William Krist's Blog, page 4

Trade War Implications for U.S. Agriculture: Round Two

Canada, Mexico and China, the three largest markets for U.S. agricultural exporters, are in the crosshairs of a U.S.-led trade war, and once again U.S. agricultural producers look poised to take the brunt of retaliation.

Canada and Mexico

Since President Trump took office on January 20, 2025, several tariff measures on Canada and Mexico have been announced and then reeled back. There has been a flurry of on-again, off-again tariff announcements. Readers can find the latest news at The White House Fact Sheet website. At the time of this writing, most of the tariffs on Mexico were lifted, but steep tariffs on steel and aluminum imports from Canada may still be imposed.

On April 2, President Trump plans to impose “reciprocal tariffs” on goods from a wide range of countries, where the U.S. tariff would match the tariffs imposed on U.S. exports in each country. It has been reported that Canada and Mexico may escape reciprocal tariffs if they continue to make progress on border security and fighting fentanyl.

China

On March 3, President Trump imposed an additional 20% tariff on all Chinese imports (this covers two cumulative rounds of 10% tariffs since he took office. i.e., 10% + 10% = 20%). In response, China announced swift retaliation. Once again, U.S. agriculture is the target of China’s retaliation. Specifically, China is imposing 10% retaliatory tariffs on U.S. soybeans, pork, beef, sorghum, fruits and vegetables, and dairy; and 15% tariffs on U.S. corn, wheat, cotton, and chicken.

This may feel like déjà vu for many U.S. farmers, who weathered the 2018-2020 trade tensions, including suffering major export losses. Overall, the U.S. Department of Agriculture’s Economic Research Service (ERS) reports that China accounts for approximately 17% of U.S. agricultural exports. China remains a key market for many U.S. producers.

Remembering the 2018 Trade War

In 2018, President Trump announced several rounds of tariffs on Chinese imports under Section 301 of the U.S. Trade Act of 1974. China wasted no time in retaliating and targeted U.S. agriculture. U.S. agricultural export losses due to the trade war totaled $27.2 billion, or annualized losses of $13.2 billion. The U.S. government provided farmers with financial assistance to help weather the storm, allocating nearly $28 billion in direct payments to farmers over 2018 and 2020. If China and other countries retaliate again, similar export losses may follow.

Soybeans, corn, and wheat were among the commodities that suffered the greatest export losses, alarming industry participants. Within two to three years, however, U.S. export values mostly bounced back albeit with a slightly different country mix. The experience revealed strengths and vulnerabilities in U.S. agriculture. Over the long term, fundamentals like U.S. soil fertility, yield, and innovation work in the sector’s favor. But the growing uncertainty around trade policy and deterioration of U.S.-China relations loom large. As Brad Lubben, a University of Nebraska-Lincoln agricultural economics professor, noted, “Supply chains and markets shifted, with countries like Brazil and Argentina exporting more soybeans to China to fill the demand previously filled by U.S. farmers.”

Will Financial Assistance for Farmers be there Again?

The Trump Administration’s financial assistance to farmers over 2018-2020 was made possible with funds from the Commodity Credit Corporation’s Market Facilitation Program. The Commodity Credit Corporation (CCC) is a government-owned entity within the U.S. Department of Agriculture (USDA). Trump was able to draw upon that USDA account. In 2018, $12 billion was withdrawn to be allocated to U.S. farmers. In 2019, $16 billion was withdrawn for a total of $28 billion (just about matching the export loss U.S. farmers incurred due to the trade war).

The Trump Administration did not require congressional approval for these payments since the CCC already had the authority to disburse funds for farm assistance.

The U.S. government could use the CCC again to support farmers if another trade war occurs, but there are some limitations and political considerations.

For one, the CCC has an annual borrowing limit of $30 billion from the U.S. Treasury. The USDA can unilaterally use CCC funds for farm aid without requiring congressional approval if it falls within the CCC’s mandate.

As of now, USDA still has broad discretion to use CCC funds. There are alternative mechanisms. For instance, instead of using the CCC, the government could provide direct congressional appropriations, although that would require legislative approval. Other emergency aid programs (e.g., disaster relief) could be used if a new trade war leads to farm losses that exceed $30 billion.

The Big Upfront Hits on Key Commodities

China accounted for the vast majority (94%) of U.S. agricultural export losses due to retaliation. 

Following China’s retaliation, U.S. exports of soybeans, wheat and corn fell by 77%, 61% and 88%, respectively.

U.S. soybean exporters took the brunt of it, absorbing 71% of the annualized losses caused by retaliatory tariffs; corn and sorghum absorbed 8%. Nebraska also took more than its fair share of export losses—the state represents 4.6% of US agricultural exports but represented 5.6% of the export losses.

Partial Truce

In January 2020, the United States and China called a partial truce and signed the Phase One trade deal, officially known as the U.S.-China Phase One Economic and Trade Agreement. As part of the Phase One deal, the United States agreed to suspend further tariffs and even reduce some existing duties. China agreed to a series of changes that would make it easier for U.S. businesses to operate in China, and to purchasing $40 billion of agricultural products per year on average from the United States for two years. A few months later in March 2020, China began to exempt some products from its retaliatory tariff lists, including soybeans and pork.

China did not fulfill its Phase One commitments although agriculture fared better than other sectors. Chad Bown found that China’s purchases of U.S. agricultural products over 2020 and 2021 reached 83% of the Phase One commitment, which was better than manufacturing (59%) or services (54%).

Non-trade factors are important in understanding post-Phase One activity. For instance, China’s economic slowdown (associated with the global pandemic) likely hindered, in part, its ability to fulfill its Phase One purchasing commitments. Meanwhile, China’s rebuilding of its pig herd, which suffered African Swine fever in 2019, contributed to its expanded pork imports from the United States.

Since the trade war, many industry observers have focused less on import values and more on market shares, specifically, U.S. agriculture market share of China’s imports. By that metric, there was some bounce back to nearly pre-trade war shares, but it appears tenuous. In 2017, the year before the trade war, U.S. agricultural market share (by value) in China was 20%. That share dropped sharply to 12% in 2018 and even further to 10% in 2019. But by 2022, the U.S. share of China’s agricultural imports reached 19%, just one percentage point shy of the pre-trade war share.

However, China has indicated a desire to diversify away from the United States in key agricultural products such as corn and soybeans as a way to shield itself from any fallout from trade wars. Other suppliers including Brazil, Argentina and South Africa are reportedly keen to take advantage of US-China trade tensions—Argentina recently received approval from the Chinese government to ship corn to China.

No Substitute for Market Access

Fundamentals like yields and innovation bode well for the future of U.S. agriculture, but even those advantages have limits. Yields for U.S. major crops tend to be on the higher end across the world’s largest exporters. For the last three marketing years, U.S. yield was the second highest in soybeans, by far the highest in corn, and the third highest in wheat. But Brazil achieves slightly higher yields on soybeans, a crop with relatively low fertility needs. And while Brazil’s corn yields are less than half U.S. yields despite their higher usage of fertilizer, Brazil has two, sometimes three growing seasons for corn.

On innovation, the United States generally has a more robust research and development infrastructure in the ag biotech sector, which will only become more important as agricultural producers struggle to adapt to changing weather patterns and new diseases. Maintaining a strong innovation climate requires the U.S. to maintain its robust patent system and intellectual property rights environment.

Market Relief is Great, but Farmers Seek More Trade and New Markets

In sum, retaliatory tariffs imposed by China and others initially dealt a big blow to U.S. agricultural exports, particularly in key commodities like soybeans, corn, and wheat, and particularly for Nebraska exporters. At first, these sectors exhibited resiliency and U.S. shares in China’s agricultural imports nearly recovered to pre-trade war levels, but now they appear to be dropping off again. Further, while yields and innovation tend to favor U.S. agriculture relative to key competitors, another bruising trade war will further invite other market participants to step in.

Secretary of Agriculture Brooke Rollins initially elicited cautious optimism from U.S. farmers. Her proactive stance in addressing the potential repercussions of trade tensions on U.S. agriculture is welcome, but America’s farmers and ranchers have repeatedly called for greater market access abroad, a science-based agricultural trade policy, and pursuit of strong ag biotech provisions in future trade agreements, which are more consistent with long term viability in U.S. agriculture.

