Donald Trump’s return to the White House makes clear that America’s latest experiment with globalization is over.
The United States is charting a new course in the uncertain world of a changing global economy. The Trump administration’s free-trade skeptics want a hard turn toward tariffs. His market-minded Cabinet members want a more targeted, go-slow approach.
Why We Wrote This
President Donald Trump is charting an uncertain course in a global economy now dominated by rivalry, especially between the United States and China. The path will depend on how he resolves a battle over tariffs within his White House.
The catalyst for this change is the dramatic rise of China, a country of 1.4 billion people that has gone from poor nation to economic powerhouse and international rival to the West. In the old globalist view, this was supposed to happen differently.
What is clear is that faith in international markets has been replaced by fear of international rivalry, and national security now eclipsing economic growth as a concern. This also helps explain why President Joe Biden did not remove the tariffs on China that President Trump imposed in his first administration. Instead, he added targeted tariffs of his own.
“There’s a consensus on that,” says Mary Lovely of the Peterson Institute for International Economics, a Washington think tank. “We need to say, ‘OK, in these areas, we’re going to be a little less rich, but a little more secure.’”
The return of Donald Trump to the White House makes clear that America’s postwar experiment with globalization is over.
No longer the lone superpower that dominates the world economy, the United States is charting a new course in an uncertain world. President Trump will get the first go at the wheel. How hard a turn he makes will depend on how he resolves the behind-the-scenes battle in his administration over tariffs.
The free-trade skeptics in his administration want a hard turn toward high and universal tariffs. His billionaire and other market-minded Cabinet members want a more targeted, go-slow approach.
Why We Wrote This
President Donald Trump is charting an uncertain course in a global economy now dominated by rivalry, especially between the United States and China. The path will depend on how he resolves a battle over tariffs within his White House.
What is clear is that faith in international markets has been replaced by fear of international rivalry. Going forward, government will have a bigger hand in directing foreign trade. In some cases, growth will take a back seat to geopolitics.
“There’s a consensus on that,” says Mary Lovely, a senior fellow at the Peterson Institute for International Economics, a Washington think tank. “We need to say, ‘OK, in these areas, we’re going to be a little less rich, but a little more secure.’”
China’s rise and impact as an economic rival
The catalyst for this change in thought is China’s dramatic rise. In a few decades, this country of 1.4 billion people transformed itself from poor nation to economic powerhouse and international rival to the West.
In the old globalist view, this was supposed to happen differently. Nations that embraced free trade would also become politically freer. China, by contrast, grew more authoritarian.
China’s rise has convinced even committed globalists that in an age of geopolitical rivalry, national security now eclipses economic growth as a concern. It helps explain why President Joe Biden did not remove the tariffs on China that President Trump imposed in his first administration. Instead, he added targeted tariffs of his own, restricting China’s access to advanced computer chips.
“I’m inclined to think that as long as we have a major challenger such as China, we’re going to be much more restrictive than we were in the post-Cold-War era,” says Alfred Eckes Jr., a retired historian and chairman of the U.S. International Trade Commission under President Ronald Reagan.
That change in thought comes with a cost. Tariffs and other restrictive trade measures almost inevitably reduce growth. Studies suggest a 10% universal tariff on imports would lower America’s long-term growth but not kill it.
Even if trading partners retaliate with their own tariffs, stagflation poses a greater risk to the U.S. economy than an outright decline in national output or gross domestic product.
Some trade skeptics argue that high universal tariffs could actually boost growth. History suggests otherwise.
“There’s no positive scenario here where you destroy the [trading] system, and growth and GDPs go up around the world,” says Douglas Irwin, an economist at Dartmouth College and author of a 2017 history of U.S. trade policy, “Clashing over Commerce.”
An all-out trade war would change that calculus, but that prospect also appears unlikely, some analysts say. The U.S. is less dependent on international trade than many major economies. And it imports more than it exports, so its trading partners have more to lose than the U.S.
Newfangled protectionism or temporary tariffs
“We’re probably going to have some hard negotiations,” says Mr. Eckes, the former trade official. But “I don’t think we’re going to have a global trade war.”
How this new economic era unfolds will depend on how Mr. Trump and his successors shape it.
“If you don’t make your product in America, which is your prerogative, then very simply, you will have to pay a tariff,’’ President Trump told global leaders and decision-makers gathered at the World Economic Forum in Davos, Switzerland on Thursday. “Differing amounts — but a tariff,’’ he added, appearing over a video link.
He might have in mind a newfangled protectionism that lasts generations. Free-trade skeptics point to the nearly unbroken string of high-tariff Republican presidents of the 19th and early 20th centuries. They oversaw America’s dramatic growth as an early industrializer and magnet for immigrants.
It could also be that tariffs last only until the new president secures deals with major U.S. trading partners. Free trade would continue, except in matters of national security (however narrowly or broadly a president defines it). As evidence, the market-oriented members of Mr. Trump’s new administration could point to the impressive growth under President Reagan and his Republican and Democratic successors in the 1980s and ’90s.
But America is neither the up-and-coming nation of the 1800s nor the unrivaled superpower of the 1990s and early 2000s. A quarter of the way through the 21st century, it’s trying to find its new place in the global economy.
“It’s not like the old Cold War. But it doesn’t seem there’s a lot of cooperation, either,” says Professor Irwin of this new era. “That’s the challenge for this administration and the one that follows: How do you balance these things?”
