. Other countries in the region are not sitting idly by waiting for the United States to engage more seriously on these issues, however. China, South Korea, Japan, India, and others are already building their own rules and standards, sometimes together but often independently.

Achieving an Authentic Middle Way

Even if the United States and China find reliable ways to cooperate on elements of that emerging order—on matters ranging from climate change to AI safety—the two countries have differing values and strategic priorities. The resulting geopolitical competition with China makes the development of a more robust U.S. trade agenda in Asia desirable despite the risks. New military partnerships, investments in allied capabilities, deployments of advanced technologies, and multilateral exercises are necessary but not sufficient for the United States to remain a counterweight able to balance Chinese power in the region. A change in the administration’s trade policy will be required as well. Countries in Asia would benefit from a more active U.S. trade presence but a shift in trade strategy would not be charity project—it would be directly aligned with U.S. interests and could inform efforts to make better use of trade as foreign policy tool in other regions as well.

Whatever course is chosen in Asia and elsewhere will need to balance domestic adjustments (across job types and economic sectors) with the gains from a greater degree of economic cooperation. Addressing these costs will require holistic strategies and more nuanced approaches that, for example, reflect distinctions in the educational opportunities suitable for people at different points in their life, reliably reduce a measure of economic risk, and open new employment and civic opportunities. Policymakers likely already understand these requirements but are also searching for ways to make some degree of trade liberalization more politically palatable and to ensure that promised educational and economic support does not fall through as it has in the past. By better understanding the long-simmering conflicts over global cooperation, policymakers and civil society can further develop the ideas, institutions, and coalitions necessary to create a stable foundation for a more sustainable form of global integration.

Nothing about this challenge means that U.S. policymakers should walk away from once again using market access as a tool to keep American interests relevant in one of the world’s most important regions. The task at hand is to create pathways for the exchange of information, ideas, and culture, while policymakers retain at least a limited set of tools to address imbalances that arise if considerable movements of goods and capital coexist with completely inflexible migration policies. Indeed, policymakers with influence over the international system should always bear in mind the costs of coercive limitations on the movement of ideas, goods, information, and people across borders, even if such constraints are also necessary for national-level experimentation and the functioning of countries as currently configured.

In that vein, the preservation of rules that enable international trade—even as policymakers tolerate somewhat more heterodox economic policies—would benefit the United States and its allies, resulting in trade rules of narrower application to countries’ domestic policies but reliably enforced and written with an eye toward more equitable global development. This would mean, in part, pursuing many pathways to expanded economic cooperation, including some reform of the WTO and the rules governing global, multilateral trade, alongside domestically focused initiatives to compensate and offer viable retraining opportunities to those that are displaced. To this end, U.S. leaders should focus on several promising levers as first steps.

First, policymakers should take a lesson from U.S. advances in Asia’s security domain and turn to mini-laterals—groups of three to five countries focused on a narrow set of issues with shared interests as a way to achieve the gains of cooperation with less risk. Without entirely casting aside the prospect for more ambitious deals, this approach would avoid making the perfect the enemy of the good. The intent would be to work with a limited group of partners in targeted sectors—building off the administration’s mini-deal approach, but with significantly wider participation, more heft, and the consistent message that the goal is to recapture momentum on market access rather than cast aside entirely the prospects for more comprehensive deals.

Regional mechanisms like mini-laterals are far from perfect, but they offer a degree of interconnectedness that can enhance deliberation across borders and make policy responses more appropriately nuanced. Working with just a small group of like-minded partners, the United States would have greater leverage to set and enforce high labor, climate, and other standards. Picking and choosing sectors to focus on would allow the United States to avoid areas of political sensitivity and seize on opportunities to advance other strategic objectives.

Supply chain diplomacy, for instance, can indeed result in progress, as evident in the agreements the United States has recently signed on coproduction and technology with India, Australia, and Japan.

Expanding these areas of growing cooperation into the trade domain and adding new tailored agreements with countries across Southeast Asia should be high on the list of priorities for those guiding U.S. trade policy. Although there is some value in pursuing such deals, as Peter Harrell has argued in Foreign Affairs, “in sectors where interests clearly converge,” it will be important to remember that other countries get a vote, too. They will often prefer more comprehensive agreements that will require U.S. policymakers to take on a measure of responsibility for garnering political support and designing suitable mechanisms to mitigate the impact on affected communities.

Indeed, relying on a mini-lateral approach comes with risks. While reaching agreements with a smaller number of partners can be comparatively easier than achieving the consensus needed for a large multilateral agreement, transaction costs are still involved. Too many of these small, overlapping groups can create a crowded international economic architecture, which can be costly and difficult to manage. Washington will therefore need to be judicious in selecting the partners and sectors where it invests in building new institutions for cooperative economic exchange. The tendency will be to lean toward partners like Japan and South Korea where higher levels of economic development may make agreements with high standards easier to reach. But this may have downsides, too, in that it will constrain pathways to economic integration across other parts of Asia—especially Southeast Asia, where much of the region’s growth potential is located. To guard against this, the United States should aim to diversify its partners and explicitly focus on building mini-lateral agreements with countries who are not already U.S. treaty allies.

The United States will also need to pursue trade reengagement through other channels to achieve the desired diversity in economic cooperation. One option might be to find ways to add some limited market access to a more institutionalized IPEF, tied to strict technology standards, for example, with clear mechanisms for enforcement and monitoring. Bringing close Asian partners like Japan into existing free trade agreements like the United States-Mexico-Canada Agreement (USMCA) if they are willing to adhere to its higher standards and requirements is another option. Ways to expand and leverage existing bilateral agreements, especially with nontraditional partners who are strategically important or show high potential for economic cooperation, should also be explored. The bottom line is that policymakers will need to be creative to find varied opportunities with the right balance of economic gains and domestic safeguards.

Alongside the pursuit of a modest and controlled market liberalization abroad, Washington must also carefully attend to associated domestic costs. It can do this in two ways. The first is to continue to rely on industrial policy to protect sectors of high strategic importance to the United States. As under the Biden administration thus far, this would likely include semiconductors, green technologies, and several others. That said, policymakers should develop far clearer metrics or criteria to determine which sectors require protection and subsidies to support U.S. interests. This list would likely be somewhat shorter than the set of industries that receive this type of support today. Second, policymakers will need to redouble their efforts to compensate and retrain workers who suffer due to trade’s distributional effects. This is an area where governments have fallen short in the past, and more robust commitment and better outcomes will be essential to the success of any reengagement with trade. Significant federal funding and coordination will be required and should be allocated. Moreover, programs would need to be aimed at more diverse audiences with more flexible types of assistance.

For U.S. policymakers, engaging with a more ambitious trade agenda can contribute to greater security and shared growth across Asia and in the United States. Policymakers can advance that agenda without ignoring the potential for trade-related economic displacement to affect communities in the United States—a challenge that persists even if many of our most dynamic regions grow stronger because of economic relationships with Asia. With the right carve-outs and attention to supply chain resilience as well as the situation of Asian trading partners, a more vigorous trade agenda can also fit with American national security goals and reasonable domestic needs. Congress and the executive have multiple tools to meet the moment without neglecting the role of market access in strategy and standard-setting: from savvy use of existing bilateral trade relationships to new mini-lateral groups that can expand trade across sectors, market-oriented reforms to the IPEF, and efforts to piggyback off existing free trade agreements such as the USMCA. Greater attention to workers and communities adjusting to new economic realities is also likely a sensible response. So, too, is the targeted use of industrial policy alongside carefully calibrated efforts to reform multilateral trade rules to make international trade more compatible with domestic needs. Closing off any serious near-term prospect for greater access to the American market is not.

Jennifer Kavanagh was a senior fellow in the American Statecraft Program at the Carnegie Endowment for International Peace. Mariano-Florentino (Tino) Cuéllar is the tenth president of the Carnegie Endowment for International Peace

To read the full paper published by the Carnegie Endowment for International Peace, click here.

To read the full paper, click here.

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The post Comparing Trump’s Haphazard $2,500 Tax Increase to Biden’s Targeted Tariffs appeared first on WITA.

Unlike President Trump’s across-the-board import tax increases on Chinese goods in 2018 and 2019, the tariff increases announced on 14 May 2024 by the Biden Administration will affect just 14 product categories. The Biden Administration prefers selective decoupling from China, which is restricted to a limited number of sensitive sectors. Just $18bn of Chinese imports are expected to be affected, less than 5% of total Chinese annual imports to the United States.

This isn’t another Trump-style tariff war

The very fact that President Biden felt he had to take this high-profile measure is a testament to three factors:

• The tightness of November’s US presidential election.
• Biden’s desire to shore up his base vote in key swing states comprised mainly of trade union members working in traditional manufacturing sectors, and their families.
• How few friends China has in Washington, D.C.

In terms of corporate impact, there are two drivers: timing and the scale of current sourcing from China.

Some goods shipped from China — including aluminum, cranes, electric vehicles, face masks, lithium-ion batteries, and steel — will face higher import tariffs this year. The disruption could be felt very soon, and procurement managers will already be reviewing sourcing alternatives.

Higher tariffs on semiconductors won’t be rolled out until 2025, providing a strong incentive to bring forward any plans to import from China. Ironically, this may create the very export surge from China that the Biden Administration says it wants to prevent. However, China is not a big supplier of semiconductors to the USA in the first place.

Natural graphite, magnets, and medical gloves shipments from China won’t get hit with higher tariffs until 2026. This will delay any supply chain responses, especially if President Biden is re-elected and if there are doubts that he will follow through on these tariff measures.

As mentioned above, the other consideration is the amount of sourcing from China in the first place. In the case of EVs, China already faces 25% tariffs, and few are currently shipped to the USA.

In summary, the near-term disruption for supply chains will be concentrated on a small number of products. This is not welcome for the firms affected, but Biden’s May 2024 tariff moves do not presage widespread upheaval. Indeed, some analysts have argued that Biden’s recent tariffs amount to election-year window dressing and were designed to look tough but disrupt little. Optics matter. To date, Chinese retaliation has been uncharacteristically modest, reinforcing assessments that Biden’s May tariff move was electoral smoke and mirrors.

So, is Biden’s move no big deal? 

Not so fast. Where Trump was erratic and transactional in his dealings with China, Biden’s team has been methodical and persistent. Current US Administration officials deemphasize decoupling from the Chinese economies but reckon there needs to be “a small yard and a high fence.” By this, they mean that some sectors and technologies are — or should become — off-limits to Chinese buyers, firms, and investors. A ramping up of restrictions on inbound and outbound investments and technology sales involving all or selected Chinese firms has been the hallmark of Biden’s first-term trade policy.