This sentiment was strongly reinforced in American Soybean Association President Caleb Ragland’s recent interview with AgriPulse in which he said, “Market relief is great, but the reality is that it’s a band-aid on an open wound. What we need is trade, free trade, open trade, more of it, new markets, more markets that already exist. We’ve got to find ways to increase demand for our products because long term, that is the only thing that is going to keep the farm economy strong and productive.”

To read the full research blog, please click here. 

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The Impact of Trump Tariffs on US-Canada Minerals and Metals Trade

In an escalation of trade tensions, Donald Trump threatened to double tariffs on Canadian steel and aluminum to 50 percent this week. This increase would have been in response to Ontario’s 25 percent surcharge on electricity exports to the United States. The threat rattled markets and several major indices continued to decline after the announcement, increasing fears of a recession.  While Trump has at least temporarily backed down from the plan to raise the tariff to 50%, the 25% aluminum and steel import tariffs are still a big blow to North American supply chain interdependency and resilience. The following Q&A discusses the impact of Trump’s tariffs on US-Canada minerals trade and its ripple effects on supply chains, prices, and policy. It finds that the tariffs are costly and directly undermine North American supply chain resilience, as no immediate substitute sources are available, domestically or from foreign allies. 

1) How have the United States and Canada collaborated on minerals and metals in the recent past?

Recent years have seen the United States and Canada deepen cooperation on critical minerals in response to geopolitical pressures and the need for supply chain resilience, even during the first Trump administration. Under the U.S.-Canada Joint Action Plan on Critical Minerals (2020), both governments committed to strengthening cross-border supply chains, co-investing in extraction and processing, and aligning policies to support North American industrial capacity. There is extensive cross-border investment in critical minerals. For example, about 323 Canadian companies have invested over $45 billion in the US mining sector.

2) How large is the US-Canada minerals and metals trade?

There is a huge interdependence between both countries. The two countries are each other’s biggest export and import partners. In 2023, out of $57 billion in total minerals and metals exports, Canada exported $38 billion in minerals to the United States, or two-thirds of its total exports. In the same year, out of $114 billion in minerals and metals exports, the United States exported $28 billion to Canada, or about 25 percent of total exports. This figure also includes non-critical minerals like iron. 

3) How much will the new tariffs cost?

Canada exports $13 billion of aluminum to the United States and $17 billion of iron and steel. Those now must pay 25 percent tariffs, implying an additional cost of $7.5 billion annually. When other minerals and metals are required to pay the 10 percent tariff that would apply to them, the costs will go up further. Canada exported $4 billion of copper in 2024 and $1.5 billion of nickel. These costs will undoubtedly impact the downstream producers, affect their competitiveness, the ability to offer jobs, and finally, the costs for the final consumer via inflationary trends.

4) Can Canadian minerals and metals be substituted by domestic production? 

Not really. In terms of reserves and production, the United States and Canada are largely complementary. The United States holds significant global reserves in molybdenum (23 percent), tellurium (11 percent), lithium (4 percent) and silver (4 percent). Canada adds to that with significant reserves of niobium (9 percent), selenium (6 percent), titanium (4 percent), and lithium (3 percent).  For other strategic minerals, the countries each hold smaller shares of global reserves, but they often produce more. If critical minerals security of supply is truly a strategic goal, then it is important to protect that production and facilitate, at the local, national, and regional level, responsible expansions where feasible.  In terms of production, the complementarity is largely similar. The United States produces significant global shares of beryllium (56 percent), molybdenum (14 percent), zirconium (7 percent), zinc and copper (6 percent each), and silver (4 percent). Canada is a significant producer of niobium, cadmium, palladium (8 percent each), nickel, aluminum, tellurium, indium (4 percent each), selenium (3 percent), and copper (2 percent).

5) Can Canadian exports be substituted by other foreign partners?

In some cases, yes, but those supplies would not necessarily come from partners that the United States has historically been keen on relying on. Canada was the second largest source of iron and steel for the United States after China. Canada was the largest source of aluminum for the United States, with China in second place. Canada was the largest source of nickel for the United States, followed by Russia. Copper is a different case. Canada is second to a historically US-allied country, Chile, but Chilean copper production has been struggling and cannot easily pick up the slack. 

6) Has the uncertainty already impacted metals markets?

Market volatility has already increased due to the tariffs. Steel and aluminum prices have experienced spikes, leading to supply uncertainty and increased costs for US stakeholders. The combination of tariffs and retaliatory measures from Canada and Mexico has disrupted supply chains across multiple industries. While price effects depend on long-term policy implementation, historical precedent suggests that import tariffs on metals often result in higher costs for downstream manufacturers. The uncertainty surrounding compliance with USMCA and additional tariff exemptions has further complicated investment decisions, particularly in the US industrial sector.

7) What are the potential impacts of the Trump tariffs beyond prices?

The tariffs could have broader implications for North American supply chain integration, industrial competitiveness, and workforce mobility. The US mining and refining sectors have already faced talent shortages due to underinvestment, leading experienced professionals to retire or move abroad. The tariffs could also discourage Canadian professionals from relocating to the United States, further exacerbating domestic capacity constraints. Additionally, higher costs for raw materials could reduce North American competitiveness in sectors such as batteries, clean energy, and defense. Retaliatory measures from Canada and Mexico could also affect broader trade relations, creating additional uncertainty for investors.

8) What steps could be taken to create a more collaborative policy path for the United States with Canada?

The Trump administration could take several steps to strengthen minerals cooperation with Canada. First, aligning regulatory frameworks under the USMCA could facilitate cross-border investment in mineral extraction and processing. Second, expanding joint stockpiling and refining initiatives, including co-financing projects through mechanisms such as the Defense Production Act, would enhance supply chain security. Third, ensuring that US legislation—such as the IRA and CHIPS Act—consistently recognizes Canadian minerals as “domestic” would remove trade barriers. Finally, fostering workforce development initiatives, including mutual recognition of mining and refining certifications, could help address industry-wide skill shortages.

To read this blog as it was posted by the Center on Global Energy Policy at Columbia SIPA click here.

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2025 Trade Policy Agenda and 2024 Annual Report

A Trade Policy for the Next Great American Century

The United States of America is the most extraordinary nation the world has ever known. From the very beginning, and even more so as it unfolded across the entire continent, the United States was populated with people of immense talent, drive, and grit. In the previous century it saved the entire world, dispatching three rounds of adversaries by winning two world wars and defeating Communism. It put an American on the moon.



The United States accomplished those feats because it was a tremendous industrial power fueled by innovation and blessed with abundant agricultural and energy resources. Indeed, the very success of the American way of life—its freedom and its prosperity—is supported by two things: a robust middle class earning high wages and a strong national defense. These are, in turn, created by a combination of innovation that fuels productivity growth, domestic work and investment in industry, and the day–to–day choices of individual Americans.



Today, the upward mobility offered by the manufacturing sector is not widely available to the working

class, much of our industrial might has moved overseas, and innovation has begun to follow. Manufacturing jobs in the United States declined from 17 million in 1993 to 12 million in 2016.1 Over 100,000 factories closed between 1997 and 2016. 2,3 And the U.S. goods trade deficit has soared to over a trillion dollars.4 These trends are the product of a withering, decades–long assault by globalist elites who have pursued policies—including trade policies—with the aim of enriching themselves at the expense of the working people of the United States. As a result, the middle class has atrophied, and our national security is at the mercy of fragile international supply chains.



President Trump alone recognized the role that trade policy has played in creating these challenges and how trade policy can fix them. Since he first took the oath of office in 2017, President Trump has reshaped the trade policy landscape to prioritize the national interest. He has built a new consensus that tariffs are a legitimate tool of public policy. He has demonstrated the imperative for tough trade enforcement against countries who think they can take advantage of the United States and get away with it. He has shown that the United States has leverage and can negotiate aggressively to open markets for Made in America exports, particularly for agricultural exports. He has proven that a robust and realist trade policy can create jobs, promote innovation, strengthen the national defense, raise wages, support farmers, and foster the manufacturing renaissance that many elites long thought was impossible for the United States to achieve.



Toward a Production Economy



To reach these objectives, the United States must have an economy focused on production. For much of our history, the American way of life was defined by creating, inventing, building, growing, and producing. Americans are more than just what they consume. And the United States is more than an economy that merely moves money around—it is a nation of intertwined communities, oriented around the production of manufactured goods, agricultural products, services, and knowledge. Ensuring that trade policy favors a Production Economy will help the President Make America Great Again.

Why? It’s simple:



A Production Economy is a high-wage economy. Manufacturing jobs have a wage premium of roughly 10 percent. However, as the United States deindustrialized, that wage premium declined for manufacturing workers in core production jobs. Using trade policy to increase the number of manufacturing jobs in our country – and the share of manufacturing contributing to gross domestic product – will help raise wages and return our country to one with a more vibrant and secure middle class.



A Production Economy creates jobs for all. Trade policy does not need to pit workers or sectors against each other. This is because manufacturing is a sector known for positive spillovers, including in the service sector, that benefit the economy overall. One study found that for every additional manufacturing job created in a community, 1.6 jobs were created in other sectors.6 And agriculture-related jobs—work that produces the sustenance vital for human life—comprise about 10.4 percent of total U.S. employment.

A Production Economy is a boon for innovation. Between 2003 and 2017, research and development (R&D) expenditures in China by U.S. multinationals grew at an average rate of 13.6 percent per year, while R&D investment by U.S. multinationals in the United States grew by an average of just 5 percent per year. Deploying trade policy tools to create incentives to reshore manufacturing will reverse this troubling trend and promote U.S. technological dominance.



A Production Economy is a vital component of our national defense. The United States was able to win World War II because of our industrial might, but our manufacturing base has atrophied. Although the United States produced less than 14,000 aircraft in the two decades prior to World War II, it produced 96,000 planes annually by 1944.9 By comparison, today the United States can only produce each month about a third of the 360,000 artillery rounds the military says it needs to deter our adversaries. Trade policy can help strengthen our defense industrial base.



Changing this alarming trajectory requires a trade policy that is strategically coordinated to achieve three things: an increase in the manufacturing sector’s share of gross domestic product; an increase in real median household income; and a decrease in the size of the trade in goods deficit.



An America First Trade Policy



On January 20, 2025, President Trump signed the Presidential Memorandum “America First Trade Policy” laying out a plan to accomplish the transformational change necessary to reverse our country’s economic decline. The Presidential Memorandum instructs USTR and other agencies to undertake rapid, unprecedented work to put America First on trade.

Right away, the Presidential Memorandum strikes at the threat posed by the trade deficit by directing USTR and other agencies to “investigate the causes of our country’s large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits.” By reversing the flow of American wealth to foreign countries in the form of the trade deficit, the United States can reclaim its technological, economic, and military edge.



The Presidential Memorandum further instructs the USTR to review our country’s economic relationship with all nations in order to identify their unfair trade practices, including where trading partners engage in non-reciprocal trade with the United States. By identifying, and acting against, such unfair and non-reciprocal practices, the United States can use its leverage to open new markets for U.S. exports and re-shore the production that has been lost.



USTR has been empowered to chart a new course for any trade agreements to ensure they help raise wages and grow our industrial base. USTR will review existing trade agreements to guarantee that those agreements operate in the national interest. For instance, third countries should not be permitted to free ride on our trade agreements with other trading partners. Alongside this review, USTR will commence the statutorily required public consultation process of the United States-Mexico-Canada Agreement (USMCA) in order to “assess the impact of the USMCA on American workers, farmers, ranchers, service providers, and other businesses” in preparation for the mandated review of the agreement in July 2026. USTR will also identify opportunities for bilateral or sector-specific plurilateral agreements that might be negotiated to open new market access for U.S. exports and reorient the trading system to promote U.S. competitiveness.



The Presidential Memorandum also addresses U.S. trade relations with the People’s Republic of China, the single biggest source of our country’s large and persistent trade deficit and a unique economic challenge. In his first term, President Trump negotiated a historic and enforceable Economic and Trade Agreement Between the Government of the United States of America and the Government of the People’s Republic of China (also known as the Phase One Agreement). However, there has been no action taken to enforce the agreement where China has not lived up to its commitments. USTR will assess China’s compliance with the Phase One Agreement.



The Phase One Agreement grew out of USTR’s investigation under Section 301 of the Trade Act of 1974 into China’s acts policies, and practices related to technology transfer, intellectual property (IP), and innovation. Yet, technology and IP-intensive sectors are hardly the only ones that are threatened by China’s non-market behavior. USTR will look broadly at the bilateral relationship to identify, and respond to, additional unfair practices.



President Trump’s interest in addressing challenges in the relationship with China complements significant interest by the U.S. Congress on the topic. Pursuant to the Presidential Memorandum, USTR will assess the recent legislative proposals related to China’s Permanent Normal Trade Relation (PNTR) status and “make recommendations regarding any proposed changes to such legislative proposals.”



Taken together, these workstreams signal a national commitment to continuing the America First approach to trade developed in President Trump’s first term of office. By taking a strategic, yet vigorous, approach, the United States can finally address the structural challenges distorting the global trading system in ways that undermine U.S. competitiveness and course-correct for the short-sighted trade policy mistakes of the past.

Building on Past Success

To summarize: over the last several decades, the United States gave away its leverage by allowing free

access to its valuable market without obtaining fair treatment in return. This cost our country an important share of its industrial base and thereby its middle class and national security. Although many sectors benefitted from trade, it was at too high a price—for example, despite its comparative advantage in agricultural production, the United States has even incurred a worrying trade deficit in agriculture over the past two years.



Going forward, the United States will take action to create the leverage needed to rebalance our trading relations and to re-shore production, including, but not limited to, through the use of tariffs. This will raise wages and promote a strong national defense.



Importantly, this America First Trade Policy builds upon President Trump’s accomplishments from his first term.



• Though promised by Presidents past, but never accomplished until his first Administration,

President Trump successfully renegotiated NAFTA. Its replacement, the USMCA, contains

historic provisions to re-shore manufacturing (especially in the auto sector, which had been

decimated by NAFTA), the strongest labor and environment provisions in any trade agreement,

new market access for U.S. agricultural products, and high-standard digital trade rules.

• Under his leadership, the United States entered into two important agreements with Japan, opening

new access for U.S. agricultural products and securing USMCA-style digital trade rules.

• The United States also engaged extensively at the WTO, calling attention to and defending U.S.

rights to take action against non-market policies and practices and reclaiming American

sovereignty from unaccountable foreign bureaucrats.

• The United States responded assertively to China’s unfair trading practices, negotiating the Phase

One Agreement to protect U.S. firms against China’s forced technology transfer and IP theft and

imposing significant bilateral tariffs at the same time.

These past successes on trade demonstrates the wisdom and efficacy of President Trump’s America First approach.



First, the proof is in the pocketbook: In 2001, the year China joined the WTO, real median household

income in the United States (measured in 2023 dollars) was $70,020. In 2016, the comparable figure

was $73,520—real median household incomes had grown only 5 percent in sixteen years.11 That’s an

annual average growth rate of 0.3 percent. Then, from 2016 to 2019, the last year before the U.S.

economy was disrupted by COVID-19, real median household incomes had grown to $78,250—an

increase of 10.5 percent over the course of only three years.12 That’s an average annual growth rate of

3.4 percent, over ten times the annual average growth rate that prevailed from 2000 to 2016. By putting America First on trade, President Trump restarted our Production Economy in a single term; something prior Presidents failed to do for a generation.

Further proof is in our newfound national security strength resulting from President Trump’s first term. An America First posture, complemented by new investments in our industrial base, showed that the United States is still a superpower. President Trump’s first term peace dividend brought benefits not only to Americans, but also to the rest of the world.

Lastly, one of the most satisfying pieces of evidence for the America First approach is its bipartisan

credibility: all of President Trump’s first term trade accomplishments were retained by the next

administration and, in some cases, even expanded upon.



President Trump’s ability to deliver for all Americans while forging a new consensus on trade validates his inaugural pledge: the trade challenges facing our country will “be annihilated” because “from this moment on, America’s decline is over.”

2025 Trade Policy Agenda WTO at 30 and 2024 Annual Report 02282025 -- FINAL

To read the complete report as it was published by the United States Trade Representative click here.

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How the US Courts Rewrote the Rules of International Trade

Shaina Potts’s Judicial Territory examines how the American legal system created an economic environment that subordinated the entire world to domestic business interests.

Consider the following two stories involving legal disputes between American companies and foreign governments.