Indeed, the May 2024 tariff measures apply to some sensitive sectors where China is effectively excluded from US markets. Those tariff measures often involve eye-watering increases in import taxes (up to 100% in some cases and far in excess of what Trump imposed), which is a testament to the height of the fence Biden seeks.

If the Biden team could state once and for all the commercial deals it is prepared to allow and those it doesn’t, then executives could plan. However, technology evolves over time — as do Chinese tactics to circumvent US controls — and, not unreasonably, Washington, D.C., reserves the right to change the terms of commercial engagement with China.

This raises fears that the yard will expand over time and the fence will get higher — even if Biden wins re-election. Such situations clearly call for scenario planning. After all, Trump’s plans for higher tariffs on China’s imports are well known.

The other big unknown is how China will ultimately respond. The Biden team informed Beijing weeks in advance of its tariff hikes — probably on the grounds that no one likes surprises. So far, Beijing has turned the other cheek and has not hit back. Many trade policy analysts reckon China won’t retaliate too forcefully or publicly for fear of increasing the odds Biden will lose being re-elected. The argument that clinches it for many observers is surely that President Xi and his new team don’t want to see Trump return to the US Presidency, not least because of the latter’s threat to impose an additional 60% across-the-board tariffs on US imports from China.

I am not so sanguine. President Xi’s newish team is widely regarded as very nationalistic and may want to burnish these credentials by striking back against US exports at a time of their choosing. Moreover, given Donald Trump’s self-professed admiration for “strong men” (a group that includes Xi), the Chinese may estimate that for all Trump’s bluster, they can reach a deal with him that is preferable to anything Biden’s team is likely to offer. We will see how long Beijing holds its punches.

Is this episode over? Are any other trade policy threats on the horizon?

Biden’s team probably hopes it has done enough to protect its standard bearer against accusations of going soft on China, but that doesn’t mean that trade diplomacy is over for the year. US policy has been to systematically cultivate support from other Western governments for its approach to Chinese commercial relations. In this regard, developments at the G7 are what to watch.

Created in the 1970s and expanded, the G7 is a club of Europe’s four largest economies (France, Germany, Italy, and the UK), as well as Japan, Canada, and the United States. Their government leaders and ministers meet often. In fact, for some time now, US officials have sought to persuade counterparts in the G7 that Chinese industrial policies, subsidies, and outright trade restrictions are a first-order threat to Western living standards.

If last week’s G7 Finance Ministers and Central Bankers’ communiqué is anything to go by, the US has succeeded. The third paragraph of this declaration states: “We will enhance cooperation to address non-market policies and practices and distortive policies, including those leading to overcapacity through a wide range of policy tools and rules to ensure a global level playing field. While reaffirming our interest in a balanced and reciprocal collaboration, we express concerns about China’s comprehensive use of non-market policies and practices that undermine our workers, industries, and economic resilience.”

The way the G7 works is that prominent statements found high up in the Finance Ministers’ communiqué tend to find their way into their Leaders’ Declaration. Ultimately, the question is whether the G7 will back these words with deeds. A similar declaration in June 2023 by the US and five allies (three are G7 members) went nowhere — or, at best, can be viewed as coalition-building. Given the divisions in Europe between firms and governments over the merits of decoupling with China, concerted action by the G7 against China this year is far from assured.

Still, the fractures in the world economy are widening. Executives who operate or source from Chinese firms in sectors where there is said to be excess capacity in China should be on alert. Those sectors include, at minimum, aluminum, cement, construction, electric vehicles, solar panels, and steel. That Chinese exports blocked from the US can be deflected to other foreign markets means executives from Western Europe, Japan, and emerging markets need to keep trade policy developments on their radar as well.

Simon J. Evenett is currently a Professor of Economics at the University of St. Gallen and on 1 August 2024 will join the Faculty at IMD. He is also Co-Chair of the WEF’s Global Council on Trade & Investment and the Founder of the St. Gallen Endowment for Prosperity Through Trade, home of two of the leading independent monitors of how governments shape international business.

To read the full column as it was published by IMD, click here.

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But when it comes to the brass tacks of trade—trade deals, tariff lines, the paperwork that companies have to file at the border, and other mechanics—U.S. President Joe Biden’s administration has not articulated a coherent agenda. At times, the administration has tried to use the specter of China’s economic threat to generate support for trade deals. One notable example is its signature Indo-Pacific Economic Framework (IPEF), which is intended to strengthen economic relations between the United States and countries across the Pacific. But geopolitical arguments for deals are failing to carry the day. Last November, deep congressional skepticism and electoral concerns spurred the administration to indefinitely postpone the IPEF trade pillar, and it is unclear whether it will complete the work even after the 2024 election.

Former president Donald Trump, in his current campaign to return to the White House, does have a clear vision for trade: he has announced plans to deploy tariffs and other protectionist measures to support favored U.S. industries. The architect of Trump’s trade policy between 2017 and early 2021, former U.S. trade representative Robert Lighthizer, has argued that the United States should vigorously deploy tariffs and other trade restrictions both to protect U.S. industry and to force not only China, but a variety of European and Asian countries, to cease unfair trade practices. However, a number of experts have raised concerns about the economic impacts of these policies as well as the risks they would pose to U.S. geopolitical relationships.

Resetting America’s trade agenda and developing a trade vision capable of drawing broad support across Washington is going to require the government to, as Steve Jobs would have said, “think different.” Rather than treating trade deals as a geopolitical endeavor that the United States should suffer through to support America’s allies and partners, or pursuing Trump’s vision of simply reducing trade (the geopolitical argument), the United States should get back to a basic premise that has guided successful trade policy in the past—that policymakers can develop and promote trade policies that advance American economic interests as well as American geopolitical interests.

Given the nature of the economic challenges the United States currently faces, this approach will require policymakers to spend less time on the geopolitics and more time on the economics. That choice, in turn, will encourage a shift in the primary focus away from regional deals and toward narrower sectoral deals that address the problems of greatest concern to most Americans, such as climate, energy, and the looming artificial intelligence (AI) revolution. To actually solve those problems, the United States should be open to using a new set of tools in creating trade deals, including those related to financial instruments, development, and national security. Today’s biggest challenges cannot be solved simply with market access and regulatory cooperation. The next chapter in American trade policy will need to entail new types of sectoral deals between the United States and key allies and partners on a set of issues that include climate and energy, supply chains, and AI and the digital economy.

The Rise of the Modern Trade Paradigm

Rebooting America’s trade agenda first requires understanding why the protrade consensus that prevailed from the 1990s to the mid-2010s—the most recent era of significant U.S. trade dealmaking—broke down.

Since the end of World War II, the United States has undertaken successful rounds of trade dealmaking during periods when trade deals had both a clear geopolitical and a clear economic logic. In the late 1940s, in the aftermath of the war, the deal that fit both U.S. geopolitical and economic interests was the General Agreement on Tariffs and Trade (GATT). Geopolitically, American policymakers saw the GATT as a tool to shore up Western alliances in the nascent days of the Cold War. From an economic perspective, trade negotiators designed the GATT to be an antidote to prevent a return to the “beggar thy neighbor” tariff policies of the 1930s, which postwar economists and policymakers saw as having exacerbated the Great Depression. The agreement required reductions in tariff rates and ensured that members accorded each other “most favored nation” trading status to put further downward pressure on tariffs over time. From a U.S. perspective, American officials also understood the GATT as a tool to help open markets to U.S. goods at a time when the United States was the world’s largest net exporter and needed foreign markets to replace war-driven demand for U.S. industry. Reductions in foreign tariffs on U.S. goods provided a major direct benefit for American industry.

The United States pushed to expand the GATT several times during the Cold War. The so-called Kennedy Round of 1964–1967 resulted in additional tariff reductions and began to establish disciplines around dumping, the practice where a country sells a product internationally at a lower price than the product sells for in its home market. The Tokyo Round of the 1970s expanded participation in the GATT to more than one hundred countries, seeking to include much of the nonaligned developing world. It began to try to tackle nontariff barriers and “voluntary export restraints,” a type of measure where countries would agree to limit export quantities in exchange for avoiding tariffs. With the introduction of a Subsidies Code, the Tokyo Round also began to introduce the concept of rules around subsidies.

However, the modern trade orthodoxy that guided U.S. trade policy from the end of the Cold War through the mid-2010s crystallized in the late 1980s and early 1990s. The fall of the Berlin Wall ushered in America’s unipolar moment, when America’s geopolitical policymakers saw an opportunity to use trade and economic relations to anchor its former Soviet adversaries and emerging geopolitical competitors, notably China, in a U.S.-led international order. Presidents Ronald Reagan, George H. W. Bush, and Bill Clinton, meanwhile, presided over a period of neoliberal economic consensus in Washington that Washington thought was an economic model appropriate for the world as well. Trade policy and trade deals (as well as other policy levers such as the International Monetary Fund) offered a tool to promote that U.S. economic model abroad. This intersection of geopolitics and economics ushered in a remarkably productive period of trade policymaking, with initiatives such as the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), and free trade agreements (FTAs) with more than a dozen nations. Other related policies included the Africa Growth and Opportunity Act (AGOA), which cut tariffs on imports from democratic countries in Africa in a bid to foster development and democratic progress on the continent.

The deals of this era had a clear geopolitical logic. NAFTA was designed to strengthen the North American political union and, in the eyes of both presidents Bush and Clinton, to provide an eventual pathway toward a more democratic and economically unified Western Hemisphere—a vision that George H. W. Bush’s son and later president George W. Bush, took further with the Central America–Dominican Republic FTA (CAFTA-DR) a decade after NAFTA entered into force. The WTO, and China’s ultimate accession to it at the end of the decade, reflected the prevailing 1990s geopolitical view that a global trading arrangement would help draw countries like China toward the West. As Clinton said of China’s accession in 1999, “it represents the most significant opportunity that we have had to create positive change in China since the 1970s,” noting that China was “agreeing to import one of democracy’s most cherished values: economic freedom. The more China liberalizes its economy, the more fully it will liberate the potential of its people.” Or, as George W. Bush said about U.S. legislation to enact the CAFTA-DR agreement, “this bill is more than a trade bill. This bill is a commitment of freedom-loving nations to advance peace and prosperity throughout the Western hemisphere.”