In 1919, the ocean steamer The Pesaro sailed from Genoa, Italy, for New York City. Built in Germany for a German shipper and formerly named the SS Moltke, the steamer had been seized by the Italian government in 1915 after Italy entered World War I. On board for its departure to America four years later were 75 cases of artificial silk owned by a company incorporated and based in the United States called the Berizzi Brothers. When The Pesaro arrived in New York after two weeks at sea, however, the Berizzi Brothers cried foul: Only 74 cases of silk were delivered. One had been lost or damaged in transit.

Eighty-two years later, a dispute on an altogether larger scale began. In 2001, with Argentina’s economy mired in recession, the country defaulted on around $93 billion of government debt, in what was then the largest sovereign debt default in history. Though a portion of that debt was owed to foreign governments, the default primarily involved private bondholders such as institutional investors. Most of these creditors would eventually agree to restructure the debt for cents on the dollar (thus booking losses), but a minority of the debt holders refused to accept this “haircut.” Like the Berizzi Brothers eight decades earlier, these holdouts, too, were based in the United States, namely a group of Wall Street “vulture funds” that had invested in the debt at distressed prices.

Beyond the fact that both cases pitted American firms against foreign governments, what links these stories is that the firms in question sought legal redress for their grievances. Not only that, but they sought this redress specifically in American courts, and thus by appeal to US law. The Berizzi Brothers sued for $250 in damages; the vulture-fund owners of the Argentinian debt sued for full face value plus interest.

The Berizzi Brothers’ case ended up in the US Supreme Court, and in 1926 the company lost, which is to say that the Italian government won. The Pesaro was owned and operated by Italy, and it was well established under US law that foreign governments (and their oceangoing vessels) were immune from suit in domestic courts. Yes, the Italian government was engaged in this case in a commercial activity, but it was so engaged, the court ruled, in a public rather than private capacity and with a public purpose.

But the Argentine government would not prove so fortunate, twice finding itself on the receiving end of negative legal judgments in its battle with the vulture funds. The first was when the US courts decided in 2012 in favor of the creditor holdouts, ruling that the full bond value was indeed due. The second followed Argentina’s subsequent decision—highly unusual among sovereign debtors in recent decades—to stand firm and continue to not pay up. While the US courts could not directly make Argentina pay, they could and did make life extremely uncomfortable, issuing rulings from 2012 to 2014 that indirectly forced the Argentine government’s hand by prohibiting it from making payments to other creditors unless it paid the holdouts first, and by prohibiting anyone anywhere in the world except Argentina from helping the country make such payments.

This pair of legal battles prompts a number of questions: What role does the law play in the arbitration of economic disputes? How does the direct involvement of sovereign states in such disputes affect that legal function? And what difference does it make when legal and economic disputes involving governments spill across national borders? These concerns have once again moved to the fore, with an explicitly protectionist and imperially minded president having taken the reins of power in America. The transition from The Pesaro and silk to Argentinian bonds and American vulture funds is an essential backdrop against which to answer these questions. In the course of eight decades, US courts seemingly made a decisive turn against foreign governments, stacking the deck in favor of American companies and becoming, in the process, a handmaiden to American empire.

The two stories with which we began effectively bookend the account of transnational commercial law that Shaina Potts, a geography professor at UCLA, provides in her new book, Judicial Territory. Potts’s study is capacious, offering insights on everything from financialization and hegemony to international trade and globalization. But at the core of the book is the history of how we got from US courts being willing to rule in favor of foreign governments and against American firms in the 1920s to the opposite outcome in the 21st century.

In a nutshell, that history is a chronicle of expanding US judicial authority over the economic decisions and activities of foreign governments, and in particular their relationships with private—usually American—companies. Governments that had previously been treated as sovereign and immune, such as the Italian government in its ownership and operation of The Pesaro, are no longer accorded such deference by US courts. Foreign states and their commercial dealings had not formerly been beyond the reach of US power altogether: The United States’ executive branch had rarely granted them immunity, especially when American interests were involved. What changed was that the US judiciary started to treat foreign governments exactly like private corporations, robbing them of any special legal status. This, as Potts describes it, was an epochal shift.

The change began in earnest in the 1950s and ’60s, and it was initially centered on what came to be termed “the Third World” and on developments in various postcolonial countries. Independence for such countries was frequently followed—albeit sometimes not until decades later—by the nationalization of foreign-owned assets and by the establishment in their stead of state-owned enterprises. Bolivia, for instance, nationalized its tin mines; Turkey nationalized its railways, ports, and utilities; Egypt nationalized the Suez Canal; and countries ranging from Iran to Mexico nationalized their oil industries.

Such nationalizations, which were integral to the plans of developing countries for a New International Economic Order, had long been regarded as beyond the purview of US law. But after World War II, a shift gradually occurred, and American courts increasingly came to treat the nationalization of US assets as unlawful expropriation. The nationalizations in Cuba on the heels of its revolution—Castro famously nationalized all American-owned sugar companies in 1960—were a particular flash point and are given special attention by Potts.

The path from The Pesaro to Wall Street vulture funds, and the markedly different legal treatment accorded to the latter, were enabled by transformations—halting, uneven, and in certain respects still ongoing—in two main legal doctrines that had historically insulated foreign governments from US courts. The first concerned foreign sovereign immunity rules: Who and what were immune from lawsuits? In the 1950s, both the who and the what began to be understood by US jurists in more restrictive ways, with the result that the commercial acts of foreign states—such as Italy’s conveyance of silks to America—lost their former immunity (through the so-called “commercial exception”).

The second key doctrine was “act of state.” This international legal principle asserts that acts carried out by sovereign states in their own territories—such as nationalizations—cannot be challenged by other countries’ courts. Historically, US courts fully respected this doctrine, but by the 1960s they’d started to chip away at it. In particular, commercial acts came to be excluded, just as they were from foreign sovereign immunity rules. Increasingly, it didn’t matter to US courts who a business operator or asset owner was: The activities and possessions of all economic actors (be they public or private) were no longer protected by the rules of sovereign immunity and acts of state.

The expansion of US judicial authority that resulted from the parallel transformations of these two doctrines has been as audacious as it has been largely unnoticed outside of narrow legal circles. It has also been multidimensional: While the juridical encroachment on foreign sovereignty has perhaps been most notable in cases of financial contracts (with creditor rights typically being privileged, as with Argentina’s debt), the phenomena newly falling within the ambit of US law are far more extensive. Anything that conceivably could be subjected to the transnational application of US domestic commercial laws has been. This includes, for example, cigars: A landmark case was Alfred Dunhill of London, Inc. v. Republic of Cuba (1976), in which the US Supreme Court ruled against the Cuban government, which had nationalized the cigar industry and subsequently refused to return the money mistakenly paid to it for pre-nationalization cigar shipments by importers in the United States. All that has been required to bring foreign governments to heel, Potts shows, is to successfully argue that the relationships or activities in dispute are “merely economic” (that is, private and commercial) rather than public and political, which is an argument that US courts have been increasingly happy to accept.

Meanwhile, alongside this expansion of what is litigable in the United States, more striking still has been the expansion of who can be sued and where the relevant activities or assets are located. Today, no sovereign government can operate without the risk of falling afoul of US laws and being held so accountable, and this is true wherever in the world they happen to be operating. Indeed, while making foreign governments subject to US laws for what they do in America is one thing, making them subject to these laws for what they do elsewhere, including in their own countries, is something else entirely. Yet that is precisely what has come to pass.

In 1990, the Nigerian government found itself embroiled in a US court case involving a contract it had awarded for the construction of a military hospital in Nigeria. Why? One American firm had accused another of having secured the contract through the bribery of Nigerian officials. The US Supreme Court decided that it did have the power to adjudicate the bribery accusation, thus reminding foreign governments the world over that they cannot deal with American firms, even at home, without considering how US courts will judge those dealings. (President Trump has recently weighed in on the appropriate course of judgment, telling US jurists to stop ruling against such bribery: “It’s going to mean a lot more business for America,” he said.) As Potts insists, it is surely a sea change of profound political significance that, over the course of several decades in the post–World War II era, the US legal system has “helped make the whole world part of US economic space.”