FTAs with Morocco (2004), Bahrain (2005), and Oman (2006), enacted in the years following the 9/11 terrorist attacks, were intended to bolster American allies in the war against Islamic terrorism and with the aspiration that economic progress could reduce the terrorist threat. In a 2003 presidential speech, George W. Bush laid out his economic vision for the region, which proposed bilateral FTAs as stepping stones toward a Middle East Free Trade Area. As he remarked, “across the globe, free markets and trade have helped defeat poverty, and taught men and women the habits of liberty.”

The economic logic behind these deals was as important as the geopolitics. From a macroeconomic perspective, the trade deals of this era reflected a view that the U.S. economy could benefit from offshoring lower-value U.S. manufacturing in order to lower consumer costs, while encouraging the domestic growth of higher-value industries like software, healthcare, and value-added manufacturing. As Clinton put it in 1993, “this debate about NAFTA is a debate about whether we will embrace [economic] changes and create the jobs of tomorrow, or try to resist these changes, hoping we can preserve the economic structures of yesterday.” Trade globalization was thought to create opportunities for new U.S. exports, encourage innovation by forcing companies to compete globally, and lower consumer costs. Furthering Clinton’s argument in support of NAFTA and an aspirational Latin America free trade deal, policymakers also thought that an expanded U.S. trade block could deliver the economies of scale needed to compete with the emerging European Union trade block and growing intra-Asian regional trade.

With the texts of the deals themselves, trade policymakers sought to promote the then-prevailing economic consensus in Washington, which championed reduced government subsidies; nondiscrimination for goods produced by other countries; lower regulatory burdens for business, including the then-nascent digital economy; and strong intellectual property (IP) protections. Policymakers also sought to promote higher labor and environmental standards and to tackle challenges like corruption. Senior figures in Washington often spoke of these goals as raising standards internationally and writing global rules based on U.S. rules.

The WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement), which went into effect in 1995, for example, drastically expanded the pre-WTO GATT’s disciplines regarding industrial subsidies. Throughout the text of the WTO agreements and U.S. FTAs, countries agreed to accord “national treatment” to each other’s goods, committing not to give preference to domestically produced goods. In most U.S. FTAs, and with respect to the countries that have signed up to the WTO’s Government Procurement Agreement, this nondiscrimination commitment even extended to government procurement of goods—meaning that the U.S. government, for example, should not show a preference for U.S.-made cars over foreign cars when buying for the federal fleet. Of course, these agreements also required governments to allow U.S. companies to bid on their procurement contracts.

U.S. FTAs typically included chapters ensuring that FTA partners offered IP protections comparable to U.S. IP protections. Several also sought to codify legal immunity for digital platforms regarding content posted by their users, just as platforms have immunity in the United States from lawsuits over user-posted content. Free data flows generally were protected, and governments made other commitments to not limit the operations of digital platforms operating in their countries. Trade policymakers also regularly touted deal language that promoted workers’ rights and environmental standards.

The final chapter of this era of trade policymaking was President Barack Obama’s support for the Trans-Pacific Partnership (TPP), a trade deal between a dozen economies in the Americas and Asia negotiated by the Obama administration in 2016. The TPP expanded on earlier FTAs from the 2000s and early 2010s, including by developing new disciplines on state-owned enterprises and currency manipulation. But the Obama administration made its case for the TPP largely on geopolitical grounds, arguing that it would be an important economic counterweight to China’s influence in the Pacific and an economic pillar of the administration’s “pivot to China.”

The Modern Paradigm’s Fall From Grace

Obama signed the TPP in January 2016. But even as he pushed for congressional ratification of the deal, it was becoming clear that the trade paradigm that had dominated Washington policy discussions since the early 1990s was falling out of favor. By late 2015, key congressional leaders had begun to express skepticism of the emerging TPP provisions, and ultimately they never scheduled a vote on the deal. Both of the major presidential candidates in 2016, Democrat Hillary Clinton (who had supported the early development of the TPP while serving as Obama’s secretary of state) and Republican Donald Trump, opposed the deal on the campaign trail, and Trump withdrew the United States from the deal shortly after his inauguration in 2017. (The other members of the deal, led by Japan, moved forward and completed the deal, rebranded as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, in 2018.)

As president, Trump generally eschewed traditional trade deals in favor of a tariff-heavy approach to trade, intended to put pressure on China while protecting U.S. industries, like steel, that he deemed important. Nevertheless, he did successfully enact the U.S.-Mexico-Canada Agreement (USMCA), an overhaul of the NAFTA agreement from twenty-five years earlier. And while some in the trade policy and national security communities hoped that Biden would launch negotiations to reenter the TPP, Biden has instead launched trade initiatives like the IPEF that are intended promote cooperation on trade and standards but do not provide access to the U.S. market as traditional FTAs would. And even without U.S. market access, such initiatives have proved politically controversial. In November 2023, for instance, Biden indefinitely postponed finalization of the trade-related aspects of IPEF owing to concerns by Democrats in Congress that the deal would be politically harmful and due to opposition by American labor unions. Biden also quietly postponed nascent trade talks with the United Kingdom and Kenya that began in the last months of the Trump administration, and late last year his trade representative, Katherine Tai, withdrew long-standing U.S. support for proposed digital trade rules at the WTO. Trump, in his campaign to regain the presidency this year, has doubled down on his commitment to tariffs and other protectionist measures rather than deals, floating the idea of imposing a 60 percent tariff on goods imported from China and a 10 percent tariff on products imported from everywhere else.

Of course, trade has long been a hot-button political issue. Texas billionaire H. Ross Perot made his opposition to NAFTA a signature issue in his 1992 independent presidential campaign against Bill Clinton and incumbent George H. W. Bush, and trade deal approvals have always been hard fought in Congress. But for the twenty-five-year period between 1990 and the mid-2010s, geopolitical and economic logic were able to overcome that political opposition to see deals to fruition. Today, there is scant evidence that new trade deals could get through Congress, and a dwindling number of elected political leaders are willing to argue in favor of them. There are several reasons for this change in political support.

The first is the shifting U.S. relationship with China. Although economic research from the 1990s and early 2000s generally found that expanding U.S. trade flows had at most a limited impact on U.S. manufacturing employment, with other factors such as automation playing a larger role, research from the mid- and late 2010s found that the “China shock” of growing U.S.-China trade in the 2000s had substantially more disruptive impacts on jobs. Moreover, communities adversely impacted by the China shock have seen little recovery over the past decade. Adverse employment impacts from trade with China, combined with China’s rise as a geopolitical competitor, have led to bipartisan support for “derisking” U.S. supply chains from China, fueled the arguments of trade skeptics, and renewed a focus on U.S. domestic manufacturing.

The second reason is shifts in domestic political preferences. It is true that some polling shows that the majority of Americans are supportive of trade: a 2023 poll commissioned by the Chicago Council for Global Affairs, for example, found that 74 percent of Americans say “trade is good for the U.S. economy.” But as prominent economist Alan Blinder pointed out several years ago in Foreign Affairs, “most Americans’ belief in free trade is a mile wide but an inch deep,” with polling responses varying widely depending on which questions are being asked and whether Americans are asked only about trade in the abstract or also about American manufacturing and jobs.

Trade policy is a classic example of an issue where a constituency that is invested deeply in and affected by an issue, such as specific U.S. industries and workers who face the risk of losses from trade, exert more influence than a majority of voters who may benefit from lower prices but who do not see their well-being as being deeply connected to trade issues. Recent polling by American Compass, a conservative organization that is skeptical of trade deals, has also shown that while a plurality of Americans thinks they personally benefit from globalization, a similar plurality thinks the United States as a whole has been harmed. Other recent polling suggests that on trade, more Americans trust Trump, with his zeal for tariffs, than trust Biden. Academic research, meanwhile, indicates that while Trump’s tariffs were an economic mixed bag, they won Republicans votes at the ballot box.

A third reason is that the raw economic benefits of trade deals have become less compelling. Take the TPP as an example: even the Obama administration’s own official estimate found that the TPP would add just 0.15 percent to U.S. gross domestic product (GDP) after a decade, hardly a compelling economic justification for the deal. And in the years since Trump abandoned the deal, actual U.S. trade flows have still moved in a beneficial direction: China’s share of U.S. goods imports declined from a high of over 20 percent in the late 2010s to approximately 15 percent last year, while the absolute value of U.S. goods imports from China fell last year to the lowest level in a decade. Trade with allies and partners also has grown: since 2017, U.S imports of goods from India are up 37 percent, up 80 percent from Indonesia, up 61 percent from the Philippines, and up a whopping 200 percent from Vietnam—the last of these now exports goods valued at a quarter of its entire GDP to the United States. The United States became India’s largest trading partner in 2023, while U.S. exports to the European Union and European imports from the United States are both up more than 25 percent over the past few years. Overall U.S. exports today substantially exceed prepandemic levels, reflecting growing global demand for U.S. energy, agriculture, and manufactured goods, as well as U.S. services.

Meanwhile, Americans traditionally thought to be adversely impacted by trade are doing well. Real wages for lower-income Americans grew strongly in 2023, and, in a reversal of the trend that has prevailed for most of the past two decades, the real wage growth for lower-income Americans over the past two years has been higher than the rate of wage growth for higher-income Americans. Women and Black Americans also saw historic gains in the labor market. A situation where both U.S. companies and U.S. workers are doing well creates little incentive to open U.S. markets to more competition. Numbers like these reinforce skepticism about the benefits of new FTAs.

But perhaps the most important reason for declining U.S. political support for new trade deals is that the economic theory of the case that underpinned the deals of the 1990s to the mid-2010s has fallen out of favor in Washington. At a fundamental level, a bipartisan consensus has emerged in Washington that the United States should rebuild its manufacturing industrial base and focus more on the economic well-being of American workers. Irrespective of whether prioritizing manufacturing optimizes American economic growth, there is strong political support for doing so.

In some sectors, U.S. domestic support for reindustrialization is driven by geopolitics: Congress’s bipartisan support for the CHIPS Act in 2022, which will provide more than $75 billion in incentives for manufacturing semiconductors in the United States, was driven in part by concern that a conflict between China and Taiwan could cut off America’s access to the chips it needs for industrial, defense, and consumer applications. In other sectors, such as manufacturing clean energy technologies, the push for reindustrialization is driven by a combination of geopolitical desires—ensuring that the United States is not dependent on China for green technologies—as well as domestic economic interests in boosting manufacturing employment in emerging manufacturing sectors. Across the political aisle, Biden’s trade representative Katherine Tai and Trump’s former trade representative Robert Lighthizer are united in a view that a goal of trade policy should be to raise wages and well-being for workers and that, for too long, trade policy has focused on benefits to consumers.