The transformations discussed in Judicial Territory are, as Potts admits, familiar ones to certain legal experts and well documented by legal historians. The particular importance and value of her new account lies in refusing the idea—implicit if not always explicit in the bulk of the existing literature—that this is merely a technocratic history, consisting merely of technical juridical tweaks. This process was not technocratic whatsoever, but partisan and nationalistic—thoroughly political from start to finish.

To begin with, the timing of the commencement of this shift in legal treatment—in the 1950s—was anything but happenstance. It coincided both with an upsurge in the socialist and postcolonial nations pursuing economic development models that prioritized domestic populations and industries rather than multinational (increasingly, US) capital, and with the diminishing potential for powerful Western countries to strangle those upstart development models in ways they had in the past. The American courts’ growing subordination of the international arena into merely another jurisdiction of US domestic law is part and parcel, then, of a longer and larger historical policy of containment.

Hence, the history that Potts narrates refuses technicist readings every step of the way. Behind the expansion of US judicial reach in the second half of the 20th century was the desire and determination of US government and corporate actors to tame statist national economic models overseas and to nip in the bud any developments remotely inimical to the interests of US capital. Much of the richness of Potts’s account is found in its careful identification of the primary nonjudicial actors (the private companies, investors, and policymakers with intimate connections to both constituencies) that animated and motivated these historical juridical transformations.

The value and importance of Judicial Territory also lies in Potts’s assessment of the consequences and indeed intrinsic nature of the massive expansion of US judicial authority. One of the most enduring puzzles of the postcolonial age has been the question of why previously colonized countries so frequently failed to flourish once the colonizers were sent packing and formal sovereign status had been achieved. Potts does not exactly situate her study as an answer to that question, but an answer—one adding to and complementing a range of existing answers—is nonetheless what she indubitably provides. Postcolonial nations have widely failed to thrive, Potts effectively argues, because in reality they remained part of a de facto empire, although in this case an American as opposed to a British, German, or Spanish one; and this has served to undermine their nominal sovereignty.

In fact, the refreshing thing about Potts’s book is that she makes no bones about it: Imperialism is clearly what we are dealing with here. But it is a different type of imperialism, one where exogenous judicial authority increasingly stands in for military or executive authority. Her book is a call to treat the United States as an imperial power precisely (although not exclusively) because of this extension across international space of US legal authority and, correspondingly, of the interests of US capital. Potts writes of the latter-day American empire evincing a “judicial modality”—of foreign sovereign nations and their peoples being subordinated to America by law rather than by colonial occupation or military force.

What is perhaps most insidious about the “imperial modality”—another striking Potts framing—of US judicial power is the extent to which it was designed to quietly snuff out “postcolonialism.” The expansion of US judicial territory after World War II, Potts writes, “enabled the United States to continue exercising substantial authority over the decisions of foreign governments in an age of avowed anti-imperialism and formal sovereign equality.” More than that, the turn to law was a mechanism of the active disavowal of empire. “The recoding of many foreign policy issues as merely legal,” Potts notes at one point, “has been an especially potent way for the United States to obscure its own imperial operations.” Or, as she puts it elsewhere, the trick has been “to cloak the pursuit of US geopolitical and geoeconomic goals (always entangled to a large degree with private corporate interests) in the guise of the ‘rule of law.’”

For that, of course, is the thing about law: its self-professed impartiality and, well, judiciousness. A modern-day empire rooted in law, of all things? The very idea seems counterintuitive, absurd even. Yet that is what Judicial Territory presents us with: empire camouflaged by the veneer of fairness that the law furnishes. If, as Carl von Clausewitz famously argued, war is merely the continuation of politics by other means, then, for Potts, law—at least the transnational application of domestic American commercial law—represents the continuation of empire by other means.

Just as Indigenous populations worldwide resisted the imposition of foreign occupation and rule that was European colonialism, so too have national governments worldwide—to varying extents and with varying degrees of determination—resisted and challenged the postwar expansion of US judicial authority. Potts recounts many such examples of confrontation. The Cuban government has long been a particular irritant for the United States in this respect, repeatedly and robustly arguing against the overreach of American judicial authority.

But Potts is also clear-eyed about the fact that, for the most part, these challenges have ultimately been in vain: “Once judicial decisions are made,” she observes, “most foreign governments do obey them most of the time.” But why? After all, as Potts notes, “transnational law is not backed directly by the enforcement power of the police the way domestic law is.” Her answer emphasizes the chilling impact of the economic blackballing that routinely comes with not conforming: “Foreign governments simply cannot afford to be locked out of US markets or legal services.”

The case of Argentina’s defaulted debt and the vulture-fund holdouts appeared, at least, to represent something of a counterpoint to this tendency. When the US courts initially ruled in 2012 that the country did have to pay the vulture funds in full, Argentina continued to refuse to do so. It held firm.

But that was not the end of the matter. As mentioned, the courts proceeded over the next two years to ratchet up the pressure further—effectively blocking Argentina from paying its other bondholders unless it first paid the holdouts in full—and in the end, the government buckled: In 2016, it settled with the vulture funds to the tune of more than $10 billion. Why? Argentina had essentially been excluded from the international capital markets while making its stand, compounding its domestic economic strife. Settling with the holdouts enabled Argentina to restore its credibility in the markets, issue new debt, and take measures to stabilize its economy.

In the end, Argentina had no real choice, besides isolationism, other than to settle. Settling was structurally required of it, given the country’s dependent positioning in the circuits of international finance. Economists call this structural bind “international financial subordination,” by which they mean that fundamental inequality in the global financial system structurally subordinates less powerful states and constrains their financial autonomy. What Potts has brought to light with Judicial Territory is the crucial role of the law in fashioning and enforcing such subordination—that is, in demanding and securing the obedience of sovereign states.

And the vulture funds? They made out like the bandits. According to data published by the courts in conjunction with the 2016 settlement, the funds each earned returns on investment of between 300 and 1,000 percent. But in its own analysis of the numbers, The Wall Street Journal found that one fund, Florida’s Elliott Investment Management, had actually achieved a return of up to 1,400 percent.

Elliott was very much the public face of the vulture funds in the lengthy battle with Argentina, receiving endless brickbats for its leading role in facing down the Latin American sovereign. Indeed, the normalization of the term “vulture” to refer to Elliott and the other investment funds involved in the litigation plainly indexed the way they were widely viewed: as operating somehow beyond the acceptable pale. “Elliott is the ugly face of America,” one critic, capturing the mood, exclaimed in 2018.

But to suggest that an investment fund such as Elliott is an aberration from contemporary American capitalism is to miss the point entirely. Insofar as it trades on the rule of law that the United States propagates and exercises globally, Elliott is American capitalism’s globalizing arm, its vanguard rather than black sheep.

Argentina’s government was demonstrating an “inexhaustible disregard for the rule of law,” Paul Singer, Elliott’s founder and president, opined in a letter to his clients at the height of the dispute. In 2014, a banker who’d done business with the firm was asked by a journalist what made Elliott so successful. “They have deep respect for the rule of law and they expect others to share it,” the banker said. But what would happen if Singer and his colleagues ever sensed that others did not share this “respect”? “I think you know the answer,” the banker replied.

To read the article as it was posted on The Nation website, please click here.

The post How the US Courts Rewrote the Rules of International Trade appeared first on WITA.

That’s What (Economic) Friends are For: Guiding Principles to Boost Supply Chain Security

Executive Summary

The United States has recently pursued “friendshoring” of supply chains to trusted countries in the Indo-Pacific as part of its efforts to reduce dependence on China and make supply chains more resilient to global shocks. Friendshoring initiatives include plurilateral forums such as the Minerals Security Partnership and the Chip 4 Alliance, as well as initiatives to bolster bilateral economic relationships with Indonesia, Vietnam, and India, among other countries.

However, the implementation of U.S. friendshoring policy has met its fair share of challenges, including how potential tariff increases may impact its viability. Moreover, it is not always clear who is a “friend” of the United States, and there is uncertainty about the longevity and durability of the “friendship” classification. In addition, the increase in U.S. policies (and dollars) supporting domestic production – for example, through the 2022 Inflation Reduction Act – seems to be somewhat at odds with the goal of friendshoring to strengthen trusted supply chains. Furthermore, friendshoring policy reinforces trends toward the bifurcation of the global economy along a U.S./China split, contributing to a slowdown in global economic growth.

In interviews with Indo-Pacific experts both inside and outside government, the Asia Society Policy Institute (ASPI) heard that while U.S. engagement in the region is welcome, there are also some frustrations with the friendshoring policy. Interviewees bemoaned the lack of real economic benefits for their countries from initiatives to date and highlighted their disappointment with U.S. policies that subsidize domestic production, especially when they cannot compete with such incentives. The recent political positioning around Nippon Steel’s attempted acquisition of U.S. Steel was cited as undermining trust among friends of the United States. Respondents also emphasized the difficulty of excluding China from their supply chains, with several stressing the importance of balancing ties with China and the United States.

As the new administration considers the future of this policy, ASPI recommends bolstering friendshoring policies by adopting five guiding principles:

Strategic focus: Working closely with the private sector, focus friendshoring first on a limited number of strategic sectors in line with U.S. priorities, such as chips, critical minerals, and pharmaceuticals, and expand to other sectors over time.
Certainty: Take a long-term approach to building confidence among friends by situating friendshoring policy in a new, comprehensive U.S. economic security strategy. This would provide a clear direction, certainty, and consistency of application for friendshoring policy.
Expanding membership: Look beyond traditional partners to include trusted developing economies that will provide greater access to resources and supply networks for businesses.
Substantive benefits: Strengthen the benefits of friendshoring for both sides, including gains in market access, collaboration on research and development, and increased support for capacity building.
Engagement: Ensure that engagement with trusted partners – and the U.S. business community – goes both ways, creating ample opportunities for early discussion and feedback on new initiatives. 

Introduction

The United States, like many other countries, has seen its economy become increasingly intertwined with China’s over the past few decades. However, the risks of overdependence on China, especially in critical sectors, are rising more to the fore and spurring action. At the same time, the potential for global trade disruptions from external forces such as climate change, pandemics, and geopolitical tensions is on the minds of many businesses. As governments and businesses look to shore up their supply chains to tackle these challenges, they are quickly coming to the realization that not everything can be made at home. A strong economic security policy requires the United States to consider how it can build resilient supply chains through effective partnerships with its friends and allies – the so-called friendshoring policy.

This paper examines the rise of the United States’ friendshoring policy over recent years and delves into some of the challenges and tensions that have arisen from the implementation of this policy in the Indo-Pacific. Valuable perspectives on the U.S. friendshoring policy from experts across Asia are shared. Finally, five guiding principles to enhance this policy are recommended for the new U.S. administration.

The Rise of U.S. Friendshoring Policy

In April 2022, then–Treasury Secretary Janet Yellen articulated a U.S. policy “favoring the friendshoring of supply chains to a large number of trusted countries,” arguing that doing so would allow the United States to “continue to securely extend market access” and thereby “lower the risks to our economy as well as to our trusted trade partners.” While other terms like “ally-shoring” had already gained currency, Yellen and others in the Joe Biden administration latched onto “friendshoring” as a key plank of U.S. economic security policy. The objectives were twofold: to reduce the United States’ economic dependence on China and to better respond to global supply chain shocks, such as the disruptions caused by the COVID-19 pandemic. Furthermore, Yellen explained that the United States would focus on strengthening supply chains with countries that “have strong adherence to a set of norms and values about how to operate in the global economy and how to run the global economic system.”

The Indo-Pacific has become a key region for implementing effective friendshoring policy. The launch of the Indo-Pacific Economic Framework for Prosperity (IPEF) in May 2022 offers an illustration of friendshoring policy in action. A key goal of the 14-member IPEF is supply chain resiliency: this was the first pillar of work to be concluded in May 2023, reflecting both lessons learned from the disruptions of the pandemic and a keen eye on the risks of overdependence on China. Amid growing concerns about China’s dominant role in the critical minerals sector – China is the world’s largest producer of 28 metal and mineral commodities – the U.S.-led Minerals Security Partnership (MSP) was also established in 2022. Comprising 14 countries plus the European Union, the MSP was designed to accelerate the development of diverse and sustainable supply chains of critical minerals. MSP countries have launched 32 projects to date, including several focused on upstream mining and mineral extraction. The Chip 4 Alliance between the United States, Japan, Republic of Korea, and Taiwan is an example of efforts to bring together key allies in the Indo-Pacific with the goal of building resilience across the semiconductor supply chain and lessening China’s role in this strategic industry.

Alongside these plurilateral economic initiatives, the United States has strengthened its bilateral trade relationships with key economic partners in the Indo-Pacific as part of its friendshoring push. For example, in 2022, India and the United States launched the Initiative on Critical and Emerging Technology, which supports the development of high-tech industries in India, including enhancing semiconductor supply chains. The United States also elevated its relationships with Vietnam and Indonesia to the level of “comprehensive strategic partnerships” and bolstered its cooperation with these two important Southeast Asia players to support and improve, inter alia, semiconductor supply chains and, in the case of Indonesia, critical minerals.

A Bumpy Path for Friendship: Challenges in Friendshoring Policy

While the United States has pursued friendshoring with some vigor in recent years, the implementation of the policy has encountered its share of challenges.

Who is a “Friend” of the United States?

One of the first tough issues to work through is the definition of friendship: Who is a “friend” of the United States? The Trump administration’s recent announcements of new U.S. tariffs that could be applied to friends and allies alike will no doubt make Indo-Pacific friendshoring partners and businesses pause for thought on the future economic engagement of the U.S. with its ‘friends’.  For its part, the Biden administration often described friendshoring policy as applying to “trusted” partners, and those countries that espouse a common set of values about international trade. Japan has long been a trusted partner and friend of the United States, and it is committed to the international rules-based trading system. The United States and Japan have also worked together in forums such as the G7 and IPEF to enhance supply chain security. However, former President Biden’s decision in January 2025 to block the acquisition of U.S. Steel by Nippon Steel, citing national security concerns, raised questions about the durability and reliability of the “friendship” category. In the wake of this, friendshoring partners may well question whether their friendship with the United States is enduring or will be limited to certain situations at the whim of the U.S. government.

Friendshoring has also been described as involving countries with which the United States does not have any geopolitical concerns. The reality is that countries’ policies can, and indeed do, change over time. This means that while a country may be considered a friend at one point, the relationship may later change in a way that makes supply chains between that country and the United States difficult, inadvisable, or even impossible. For example, the extent of Chinese investment in a country or a county’s level of engagement with Beijing may, over time, lead the United States to view that country less favorably. We are seeing heightened U.S. concerns about Chinese companies moving production to other Indo-Pacific countries and exporting to the United States from those countries to avoid U.S. trade restrictions and benefit from tariff advantages. For example, Vietnam’s and Mexico’s imports to the United States have grown, but at the same time their imports from China have grown even faster, and Chinese investment in manufacturing in those countries is rising. Indeed, a 2023 World Bank report found that the reduction of U.S. imports from China may not have diminished dependence on China because countries that were more deeply engaged in Chinese supply chains saw the fastest growth in exports to the United States. 

Were the United States to go so far as to exclude a friendshoring partner from the supply chain because of increased Chinese investment there, that would mean a reversal of fortunes for the friendly country. This potential uncertainty around the longevity of the “friend” classification poses a challenge for businesses that are looking for certainty and stability when they consider investment decisions.

The definitional issues extend to questions about whether countries that have been identified as “friends” for supply chain purposes (and where the United States is actively encouraging closer economic ties) are in fact reliable partners with which the United States has no geopolitical concerns. Vietnam, for example, has been a part of initiatives to strengthen supply chains with the United States, including those in critical sectors like semiconductors, but it has also been included on the United States’ list of countries that raise national security concerns for dual-use goods, meaning that specific export controls apply.

Inconsistencies with Onshoring Policy

At the same time that it has been pursuing friendshoring policy, the United States has also been ratcheting up its industrial policy and subsidizing production at home in recent years – the so-called “onshoring” policy. The Inflation Reduction Act (IRA), passed by the U.S. Congress in 2022, set out an ambitious plan to support climate and clean energy technology. This includes tax incentives and credits for electric vehicles assembled in North America and domestic production of clean energy components like solar panels and wind turbines. Since its passage, more than $265 billion in clean energy investments have been announced, contributing to $900 billion in total manufacturing investments.