At a macroeconomic level, this desire to reindustrialize in many respects runs counter to the economic theory that underpinned many of the major trade deals of the past, which posited that U.S. workers would move up into “higher value” sectors like information technology, healthcare, and advanced manufacturing as the United States offshored lower-value (and lower profit margin) types of manufacturing. Moreover, many of the tools that policymakers want to deploy to rebuild manufacturing may run up against the trade rules that the United States long supported. Many of the United States’ European and Asian allies, for example, argue that the manufacturing subsidies the United States adopted in the CHIPS Act and particularly the green energy–focused Inflation Reduction Act violate the spirit and likely the letter of provisions of the WTO and U.S. trade agreements that long sought to limit industrial subsidies or at least give countries the right to retaliate against them. Likewise, “Buy America” provisions that direct the U.S. government to purchase American-made products run counter to trade rules on government procurement long supported by the United States.

The United States confronts a similar dynamic with respect to policymakers’ preferences on technology and the digital economy. Going back to the early days of the internet and continuing through the 2019 U.S.-Japan digital agreement, U.S. trade agreements have sought to promote light-touch regulation of the tech sector, guarantee the free flow of data across borders, and protect tech companies from lawsuits for content posted online. Today, Democrats and Republicans alike are pursuing a much more aggressive regulatory approach to technology companies, including competition policy crackdowns, efforts to repeal companies’ immunity for content posted online, and increased restrictions on cross-border data flows, at least to China. Some members of Congress and policy experts in the United States even want to revisit long-standing patent and copyright protections—such as the Biden administration’s current consideration of exercising “march in rights” to override patents to reduce drug costs—arguing that U.S. law has become too protective of intellectual property. The rise of generative AI is also likely to prompt a profound reassessment of intellectual property protections. These shifting domestic preferences, much like America’s growing preference for industrial policy, in many ways run counter to provisions historically supported in U.S. trade deals and will require a reassessment and overhaul of the trade rules America pushes for.

How to Reset the Agenda

Faced with fading support for FTAs, over the past two years trade-focused experts, industry lobbies, and protrade officials in Washington have floated a number of ways to reboot support for trade deals. The most popular approach has been to lean heavily on geopolitical arguments for trade. Commentators and political figures from across the political spectrum have argued that geopolitical competition with China makes trade deals with allies important: a late 2023 report by the bipartisan U.S. House of Representatives Select Committee on China, for example, argued that to compete with China the United States should “pursue trade agreements with strong rules of origin and high standards,” and it suggested Taiwan and possibly the United Kingdom and Japan as partners. As the Washington Post put it more succinctly in the title of a 2023 editorial, “To compete with China, the U.S. should put real trade deals on the table.”

Geopolitics has been the driving argument for the Biden administration’s IPEF. As Commerce Secretary Gina Raimondo said at a 2022 launch event, the IPEF “marks an important turning point in restoring U.S. economic leadership in the region and presenting Indo-Pacific countries an alternative to China’s approach to these critical issues.” Commentators such as Matthias Dopfner, meanwhile, have argued that Western democratic states should create a democratic trading block that increasingly would align trade policy with values while establishing the type of large economic scale that drives the efficiency gains that have been a long-standing economic argument for trade.

The idea of a broad democratic trading bloc is appealing as a long-term vision. But there is little reason to expect that geopolitical arguments for trade will prevail in the debate—particularly after they failed both to gain support for the TPP and to prevent Biden from postponing the IPEF trade pillar. The political and policy reality is that, aside from America’s robust defense budget, Americans are wary of policies that they perceive as requiring the American taxpayer to pay for the benefit of even other democratic states, as evidenced by the comparatively low levels of U.S. foreign assistance, and, more recently, the sharp congressional debate over continuing U.S. military and economic support to Ukraine. Framing trade deals as a sort of tax the United States should pay to strengthen the democratic world against China and other autocracies is unlikely to be a winning argument in the American heartland without a healthy dose of economic self-interest thrown in as well. Moreover, a number of large emerging market democracies that would be an important part of a democratic trading block, such as India and Brazil, have traditionally pursued protectionists trade policies and seem unlikely to be interested in a broad market liberalization in the near or mid-term.

A handful of former officials, seeing the political success of the USMCA—Trump’s updated NAFTA—have argued that the new agreement could be expanded to add additional members, potentially ultimately countries on both sides of the Pacific. But here, too, both the politics and the policies likely would prove challenging. Although there was broad bipartisan support for USMCA, that support reflected the fact that the United States already had a trade deal with Mexico and Canada (NAFTA) and bipartisan recognition that after twenty-five years, elements of NAFTA were in need of an update. Adding more countries, which would de facto result in the United States entering into new agreements with countries that did not have preexisting FTAs, would carry a different and almost certainly more challenging set of political dynamics. Instead, the way to reset the trade agenda is to start by resetting the economic logic of deals. If successful periods of trade policymaking have occurred in the past when the United States saw deals as advancing both its economic and its geopolitical interests, policymakers need deals that work on the economics as well as the geopolitics.

To reset the economics, policymakers should start by thinking less about traditional goals of market liberalization and more about discrete global challenges that require international economic cooperation—and possible ways of using trade deals to address those challenges. This would almost certainly mean pivoting from a bilateral or regional approach to trade to a sectoral approach to trade that brings together different sets of international partners to address discrete challenges.

Start with climate and energy. Global climate change poses an existential threat, as carbon dioxide emissions hit a new global high in 2023 despite years of international promises to address the problem. The United States accounts for only about 15 percent of total global emissions, whereas traded goods and services account for perhaps 25 percent of global emissions. Trade policy offers a powerful tool to tackle the 85 percent of emissions that originate outside the United States. Meanwhile, many U.S. allies and partners face a near-term challenge of securing their supplies of traditional fossil fuel energy, particularly following Russia’s 2022 war on Ukraine. European allies, for example, have had to scramble to find substitutes for Russian oil and gas. Even the United States remains far too dependent on Russia for uranium for nuclear power.

A climate and energy agreement could bring together a group of countries with the technologies and critical materials needed to produce clean energy, such as South Korea on battery technology, Indonesia for critical minerals, and the European Union for its role in clean power. The countries could work together to coordinate clean energy supply chains and industrial policies to promote the adoption and manufacturing of clean energy technologies. They also could commit to technological cooperation on clean energy technologies, with members, for example, offering streamlined permitting for nuclear energy construction from other member states. As with any trade deal, there would be an economic give and take: the United States and Europe, for instance, could offer countries access to incentives for green energy manufacturing in exchange for reliable access to critical inputs produced with high environmental and labor standards.

Meanwhile, the United States and Canada, major producers of traditional fossil fuels, could commit to providing access to fuels such as liquefied natural gas to address near-term energy security needs while the green transition is underway. The United States also could commit to maintaining high tariffs on Chinese clean energy technologies, including Chinese clean energy technologies produced in third countries, leveraging supply chain diversification away from China as an incentive for participation. It might also make efforts to lean heavily on the European Union and other allies to agree to impose similar tariffs on their imports of green energy products, such as electric vehicles (EVs), from China.

Conversely, countries could coordinate so-called carbon border adjustment mechanisms, which impose tariffs on products based on their carbon emissions, to put pressure on nonmember states like China and other highly polluting countries to reduce their emissions as well. Indeed, the United States and Europe are already discussing miniature versions of coordinated trade action for the clean economy. The proposed Global Arrangement for Sustainable Steel and Aluminum would promote trade in low-carbon steel and aluminum products, and proposed agreements on critical minerals would offer foreign battery materials makers some access to U.S. Inflation Reduction Act subsidies. These nascent steps could be bolstered and expanded into a compelling agenda.

A second sectoral area for trade policy focus would be to develop an “economic security” arrangement that coordinated industrial policy measures while strengthening supply chains for critical products. Countries such as Germany and Japan have joined the United States in pursuing new industrial policy measures, as in the case of the European CHIPS Act, which provides incentives for semiconductor manufacturing in Europe to match the U.S. version. Although this approach is welcome, in that it will likely spur further global production of important products like green technologies and semiconductors, poorly coordinated industrial policy measures risk triggering global subsidy fights and creating incentives for companies to play governments off against one another in a bid to maximize subsidies beyond those strictly needed to spur a project.

Meanwhile, the United States continues to face significant supply chain risks for other key products, such as medical devices and pharmaceutical ingredients. The production of many pharmaceuticals ingredients and some medical devices is concentrated on China and India. The United States, Europe, Israel, and a number of other countries, however, have a strong interest in resilience. An economic security arrangement could enable like-minded countries to coordinate industrial policy measures and promote supply chain resilience across critical products.

A final area for a sectoral agreement is AI and the digital economy. The United States has already begun to promote shared global standards for AI development through the G7’s Hiroshima process. Over time, an AI and digital economy agreement could link G7 political agreements into binding commitments for a larger number of countries to adopt. With respect to the digital economy, such agreements could establish shared standards and rules of managing data flows to strategic competitors, notably China, to prohibitions on government review of source code for apps and software developed in participating countries and expanded access to the digital economy and trusted telecommunications network infrastructure.

Sectoral agreements also would let the United States reconceptualize the tools that are included in a trade agreement. Since the first modern FTA in the 1980s, American trade agreements have focused on reducing tariffs and aligning regulations, generally around American standards. But trade—the actual exchange of goods and services and the associated economic activity—depends at least as much on policies and tools outside the scope of these FTAs as it does on FTA provisions: effective infrastructure, streamlined permitting processes, access to capital, and a skilled workforce. It is time for the United States to open the aperture of what a trade agreement can include to bring in a larger set of tools and potential commitments. For example, an AI and digital economy agreement should not be limited to governance and regulatory standards—it also should include meaningful financial commitments to help developing-world partner countries procure secure Western telecommunications equipment, rather than relying on Chinese suppliers. Similarly, a climate and energy agreement should include commitments to work together on streamlining the permitting process for high-priority projects that require a footprint across participating countries.