The Infrastructure Investment and Jobs Act (2021) and the CHIPS and Science Act (2022) also provide financial incentives for building semiconductor manufacturing plants in the United States, and include “Buy America” provisions that mandate the use of some domestically produced materials for federally funded infrastructure projects. Dozens of companies have committed to nearly $400 billion in semiconductor investments across the United States, spurred largely by the CHIPS and Science Act’s incentives program.

On the face of it, onshoring policies focused on supporting domestic production seem to be somewhat at odds with the goals of friendshoring, which are about strengthening international supply chains. While in some cases, U.S. domestic policies offer incentives that certain foreign countries may be able to access, this mechanism is not the same as friendshoring of supply chains. Limitations on which countries can access the incentives, such as a provision that countries must have free trade agreements with the United States, are also problematic given that many “friends” of the United States do not have such agreements in place.

The increase in U.S. subsidies for domestic production also creates an uneven playing field. The effects of these measures are especially acute for countries that cannot afford to provide similar incentives to support production at home. While Secretary Yellen commented that friendshoring is “open and inclusive of advanced economies, emerging markets, and developing countries alike” and that the United States is “working to strengthen – not weaken – our ties with the emerging and developing world,” these industrial policies may run counter to such goals. Indeed, significant incentives to manufacture in the United States effectively diminish the competitiveness of many emerging and developing economies in global supply chains. 

Increased Bifurcation of the Global Economy

Friendshoring is also contributing to the bifurcation of the global economy along U.S./China lines. International Monetary Fund researchers concluded that friendshoring trends could lead to a more fragmented global trade network and the loss of 2% of the world’s gross domestic product. Developing countries, which would otherwise benefit from more foreign investment, are most vulnerable to the loss of economic output. Similarly, when the World Trade Organization considered the implications of the war in Ukraine, it predicted that if supply chains were reoriented based on geopolitical blocs, global GDP would drop by 5% in the long run as a result of restrictions on competition and the stifling of innovation. Countries that try to operate in both blocs would be faced with duplicative supply chains, creating significant inefficiencies and raising costs. 

Perspectives from the Indo-Pacific: Friendshoring Is Welcome, but It’s Not All Plain Sailing

The success of the United States’ friendshoring policy relies on its friends around the world – but what do those friends think of the policy? To gain insights into the Indo-Pacific region’s view of this policy, ASPI interviewed experts from across the region to hear their frank assessments of the implementation of the U.S. friendshoring policy. Interviewees discussed how the policy has been received in their countries, as well as whether, and how, it could be strengthened. These interviews were conducted in the last quarter of 2024. The experts interviewed included current and former government officials, businesspeople, academics, and senior researchers from think tanks in India, Indonesia, Japan, the Republic of Korea, Singapore, and Vietnam.

Overall, the interviewees gave the U.S. friendshoring policy mixed reviews. They noted that the region welcomes stepped-up U.S. engagement and increased cooperation to strengthen supply chains, but they also expressed frustrations with the limited benefits that so-called friends receive. There was also some confusion among friendshoring partners about the mixed messages coming from the United States about the importance of onshoring versus friendshoring. The United States’ Indo-Pacific partners were also cognizant of their strong economic ties to Beijing and the need to balance relations with both the United States and China.

The Importance of Concrete Benefits

Most experts agreed that it is important for the U.S. friendshoring policy to provide benefits to both sides. While Secretary Yellen commented that “achieving resilience through partnering with Indo-Pacific countries means gains for Indo-Pacific economies as well,” several interviewees noted that, from an economic perspective at least, friendshoring had not brought them substantial benefits. One interviewee commented that “the Indo-Pacific Economic Framework and Minerals Security Partnership are examples of friendshoring, but they focus more on geopolitical considerations, like reducing dependence on China, rather than offering real economic benefits. Without market access, it’s hard to see substantial gains from joining them.” Furthermore, one interviewee expressed the view that friendshoring is “not sustainable in the long term unless the U.S. provides clear incentives for allied countries.” Another expert pointed to a real lack of benefits compared with traditional trade agreements. Others commented that the benefits of friendshoring for partners are simply “unclear.” Some interviewees were nevertheless pragmatic that the current friendshoring policy is “the best that we can get from the U.S. right now” and that “it’s better to have it than not have it.”

Still, some respondents identified tangible benefits for their countries, such as greater U.S. investment in key sectors, stronger supply chain integration, improved business collaboration, increased strategic economic ties, and benefits for specific sectors where the United States is trying to lessen China’s role. Others found the policy aligned with broader trade and investment goals. For example, one expert commented that friendshoring is useful for those seeking greater openness to foreign investment in the United States, while another highlighted the value of friendshoring in terms of boosting business confidence, given that the United States is “still engaging in the region.” 

Concerns About U.S. Onshoring and Domestic Policies

A number of respondents expressed concerns about U.S. domestic policies, with both confusion and frustration arising from the perceived inconsistency between some domestic policies and friendshoring. One expert commented that “on the one hand, the U.S. says, ‘you are our friends,’ but then they pass policies like the IRA that hurt their friends.” Another expert similarly noted that “the U.S. is very keen on promoting growth back home, with policies like the Inflation Reduction Act and CHIPS [and Science] Act providing subsidies to incentivize companies to move production back to the U.S. This sometimes creates confusion or tension between supporting supply chains overseas or bringing them entirely back to the U.S.”One interviewee remarked that U.S. subsidies supporting domestic manufacturing were undercutting plans in their own country to become a manufacturing hub; this was a double hit because their country is not eligible for any of the IRA’s tax credits. Some experts added that while they had raised their concerns with U.S. officials, communication was not always easy, and they did not believe their concerns had been adequately addressed by the Biden administration.

The politicization of Nippon Steel’s proposed acquisition of U.S. Steel was also cited by some interviewees as a move that had undermined trust in friendshoring – one that would have a lasting effect, and not just for Japan. One expert summed it up as “friends are not always aligned 100% but you need trust in the relationship.” There was a sense among several interviewees that the United States was prioritizing its domestic industries at the expense of its so-called friends. In this regard, one respondent observed that friendshoring worked best when the friend was complementing the U.S. initiatives, rather than trying to compete. 

De-risking From China is Difficult

Respondents emphasized that their supply chains remain largely intertwined with China, not least because of their free trade agreements with China. Balancing the competing interests of relationships with the United States and China was important to players in the region given their heavy economic reliance on China. One expert remarked that “just cutting off the supply chain with China is not easy – it’s almost impossible.” Another explained that in their view, the economic calculations for business will always play out first, and “if producing in China makes the most sense, companies will continue there.” Nevertheless, a few interviewees acknowledged that a growing number of companies are relocating from China to other parts of Asia as they seek more stable production sites.

For some, keeping their relationships with China and the United States balanced meant that increased engagement through the U.S. friendshoring policy resulted in a need to boost engagement with China too. Yet other interviewees commented that the friendshoring policy did not significantly alter their country’s relationship with China. Some noted that the two relationships are not mutually exclusive – they want to benefit from both relationships and prioritize economic benefits over ideological alignment. One respondent commented that many in Southeast Asia prefer the term “like-minded” rather than “friend” because it avoids being strictly aligned with the United States or China and “reflect[s] our position of not taking sides.”

Views on Friendshoring Entangled With Broader Attitudes Toward the United States

Many interviewees commented on how the friendshoring policy impacted public sentiment in their countries toward the United States. One interviewee noted a persistent trust deficit with the United States in their country, but added that friendshoring was one initiative that was helping this to move in the right direction. Some countries also raised questions about the long-term reliability of U.S. engagement in the region. This concern resonated with a 2024 report from the ISEAS – Yusof Ishak Institute on “The State of Southeast Asia,” which found that China continues to be seen as the most influential economic power in Southeast Asia, outpacing the United States 59% to 14%. China also edged past the United States to become the prevailing choice if Southeast Asia were forced to align with either China or the United States. While multiple factors contributed to this shift in public sentiment, reversing this trend may require greater clarity on how the region can effectively participate in U.S. economic strategy. 

Enhancing Friendshoring Policy: Guiding Principles

Considering the objectives of the friendshoring policy, the challenges identified, and the perspectives shared by interviewees in the Indo-Pacific region, five principles should be adopted to enhance U.S. friendshoring policy. Many of these principles apply equally to the United States’ Indo-Pacific partners as they shape their own approach to building greater economic resilience.