National security tools should also be on the table. The Committee on Foreign Investment in the United States (CFIUS) and export controls have come to play a far more prominent role in the international economy in recent years. Here, the United States should use trade deals in an offensive rather than defensive manner, for example, using trade deals to lock in commitments by foreign governments to restrict Chinese acquisitions of strategic companies in their countries. But the United States should also use its own national security tools as an incentive. A climate and energy agreement, for example, should promise to whitelist reputable automotive companies from allied nations like Japan for streamlined CFIUS approval, ensuring that they can invest in promising EV and autonomous driving companies in the United States. A digital economy agreement could include commitments not to impose export controls on allies without advance notice and consultation.

Finally, sectoral deals will let the United States focus trade provisions on specific facilities, rather than country of production. When the Trump administration negotiated the USMCA, for example, it included novel provisions that required workers to be paid at least $16 an hour for automotive parts to qualify for USMCA tariff treatment—essentially meaning that only certain Mexican plants qualify. Sectoral trade agreements are well suited to take this type of approach: a climate and energy agreement, for example, could offer foreign-made electric parts access to some of the subsidies contained in the Inflation Reduction Act, but only for facilities that meet the highest labor and environmental standards.

Negotiating large sectoral agreements undoubtedly will be challenging, as countries argue over the scope of covered sectors, market access, and the commitments to put on the table. But sectoral agreements also offer a new set of opportunities—to reframe trade deals as solving tangible problems that matter to the American people and to the world at large, and to negotiate rules that would internationalize some domestic policy changes within the United States.

Addressing China—and Whither the WTO?

Of course, a rebooted U.S. trade agenda is not just about deals with allies—it also requires addressing the U.S. trade relationship with China.

For many years, the strategic paradigm of U.S. trade policy toward China was defined by the hope that economic ties would persuade China to continue on a course of gradual economic and political liberalization. By the mid-2010s, it was clear that this paradigm had failed, prompting Trump to impose sweeping tariffs in a bid to generate negotiating leverage to compel China to change its economic model. China responded to the tariffs, initially with retaliatory tariffs on U.S. exports like agricultural products, and ultimately Trump offered tens of billions of dollars in assistance to U.S. farmers to offset the impacts of Chinese tariffs. Later, China offered a handful of concessions as part of a “Phase 1” trade deal, largely to avoid a threatened future tariff escalation. However, China steadfastly refused to make more fundamental changes to its economy and market, and there is no evidence that China’s willingness to reform has increased in the years since.

Moreover, even in the unlikely event that China made additional trade concessions to the United States, it is far from clear that they should be accepted: the United States has a strategic interest in reducing its dependencies on China in critical goods irrespective of whether China offers better terms on trade. For example, even if China somehow offered to allow American firms to produce critical minerals or EV batteries in China on fair terms, the United States has a strategic interest in ensuring that its domestic markets are not reliant on those supplies. The United States of course should pursue appropriate, fair terms for trade in nonstrategic goods, but when it comes to critical products, the U.S. objective should be to derisk the relationship, not for American and Chinese firms to compete on a level playing field.

Against that backdrop, the United States should rebalance its China tariffs to prioritize derisking rather than leverage for a deal. For example, it should raise tariffs on products where supply chain vulnerabilities remain acute, like EVs, batteries, medicines, and critical materials, while potentially offering some reductions in tariffs on nonstrategic consumer goods.

Effective derisking will require more than simple tariffs on China, however: it also will require measures to reduce the Chinese content in imports from third countries. There is a growing body of evidence, for example, that some of America’s growing imports from Vietnam are of products composed mostly of Chinese components, with low-value finishing work done in Vietnam. The United States needs to revisit the so-called rules of origin that determine what a product’s country of origin is for tariff purposes to begin derisking the upstream elements of critical supply chains. It also needs to figure out how to tackle China’s dominance in a handful of strategic construction industries, like shipbuilding and port infrastructure, where China’s impacts are global.

Though a U.S. pivot to sectoral agreements and more active management of the U.S.-China trade relationship could offer the potential to reboot the U.S. trade agenda, it will draw even more questions from U.S. allies about whether the United States has any residual support for the WTO. The WTO still serves as a basic framework for trade between nearly 200 countries, but the simple, often unspoken reality is that many American policymakers today regard the WTO as an outdated institution that reflects a different geopolitical moment. One of the WTO’s core tenets is that countries would accord each other preferential “most favored nation” trade status, in that the United States would set similar tariffs for both competitors like China and allies like Germany. With the resurrection of great power geopolitics as a defining feature of international relations, for most American policymakers it makes little sense for the United States to promote a global trading regime. Instead, most U.S. policymakers would prefer to see the development of a U.S.-centered trading bloc or blocs among allies and partners.

That said, most of America’s allies remain committed to the WTO, for understandable reasons. As the world’s largest economy, the United States is relatively well-positioned to negotiate bilateral or plurilateral agreements with major trading partners. Most small and midsize countries, however, strongly benefit from a stable global trading system rather than having to negotiate hundreds of bespoke agreements. The WTO also offers smaller countries a set of rules they see as being a valuable check on both the protectionist actions of large countries and for smaller countries to manage trade among themselves. The WTO itself, meanwhile, requires consensus for major changes, making reform unlikely. Moreover, a U.S. withdrawal from the WTO would be costly. It would result in more than one hundred countries around the world having the right to impose higher tariffs on the United States. To avoid that outcome, the United States would have to negotiate an unmanageable number of new deals in a short time frame.

Unfortunately, there is no clear path forward to resolve global differences on the WTO, given differences of both interest and opinion between the United States and its partners. The simplest path is likely for the United States and China, or perhaps the G7 on one side and China on the other, to reach a kind of mutual detente in which WTO rules would not actually govern trade between them. In many ways, this scenario would simply codify and expand the existing de facto reality between Washington and Beijing, where both Trump’s 2018 tariffs on China and China’s retaliation violate WTO rules, but the two governments effectively have reached a mutual understanding on tariff rates that simply exist outside the WTO system. Over the longer term, however, the world may see global trade continue to move toward discrete blocs—and this trend is already well underway. But there is not yet any international consensus on what a vision for that future would look like.

Conclusion: Does Trade Policy Matter?

Of course, for many Americans, and many policymakers, a rational lesson of the past few years could be that American trade policy does not need a reboot. Supply chains are diversifying away from China, U.S. exports are up, and real wages for workers are rising. Even if allies and partners complain about the lack of new American trade deals, rising actual trade volumes and closer defense relationships, like the AUKUS nuclear submarine deal with Australia and the UK and closer U.S. military cooperation with the Philippines, help to strengthen geopolitical ties. And even policymakers who want to use trade deals to strengthen geopolitical relations have to acknowledge that the correlation between economic and geopolitical relations is far from perfect. After all, Russia invaded Ukraine in 2022 despite decades of European policy aimed at using trade to anchor Russia economically into the West. As Lighthizer told a House committee last year, the iconic rock band the Beatles taught him that “money can’t buy me love” and that he doubted that “transferring our wealth to these people is going to make them like us more.

The strongest argument for rebooting U.S. trade policy ultimately may not be geopolitics, nor even the economic argument that trade deals will help an already-strong U.S economy. Instead, the best argument is that trade is a key element of solving global challenges that affect us all, like the green energy transition and the risks of AI and the digital economy. For trade policy to advance those goals, and win the domestic support that will be needed to make them happen, it is time to develop a trade policy designed around them.

Peter E. Harrel is a nonresident fellow at the Carnegie Endowment for International Peace.

Harrell_US-Trade-Agenda

To read the full paper published by the Carnegie Endowment for International Peace, click here.

To read the full paper, click here.

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This essay considers alternative scenarios for international trade policy for 2025 and beyond through the lens of the spectacular series of events that upended international trade beginning in 2017. These events are the direct results of Trump administration decisions, 2017-2021. During those years the Trump administration, with its emphasis upon nationalism and populism, effected a revolution in international trade policy that in many respects repudiated international trade policy as it existed from 1948 to 2016. Whereas for decades prior American administrations emphasized trade liberalization through international agreements, the role of multilateral institutions such as the World Trade Organization (WTO), and adherence to international law rules concerning trade, the Trump administration stood these policies on their heads, emphasizing protection of U.S. domestic markets, primacy of U.S. domestic trade laws over international law, and the irrelevance of international institutions such as the WTO. Trump administration trade policies had four major impacts: (1) a significant retreat from globalization; (2) paralysis of the World Trade Organization; (3) a revival of U.S. unilateralism in trade; and (4) a tariff and trade war between the U.S. and China.

Looking toward the future, given that 2024 is an important election year, I will discuss the announced trade policy intentions of the two presumed candidates for president — Democrat Joseph Biden and Republican Donald Trump. I will sketch briefly what each candidate intends to do concerning trade and the likely results for the American and global economies. I conclude that while both Trump and Biden advocate a certain degree of trade protectionism, Donald Trump intends to implement a radical protectionist vision concerning trade. Biden, on the other hand, will adopt a milder version of protectionism that emphasizes national security and enhancement of U.S. manufacturing autonomy. In addition, Donald Trump intends to pursue a hard U.S.- China economic decoupling. Joseph Biden, on the other hand, intends to pursue a milder approach to China, involving “derisking,” supply chain diversification, and “friend-shoring” of international trade and investment.

To his credit, Biden and his team have stabilized U.S.-China relations. Biden’s November 2023 summit with Chinese President Xi Jinping, along with diplomacy of Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo succeeded in restoring a degree of order to the U.S.-China relationship that was so chaotic during the Trump administration. China and the United States represent about 40 percent of the world economy; stability of this relationship is an essential component of global prosperity. The Biden administration has managed the U.S.-China relationship, essaying to prevent disagreements from spiraling into conflicts. 

Is the Past Prologue?

On January 20, 2025, someone will take the oath of office to serve as President for the next four years. A rematch seems to loom between Joseph Biden and Donald Trump. More than the names of the candidates will be on the ballot. Voters will choose the future role of the United States in the world. Voters will also choose the economy they will live with for the next four years and beyond. In terms of the subject matter of this symposium, we can pose the following key questions: (1) What will be U.S. economic policy toward China in the new administration? Will there be an attempted decoupling? (2) What will be the attitude toward tariffs and protectionism? (3) What will be the attitude toward new trade agreements? (4) Will the new president respect international law and institutions?

What will be the impact of international trade policies on the broader economy? The Federal Reserve seems to have engineered a “soft landing” for the U.S. economy. GDP rose 2.5 percent in 2023, and the unemployment rate is a low 3.7. percent. In 2023 inflation moderated to 3.4 percent. Which man, Trump or Biden, is more likely to maintain a good economy?

In this part I will address these and similar questions in the context of comparing the likely international economic policies of the Trump and Biden administrations. I will also describe a “third way” different from both.

Donald Trump’s “Maganomics”

Donald Trump on the campaign trail today still preaches the populist idea that tariffs benefit domestic industries and produce jobs and produce billions in revenue for the federal government. Trump has never been deterred by the opinions of economists who say that tariffs are taxes on American consumers and producers. Trump, the self-described “tariff man,” plans to double down on tariffs if he wins a second term as president.

First, he intends to impose a new “universal baseline tariff” of 10 percent on all imports into the United States.

Second, he is considering two possible options with regard to new tariffs on China. One option is to revoke China’s “most favored nation” status for trade with the United States. This would immediately result in huge tariffs on all Chinese products. If this option is problematic — it is against the rules of the WTO — Trump intends to simply impose across the board tariffs of 60 percent on all Chinese products. The magnitude of these proposed tariffs on Chinese products appears to mean that Trump will seriously aim to decouple the U.S. and Chinese economies.

These proposals, if implemented, would spark a global trade war, not only with China but with virtually all U.S. trading partners. They would also cause inflation and unemployment. A report commissioned by the U.S.-China Business Council predicts more than 700,000 job losses and a cost of over $1.6 trillion to the U.S. economy.

Third, Trump intends to propose a new round of tax cuts for small business and the middle- class worker. He proposes to cut the corporate tax rate from 21 percent to 15 percent.

Critics point out that this tax cut, like Trump’s first term Tax Cut and Jobs Act, is unfunded. Republicans are fond of such unfunded tax cuts that add to the national debt, which now stands at over $34 trillion. During his term as president, Trump added $8 trillion to the U.S. budget deficit. In 2023, U.S. interest payments on the national debt totaled $659 billion. The U.S. debt is growing faster than the economy. Many believe this rise in the debt is unsustainable.

Summing up Trump’s economics it can only be said that they are totally wrongheaded and borderline lunacy.

Joseph Biden’s “Bidenomics”

The Biden administration’s trade policy prioritizes labor and the American worker over consumerism. Biden’s 2021 Report to Congress states that American workers should be at the forefront of trade policy. Trade must be conducted to benefit regular American communities and workers. Trade policy must recognize that people are not just consumers, they are workers and wage-earners. Trade policy must protect American jobs not just low prices for consumers.

A threshold decision for the Biden administration was whether to repeal the Trump tariffs. At the time inflation was high. Numerous commentators advised Biden to rescind the Trump tariffs, arguing this action would lower U.S. inflation by 1 to 2 percent. Biden rejected this advice; he chose to defend the Trump tariffs in court litigation. Biden’s defense was successful. Biden did, however, allow importers to seek exclusions on grounds such as lack of domestic supply.

The Biden administration also vigorously defended the section 301 tariffs on China and ultimately prevailed in court. The Biden administration has not sought to lift these tariffs either unilaterally or in conjunction with an agreement with China.

The central element of Bidenomics, one that is new and untried, is an industrial policy that shapes the international economic order to achieve economic goals that benefit particular industries and communities. Four new laws are essential to this process: (1) American Rescue Plan Act ($1.9 trillion); (2) Infrastructure and Jobs Act ($1.2 trillion); (3) Inflation Reduction Act ($369 billion); and the (4) Chips and Science Act ($52 billion). Industrial policy is any governmental effort to boost priority industries or to create structural economic change. The United States formerly looked down on industrial policy and criticized states that adopted it. No more — if you cannot beat the competition, you join it.

Biden’s industrial policy involves three elements. First, massive subsidies are available doled out by bureaucrats or made directly to consumers in the form of tax credits. Second, the subsidy must be spent in America under Executive Order 14005, the Buy American mandate. Third, Executive Order 14017 comes into play mandate special attention to the supply chain to ensure there will be no disruptions or delays. “Make it in America is no longer just a slogan,” said President Biden, “it is a reality in my administration.”

The Chips and Science Act addresses a long-term decline in U.S. semiconductor chip manufacturing. Of the world’s five largest chip manufacturers, only one, GlobalFoundries, is based in the United States. In February 2024, the U.S. Department of Commerce announced a $1.5 billion grant to GlobalFoundries to build a computer chip manufacturing plant in New York state. Additional grants include $35 million to BAE Systems, a defense contractor, and $162 million to Microchip Technology, a Colorado company. The Biden administration argues that subsidies are the only way to create a viable computer chip manufacturing industry in the United States. This may be the case, but the subsidies potentially contravene the prohibitions contained in the WTO Subsidies and Countervailing Measures Agreement, and the “buy American” program may violate the WTO Government Procurement Agreement.

In past administrations negotiating free trade agreements that open foreign markets to American exporters was a high priority. The Biden administration, however, is an exception to this rule. Early in his administration President Biden stated, “I am not going to enter any new trade agreement until we have made major investments here at home and in our workers.” Biden has not sought to enter into any free trade agreements and apparently does not intend to do so if he wins a second term as president. He has not sought to revive unfinished negotiations with the European Union or theUnited Kingdom. He has not expressed interest in joining the Progressive and Comprehensive Trans-Pacific Partnership free trade agreement, which is in force for eleven nations.

As a substitute initiative the Biden administration formed what is called the Indo-Pacific Economic Framework for Prosperity. This is a “framework” not a free trade agreement. It is a voluntary document that does not contain any legal obligations but simply pledges cooperation. As Catherine Rampell describes it, “the only thing that can be reliably counted on is a growing aversion to anything branded as free trade.”

The words “free trade agreement” have become toxic on Capitol Hill and in the Biden administration.

The Biden administration eschews the inflammatory rhetoric of the Trump administration but has not sought to repair the damage to the multilateral trading system or to solve the thorny problems left over from Donald Trump.

The Biden administration’s trade policy, like Trump’s, is a huge break from decades of past trade policy. Biden rejects free trade negotiation to open foreign markets in favor of handing out lavish subsidies to favored industries. Critics decry the free spending and the emphasis on government creation of a manufacturing boom that will never materialize. They point out that manufacturing employment has been in steady decline for decades as automation makes it possible to produce more goods with ever fewer workers. Manufacturing accounts for just 8.3 percent of total employment, down from 8.6 percent when Biden took office.

A Third Way

Two prominent critics of Bidenomics, not to mention Trumpian Maganomics, are former Secretary of the Treasury Lawrence Summers and former USTR Robert Zoellick. These men constitute a “third way” in trade policy, different from Biden and more attuned to traditional trade policy of past decades. Summers has said, “I am profoundly concerned by the doctrine of manufacturing-centered nationalism that is increasingly put forth as a general principle to guide policy.” Summers decries much of the Biden administration’s industrial policy and the protectionism behind Biden’s emphasis on “buy American.”

Summers believes that excessive reliance on “buy American” exacerbates economic problems by driving up prices and fueling labor shortages. Summers argues that it sounds smart to use tariffs or buy American to protect the 60,000 workers in the U.S. steel industry. But when you raise the price of steel, the 6 million workers who use steel as an input all suffer as do consumers of steel. He reminds us that the workers who produce steel are only 1 percent of the workers who need and use steel as an input in the goods they make. Saving a few jobs for workers who make steel may not be the answer to economic malaise.

At a talk in 2023 at the Peterson Institute for International Economics, Summers made the following interesting points: (1) trade with China benefits the United States, which achieves job growth and consumer advantages; (2) government economic intervention aimed at bringing about a renaissance in U.S. manufacturing jobs is unrealistic and potentially counterproductive; and (3) the U.S. government should not try to maximize job creation over maximizing availability of low-cost goods to consumers.

Robert Zoellick makes four cogent criticisms of Bidenomics. First, team Biden ignores all fiscal discipline, embracing modern monetary theory that consigns fiscal constraints to the past. On the contrary, the U.S. budget deficit is worrisome and will have to be addressed. Second, “Biden’s team pursues trade and antitrust policies while questioning the importance of prices, costs, and efficiencies. Increased prices for consumers matter little to the administration compared with such goals as blocking foreign competition, doing away with fossil fuels, and experimenting with new regulations.” Third, team Biden distrusts the private sector of the economy, putting too much faith in statist solutions. Fourth, Biden now eschews American leadership in international trade. Instead, “Katherine Tai, Biden’s USTR, embraces Trumpian isolationism. She denies the power of deals to open markets and to accomplish other administrative objectives.

In short, Zoellick says, “Biden theorists imagine a national economy that Washington designs without foreign involvement.” There seems to be no memory that the post-war trade agreements signed between the 1940s to the 1990s produced unprecedented economic growth both for the United States and its trading partners.

Summers’ and Zoellick’s criticisms point toward a third way of handling the important subject of trade and investment policy. Why not return to multilateralism, which has stood the United States and its allies in such good stead for so many decades? This is not to advocate the multilateralism of the past. Why not adopt a multilateral approach suitable to deal with the problems of today. This multilateralism has three elements.

First, the United States should return to negotiating free trade agreements that open foreign markets to U.S. exporters. The U.S. traditionally was the largest exporting country. China became the world’s largest exporter only in 2009. The United States should again achieve this title; the way forward is the negotiation of free trade agreements.

Three free trade agreements should be high on the agenda of the next administration:

(1) The United States should join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); this free trade agreement was negotiated by the United States and is in force for eleven friendly Asian-Pacific countries. President Trump withdrew his support for this agreement in 2017, part of his mistaken “Maganomics” protectionism. This was a grievous error. The provisions of the CPTPP were created in Washington and are in the American interest.

(2) The United States should restart and complete negotiation of the Transatlantic Trade and Investment Partnership (T-TIP) with the European Union and the UK. This negotiation was scuttled by Trump. It can easily be revived.

(3) The United States should come to a free trade agreement with eleven (or more) Western Hemisphere nations. The Biden administration has launched talks with these nations but only to discuss what is called an “American Partnership for Economic Prosperity.” This is a toothless political agreement to be “nice,” but would not open any foreign markets or carry economic obligations. Nothing less than a full free trade agreement should be the administration’s goal.

(4) The United States should reengage with African nations through the African Continental Free Trade Agreement.

The purpose of entering into free trade agreements is not only to open foreign markets, but also to compete with China, which is very active all over the world promoting its Belt and Road initiative and other goals. By entering into these free trade agreements, the United States can help craft a global standard of conduct in trade and investment that China must observe. Without new trade agreements China is free to pursue its “divide and conquer” strategy to negate American influence around the world. New trade agreements would also confirm and reanimate America’s relations with its allies, who are anxious to create a counterweight to China.

As a second element of a “third way” in trade, the United States should reengage with the WTO and again play a leadership role in that organization. Since 2017 a leadership vacuum has existed at the WTO. Now is an excellent time to reassert American leadership. There is still a need for clear multilateral rules in trade. American leadership of the WTO could help shape the rules to our liking. It is not enough to merely criticize the rules and the role of the Appellate Body. The U.S. should also actively promote new rules more to our liking.

Third, the United States should establish a wide-ranging dialogue with high-level Chinese counterparts to provide transparency and to justify American actions in the ongoing economic competition with China. While decoupling is not and should not be the American goal, strategic decoupling may be warranted. The United States is taking numerous actions regarding China unilaterally. But that is not enough; there should be a bilateral forum to discuss American and Chinese actions in real time as they are happening. Establishing such a forum could help each side to understand this strategic decoupling process and to make corrections where warranted. The Trump administration abandoned economic dialogue with China shortly after taking office in 2017 in favor of a one-sided, “lay down the law,” monologue with its Chinese counterparts. This was a mistake. Larry Summers has described how bilateral talks with China have been fruitful to change Chinese behavior with respect to currency valuation and other matters.

Conclusions

In November 2024, voters will choose between Trump and Biden to be president of the United States. This essay has compared the different international trade policies of each man. While Trump’s policy views are sheer lunacy, embracing full-throated protectionism, Biden’s trade policy views are troubling. Biden also leans toward protectionism to some degree.

It is surprising that Biden on trade resembles his Republican predecessor more than the presidents of both parties who preceded him in the White House. Biden errs in turning his back on past trade liberalization pursued by successive presidents before Trump. The next administration should adopt a “third way” set of policies on international trade, emphasizing (1) negotiation of wide-ranging new free trade agreements; (2) reengagement with the WTO; and (3) robust bilateral forums to discuss trade matters with China.

Thomas J. Schoenbaum is presently the Harold S. Shefelman Professor of Law at the University of Washington in Seattle. He received his Juris Doctor degree from the University of Michigan and his PhD degree from Gonville and Caius College, University of Cambridge (UK). He is also Research Professor of Law at George Washington University in Washington DC. He is a practicing lawyer, admitted in several U.S. states and before the Bar of the Supreme Court of the United States.

To read the executive summary as it is posted on the website of the Institute for European Policymaking at Bocconi University, click here.

To read the full policy brief published by Institute for European Policymaking at Bocconi University, click here.

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Though all policy issues are vulnerable to this phenomenon, trade stands out, not only for the haphazard way that politicians explain it, but also the repeated misconceptions that have amplified a false narrative warning of the costs of openness and touting the benefits of closure. When Donald J. Trump calls the North American Free Trade Agreement “the worst deal ever negotiated,” and vows to bring jobs back home, detailed expert rebuttals struggle to contend with those punchy soundbites.

Trade has become toxic, not just on the campaign trail, but in the way that it is discussed by both Democrats and Republicans. “Traditional” US trade policy, which began to form its nearly century-old roots under the leadership of President Franklin Roosevelt and his Secretary of State, Cordell Hull, has been described by US Trade Representative Katherine Tai as “trickle-down economics,” where “maximum tariff liberalization…contributed to the hollowing out of our industrial heartland.” Her predecessor, Robert Lighthizer, calls those afflicted towns “ruins,” and has also railed against the international trading system which, through successive rounds of tariff liberalization, opened world markets to US goods and services while lifting billions of people out of poverty.

But the fact that some Americans were hurt by a failure to adjust to foreign competition has become the central grievance of the critics of modern US trade policy and has perhaps overly dominated the debate. This has clouded trade policy discussions with issues better addressed through domestic policy actions, such as workforce development and education policy.

The existence of domestic solutions has not stopped prominent officials, such as President Joe Biden’s National Security Advisor, Jake Sullivan, to question how trade fits into US international economic policy and ask “what problems is it seeking to solve?”

Instead of seeing trade openness as a source of strength, it is now framed as a source of potential weakness. Interdependence is increasingly described as a vulnerability, as countries can weaponize their trade links. However, few ever claimed that trade integration would lead to world peace—in fact, economic coercion is part and parcel of international affairs.

What matters, however, are the boundaries countries draw around what kind of behavior is acceptable and what is not. In the international trading system, the drawing of such lines used to take place at the World Trade Organization, but that institution has been weakened by the United States through its continued objections to the WTO’s appeals mechanism that has successfully, and peacefully, settled hundreds of trade disputes.

The current US approach to trade, if it can be called an approach at all, risks weakening US influence abroad and economically disadvantaging Americans at home. It rests on the false belief that retrenchment of “traditional” US trade policy—by putting America First or catering to a select group of US workers and branding such efforts as “worker-centric trade policy”—will somehow restore the United States to a position of hegemonic dominance with no peer competitor. The reality, however, is that such retrenchment comes with many significant and unforeseen costs that could weaken US leadership in the world. The United States, for the first time since its unipolar moment, is now faced with competition from all corners of the globe and a potential rival in China that could one day upend the status quo. Fears of being overtaken by China should not, however, prompt the United States to sabotage the very order it created and immensely benefited from. Instead of trade wars, what is needed, now more than ever, is to focus on what makes the United States exceptional and to secure a more open and prosperous future at home and abroad.

The problem with trade
The politics of trade have always been contentious. James Madison recognized this early, when writing in Federalist 10, “Shall domestic manufactures be encouraged, and in what degree, by restrictions on foreign manufactures? are questions which would be differently decided by the landed and the manufacturing classes, and probably by neither with a sole regard to justice and the public good.”

Lamenting the power of factions on the legislative process, Madison recognized that adjusting to “these clashing interests” is difficult and could not be done “in many cases… without taking into view indirect and remote considerations, which will rarely prevail over the immediate interest which one party may find in disregarding the rights of another or the good of the whole.” Trade policy was thus vulnerable to capture by special interests clamoring for protection, and these pressures would be difficult to overcome even by a president determined to craft policy for the benefit of the entire country.

Those clashes in US trade policy history are astutely detailed by economic historian Douglas Irwin, who chronicles the countless legislative and ideational battles that eventually led to the trade policy the United States used to lay the groundwork for the international trading system that we have today. Irwin describes the modern era of US trade policy, which begins around 1932, as driven by the objective of reciprocity, where the US government prioritized reductions in tariff and non-tariff barriers through negotiated agreements with other countries.

An important catalyst to this era were the ideas espoused by Secretary of State Cordell Hull, who foresaw the destructive powers of economic nationalism and urged “a revival of world trade” as “an essential element in the maintenance of world peace.” He went on to clarify that “by this I do not mean, of course, that flourishing international commerce is of itself a guaranty of peaceful international relations,” but “that without prosperous trade among nations any foundation for enduring peace becomes precarious and is ultimately destroyed.” Hull also well understood that trade could strengthen ties with foreign allies, not only serving to create economic opportunities, but also to reduce political tension

Those ideas have largely fallen out of favor: President Donald Trump challenged the foundations of the international trading system, and Biden continued Trump’s trade policy, in addition to taking significant actions to pave the way for a new US interest in industrial policy. In fact, though Biden offered a more positive view of the United States’ place in the world during his first presidential campaign, journalist Fareed Zakaria observes that Biden has governed as if “the country has been following the wrong course” leaving Washington “gripped by panic and self-doubt.” That panic and self-doubt has promulgated the belief that the international trading system is broken and in need of remaking. However, the budding new architects seeking to transform it have come to the job without a vision for what it should look like.

A misguided attempt to solve the problem
Both the Trump and Biden administrations have criticized past US trade policy and promised to correct the wrongs inflicted on average Americans, both real and imagined. Those efforts have led to an unprecedented number of executive actions that have put “security” above trade and sown distrust among US allies. It has also led to a troubling embrace of industrial policy, driven by a fear that China will overtake the United States in terms of economic influence, innovation, and raw power. Lighthizer argued that US trade policy should focus on “improving the lives of and opportunities available to regular working people” and “economic efficiency, low prices, and corporate profits,” while “important goals … should be secondary.”

Meanwhile, Jake Sullivan suggests modern US trade policy should move “beyond traditional trade deals to innovative new international economic partnerships focused on the core challenges of our time.” (Both statements, of course, ignore the regressive nature of the US tariff system and its disproportionately negative impact on working families). The examples Sullivan lays out are the Indo-Pacific Economic Framework for Prosperity (IPEF), the Americas Partnership for Economic Prosperity (APEP), the US-EU Trade and Technology Council (TTC), the United States-Mexico-Canada Agreement (USMCA) rapid response labor mechanism, and US talks with the European Union to create a global arrangement for steel and aluminum.

However, a closer look at what those trade policies do reveals that they are unlikely to be the foundation upon which a new consensus on trade can be built. The IPEF does not even include any trade provisions because domestic political pressure led the Biden administration to postpone the conclusion of the trade pillar as the United States heads into an election year where many Democratic congressional seats are up for grabs. The pillars it has concluded, including supply chain resilience, are likely to do little more than improve some information sharing among IPEF’s 14 members, mostly Asian economies that include some of America’s largest trading partners and strategic allies. True resilience requires strengthened trade ties, something the IPEF does not deliver.

Similarly, the APEP does not yet include any trade initiatives, though it does seek to make strategic investments in climate financing and critical technologies, such as semiconductors. The TTC appears more focused on tech than trade, and EU-US trade frictions have continued over Trump-era steel and aluminum tariffs that Biden has upheld in a slightly modified form and vehemently defended as necessary for national security. The global steel arrangement discussions were launched to resolve the impasse over tariffs and create a green steel carbon club, but these have also morphed into a convoluted negotiation primarily concerned with protecting US industry.

Finally, the USMCA rapid response labor mechanism is a one-way enforcement tool that has delivered limited benefits to the Mexican economy and done nothing to improve the conditions for workers in the United States. Despite this, Tai claims that “this is having a real impact on working peoples’ lives, not only in Mexico but also here at home, because elevating labor standards in Mexico empowers US workers by reducing unfair incentives to ship jobs overseas.” This sounds more like disincentivizing certain firm location decisions rather than empowering US workers directly. There is no guarantee, for instance, that strengthening labor standards in Mexico will encourage companies to reshore those jobs to the United States. The rhetoric is strong, but the evidence for Tai’s arguments is sorely lacking.

The common thread in this new approach to trade can best be described as asymmetry, which is in direct opposition to the principle of reciprocity. Over the last two administrations, the United States has asked its allies and trading partners to adjust to meet its immediate policy needs—real or imagined—and done little in return. Though our trading partners and allies have gone along with this American detour on trade, they have done so out of necessity, not out of desire. In fact, many still hold out hope that the United States will become a leader in trade again, rejoin the Trans-Pacific Partnership, lift its blockade on the WTO’s Appellate Body, and end the trade wars that Trump began. Current US trade policy is in many ways a blast from the past. Nowhere is this clearer than in recent enthusiasm for industrial policy, eerily similar to the Japan Panic that swept over Washington in the 1980s. Then, as in now, the United States will not beat its economic competitors by emulating their policies, but by embracing the openness—to trade, capital, and people—that has defined US economic success for decades.

What comes next
Surveys show that Washington’s political elites are out of touch with the American public. Though Americans have become more supportive of some trade restrictions, on the whole, 74% view trade as good for the US economy, 63% think trade creates good jobs in the United States, and roughly 80% see it as positive for consumers and for improving their standard of living. Americans also largely support immigration, though they have some particular reservations. Finally, the majority of Americans have more favorable views toward capitalism as opposed to socialism, though there are some notable differences between Democrats and Republicans. On most policy issues, though views have become more polarized, there does appear to be significant middle ground where Americans agree on the fundamentals.

In his first inaugural address, President Thomas Jefferson called on the country to come together, urging that “every difference of opinion is not a difference of principle.” A similar call is urgently needed today so that the United States can build a grand strategy for its international economic policy that matches its desires for global influence.

Jake Sullivan argued that “international economic policy has to adapt to the world as it is, so we can build the world that we want.” But to do that, the United States needs to build on top of the order it created—not tear it down. A return to the era of reciprocity is possible, but without a clear vision for the United States’ role in global economy and compelling incentives for our partners to go along, the new approach to trade will inevitably be a tough sell.

The result will be a weaker US economic presence abroad, rule fragmentation, and a more unstable global economy for years to come. Retrenchment should be avoided, and the United States would do well to remember that trade is not a zero-sum game where one side’s wins are another side’s losses.

Instead, trade is fundamentally about trust, openness, and reciprocity. The current international trading system has generated opportunity and economic success because of a commitment to these principles. It would be wise to return to them.

Inu Manak is a fellow for trade policy at the Council on Foreign Relations (CFR). At CFR, she researches and writes on policy issues relevant to US trade policy, including topics such trade politics and institutions, trade negotiations, and dispute settlement.

To read the full article, click here.

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Under President Biden, the United States is reinvigorating its trade policy to better confront the major challenges of the 21st century, but key questions remain.

U.S. trade policy—and with it the rules and institutions that constitute global economic architecture—has rarely been static. But over the past five years, beginning with the passage of the U.S.-Mexico-Canada-Agreement (USMCA) and continuing with the Biden administration’s innovative trade initiatives currently being negotiated with partners in Europe, Asia, and the Americas, the future of U.S. trade has never been more open-ended.

Climate, once largely absent from global trade rules and agreements, has vaulted to the forefront of U.S. trade priorities. By contrast, market access, long considered the fulcrum of trade deals, is absent from the Biden administration’s signature trade initiatives in the Asia-Pacific and is being deployed selectively in a sectoral arrangement with the European Union involving steel and aluminum. These new policy directions are occurring against several major shifts in domestic economic policy and global economic governance: 1) a pivot toward industrial policy in the United States driven by three major pieces of legislation—the Inflation Reduction Act, the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act (IIJA); 2) a dramatic turnabout in global attitudes toward supply chain management and the balance between efficiency, resilience, and security in cross-border trade; and 3) the obsolescence of the World Trade Organization (WTO) as a forum for resolving trade disputes.

This issue brief examines some of the key trade initiatives pursued by the Biden administration to date. It then sets out key questions facing U.S. trade policy in a global environment defined by volatility and renewed ambition to tackle the great challenges of the 21st century, such as climate change, inequality, and great power competition.

Overview of key trade initiatives

Over the past two years, the Biden administration has pursued a number of innovative trade initiatives that in different ways aim to redefine the scope and purpose of U.S. trade relations. These initiatives differ both in structure from traditional free trade agreements (FTAs) and also in their substance, most notably in the emphasis they place on climate aims and worker empowerment over tariff reductions.

Variation on a multilateral theme

The United States’ decision not to join the Trans-Pacific Partnership (TPP) it negotiated—now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—highlighted the skepticism among policymakers and the American public of traditional trade agreements. This does not mean that the United States should or will step back from multilateral engagement and even direct trade negotiations that could lead to enhanced access to the U.S. market, but it has forced a reimagining of what economic engagement looks like. Four examples of this are already underway in the Biden administration:

• The Indo-Pacific Economic Framework for Prosperity (IPEF): Launched in May 2022, IPEF established a framework for negotiations among 13 nations: Australia, Brunei, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the United States, and Vietnam. These negotiations aim to establish an updated model of economic engagement across borders. Market access is not on the table, but there are four pillars that offer broad and potentially substantial levels of investment, regulatory alignment, and coordination around industrial standards and supply chains between the United States and participating nations—depending on the specificity of the outcome and its implementation. These pillars are: 1) connected economy, or trade; 2) resilient economy, or supply chains; 3) clean economy; and 4) fair economy. IPEF members may select among the pillars and are not required to agree to all four.
  
  There are two key points to consider: First, the nations associated with IPEF have significant—though not complete—overlap with the nations that negotiated the TPP. This clearly shows that economic engagement in the Indo-Pacific remains a priority for the United States, even if the nature of that engagement has shifted.
  

  Second, and related, the different pillars of IPEF use language that closely resembles previous FTAs without incorporating market access mechanisms—such as tariff reductions—that raised valid concerns on the part of climate and worker advocates in the United States. For example, the “connected economy” pillar seeks to increase and improve trade among the 13 nations by collaborating and coordinating on core issues such as labor rights, environmental protection, transparency in rule-making and regulations, and facilitation measures such as simplifying customs procedures.

• The Americas Partnership for Economic Prosperity (APEP): Since June 2022, the U.S. State Department and U.S. trade representative (USTR) have engaged with partner countries across the Americas—Barbados, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Mexico, Panama, Peru, and Uruguay—on a similar series of negotiations aimed at producing a similar set of commitments as IPEF. The ongoing consultations have five focus areas: 1) reinvigorating regional economic institutions and mobilizing investment; 2) making more resilient supply chains; 3) updating the basic bargain; 4) creating clean energy jobs and advancing decarbonization and biodiversity; and 5) ensuring sustainable and inclusive trade.
  

  The APEP negotiations do not have as clear of a precursor as IPEF, which can partially explain the interesting collection of nations associated with this effort. Politics and existing trade relations vary among the included nations—though, on the latter, most of the nations included already have existing bilateral trade agreements or frameworks with the United States. With Ecuador, the United States has a Trade and Investment Council. With Uruguay, there is a Trade and Investment Framework Agreement. Barbados is the only nation where there is currently no agreement or framework. The rest have an existing FTA.

• The U.S.- Taiwan Initiative on 21st- Century Trade: Also in June 2022, the United States and Taiwan began consultations over ways to deepen the trade and economic relationship between the two nations. This evolved into official negotiations focused on building out the details listed within the negotiating mandate, which has similar construct and charges as IPEF and APEP—notably, a commitment to focus on core issues related to trade facilitation that could help further open economic doors, potentially in the form of an FTA.
• The U.S.-EU Trade and Technology Council (TTC): Among the Biden administration’s earliest trade-related actions, the establishment of the TTC occurred as part of a broader statement of joint work and commitments between the United States and the European Union. The TTC’s main charge is to foster cooperation in trans-Atlantic trade and investment, specifically focused on emerging technologies and infrastructure.
  

  The just-announced Clean Energy Incentives Dialogue will be a part of the TTC and focused on coordinating incentive programs. The main goals will be to avoid trans-Atlantic trade tensions and to ensure that such programs are mutually reinforcing and do not simply lead to windfall profits for companies that could play the two against each other for more and better subsidies. This type of dialogue is necessary to guard against excessive corporate welfare and keep the focus on clean energy deployment and strong domestic economies.

Trevor Sutton is a Senior Fellow at The Center for American Progress

Mike Williams is a Senior Fellow at The Center for American Progress

To read full report, click here. 

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This strategy reframes the region’s importance to U.S. national security interests. In November 2021, Secretary of State Antony Blinken affirmed that “Africa will shape the future— and not just the future of the African people but of the world.” Accordingly, this strategy articulates a new vision for how and with whom we engage, while identifying additional areas of focus. It welcomes and affirms African agency, and seeks to include and elevate African voices in the most consequential global conversations. It calls for developing a deeper bench of partners and more flexible regional architecture to respond to urgent challenges and catalyze economic growth and opportunities. It recognizes the region’s youth as an engine of entrepreneurship and innovation, and it emphasizes the enduring and historical ties between the American and African peoples. And it recasts traditional U.S. policy priorities—democracy and governance, peace and security, trade and investment, and development—as pathways to bolster the region’s ability to solve global problems alongside the United States. This strategy outlines four objectives to advance U.S. priorities in concert with regional partners in sub-Saharan Africa during the next five years. The United States will leverage all of our diplomatic, development, and defense capabilities, as well as strengthen our trade and commercial ties, focus on digital ecosystems, and rebalance toward urban hubs, to support these objectives:

1. Foster Openness and Open Societies
2. Deliver Democratic and Security Dividends
3. Advance Pandemic Recovery and Economic Opportunity
4. Support Conservation, Climate Adaptation, and a Just Energy
Transition

This strategy represents a new approach, emphasizing and elevating the issues that will further embed Africa’s position in shaping our shared future. It resolves to press for the necessary resources and prize innovation in our efforts to strengthen vital partnerships. The United States will both address immediate crises and threats, and seek to connect short-term efforts with the longer-term imperative of bolstering Africa’s capabilities to solve global problems. The strategy’s strength lies in its determination to graduate from policies that inadvertently treat subSaharan Africa as a world apart and have struggled to keep pace with the profound transformations across the continent and the world. This strategy calls for change because continuity is insufficient to meet the task ahead.

To read the original report by the White House, please click here.

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