Strategic focus: Working closely with the private sector, focus friendshoring first on a limited number of strategic sectors in line with U.S. priorities, such as chips, critical minerals, and pharmaceuticals, and expand to other sectors over time.
Certainty: Take a long-term approach to building confidence among friends by situating friendshoring policy in a new, comprehensive U.S. economic security strategy. This would provide a clear direction, certainty, and consistency of application for friendshoring policy.
Expanding membership: Look beyond traditional partners to include trusted developing economies that will provide greater access to resources and supply networks for businesses.
Substantive Benefits: Strengthen the benefits of friendshoring for both sides, including gains in market access, collaboration on research and development, and increased support for capacity building.
Engagement: Ensure that engagement with trusted partners – and the business community – goes both ways, creating ample opportunities for early discussion and feedback on new initiatives. 






Principle 1: Strategic Focus

Friendshoring policy should focus first on areas of greatest strategic interest to the United States, as well as areas in which reducing supply chain dependence on China and increasing resilience are most critical. The Administration should work closely with the private sector to identify these sectors given business’ expertise in shaping supply chains and their interest in stability and certainty.

One sector that should be prioritized is semi-conductors, given the importance of chip technology for security and U.S. technological leadership. More work should be put into reinvigorating the Chip 4 Alliance, particularly to ensure that it supports the administration’s priorities in artificial intelligence. Critical minerals is another strategically important area where more can be done and efforts to reduce dependence on China should be redoubled. During President Trump’s first term, he prioritized reducing U.S. vulnerability to disruptions in critical mineral supply chains “through cooperation and coordination with partners and allies.” As critical mineral producers continue to impose significant export controls and market access improvements are lacking, the United States should broaden the membership of the Minerals Security Partnership and evaluate what additional benefits and trade facilitation measures should be advanced.

Pharmaceuticals should also be a strategic focus for friendshoring, especially active pharmaceutical ingredients for which China is the dominant global player. The United States should forge closer economic and supply chain arrangements on pharmaceutical products with friendly countries such as India and the Republic of Korea, which are investing in the development of domestic pharmaceutical industries.  These strategic sectors should be regularly reviewed and updated so that the policy can take account of new developments, including new technologies, and supply chain pressures and challenges, and expanded over time.

Principle 2: Certainty

Businesses need certainty to make sound investment decisions, as it is costly and difficult to align with shifting criteria. Therefore, an effective friendshoring policy should take a long-term approach, assuring friends and businesses that international relationships are secure and less likely to be undermined by short-term developments and domestic politics.

To support this long-term approach, the United States should situate the friendshoring policy more clearly within its broader economic security priorities through the development of a comprehensive U.S. economic security strategy. This would provide clear direction for the policy, including key elements such as having well-defined objectives and criteria, consistency of application, and clear definition of who qualifies as a friend. These elements would help clarify when a country is no longer part of the friendshoring group of countries, the process for making such a determination, and the implications of that decision. This consistency and certainty should extend to outlining the expectations for friends – transparency on these requirements would help develop a smoother relationship from the outset.

Principle 3: Expanding Membership

With China’s economic playbook continuing to evolve, potential supply chain disruptions due to geopolitical uncertainty increasing, and projected growth of the Global South’s role in the world economy, Washington should look beyond its traditional friends to ensure a broad membership for its friendshoring policy, including more emerging market partners. This will enable U.S. businesses to have greater options and access to different resources and supply networks as they build more resilient supply chains. At the same time, this would help support the economic development of trusted developing country partners, for example, by encouraging foreign investment. 

Principle 4: Substantive benefits

Both sides need to see benefits from the friendshoring policy for it to be successful and for countries to stay engaged over the long term. As our interviewees underscored, the United States’ friends are clearly seeking more tangible benefits from friendshoring. To keep these friends in the game, small gains in market access should be considered as part of a binding and durable friendshoring package. This access could be achieved through limited, sectoral agreements in strategic sectors of priority to both sides, such as critical minerals or semiconductors. This would also send an important signal, including to investors, about the United States’ commitment to these relationships.

The United States should also consider expanding this policy from primarily supporting goods supply chains to encompass “intellectual friendshoring” – that is, collaborating on research and development. The OECD noted that intellectual collaboration with foreign partners fosters greater innovation as it allows firms to access a broader pool of resources and knowledge at lower costs, and share risks. In addition, the United States should increase its capacity-building support for emerging market partners as a concrete advantage tied to this policy. This could encompass areas such as digital transformation, and critical minerals management. 

Principle 5: Engagement

Friendship requires good communication. Early and fulsome consultation by Washington with its friendshoring partners on new or evolving policies will go some way toward allaying concerns and responding to diminishing trust. Offering advance notice and, whenever possible, opportunities for feedback would allow the friends to be heard and to contribute ideas that could help maximize benefits and minimize costs for both sides. These communications would also reinforce the key message that despite domestic measures, the friendship remains important to the United States. This would enable a softer landing for such policies and support strong relationships with the friends.

In addition, more effective engagement should extend to the U.S. private sector. While governments can influence and incentivize business decisions on their supply chains, at the end of the day, the determination of supply chains remains for the business to decide. While firms are increasingly including geopolitical considerations in their risk calculations, a friendshoring policy that takes account of business perspectives through effective engagement will be more likely to achieve its objectives. 

Conclusion

Friendshoring is a valuable tool in the United States’ economic security toolbox that helps the United States build more resilient, secure and diverse supply chains and reduce the risks of overdependence on China. The United States’ Indo-Pacific partners welcome increased supply chain cooperation but they are also looking for clarity on friendshoring benefits and the alignment of friendshoring with domestic industrial policies.  The Administration should be encouraged to revisit U.S. friendshoring policy, address the challenges, and build on the foundation that has been laid to date in order to deliver real economic benefits to business and workers both here and in the Indo-Pacific. 

Final - That's What Economic Friends Are for, March 3, 2025

To read the full Issue Paper as it was published on the Asia Society Policy Institute website, click here.

To read the Issue Paper as a PDF, click here.

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The IMF, Country In Crisis & Sovereign Debt

Countries, similar to companies and individuals, should honor their debts. 

However, when a sovereign is faced with the dilemma of default it is a distressing one for both the lenders and borrowers, where paying back the debt requires scenarios where resolutions can be achieved with repayment goals.  The current dependence on the international community to bail out the private lenders deters countries from resolving unsustainable debts efficiently and appropriately amongst each other of their own initiative, especially since there is a lack of incentives for lenders and borrowers to do so.  The broad ramifications may be an increase in sovereign defaults and international legal issues.  The resolution is to alter macroeconomic policy in our treatment of sovereign default.  In doing so, one suggested proposal is restructuring sovereign debt by creating formal procedures, an International Monetary Fund (IMF) Country Bankruptcy Court, where lenders and borrowers through a collaborative effort will restructure the debt and the IMF will preside as the governing body through this process (restructuring of debt is not too different than debt restructuring done in the private sectors, just depends on the borrower terms and the lender’s appetite for risk).  This forthright approach was suggested by Anne O. Krueger, the First Deputy Managing Director of the IMF in November 2021.  She believed that this “formal mechanism” would have served as a “catalyst”, and provide lenders and borrowers a number of protections during the debt restructuring process.  In the following based on her proposal, I examine what leads a country to crisis or default.

Sources of Country Crisis & Economic Analysis:

It is arguable that essentially a country in crisis is a product of budget deficits, which triggers a downward-spiral in the economy through other contributing factors, such as the fixed exchange rate leading to an obscene decline in fixed exchange reserves.  Also, there exists an inevitable conflict between expanding monetary policy and the fixed exchange rates.  This was true in the case of Argentina.  When President Carlos Menem took office in Argentina in 1989, the country had piled up huge external debts, inflation had reached 200% per month, and output was plummeting. To combat the economic crisis, the government embarked on a path of trade liberalization, deregulation, and privatization. In 1991, it implemented radical monetary reforms, which pegged the peso to the US dollar and limited the growth in the monetary base by law to the growth in reserves. Inflation fell sharply in subsequent years.  In 1995, the Mexican peso crisis produced capital flight, the loss of banking system deposits, and a severe, but short-lived, recession; a series of reforms to bolster the domestic banking system followed. Real GDP growth recovered strongly, reaching 8% in 1997. Then in 1998, international financial turmoil caused by Russia’s problems and increasing investor anxiety over Brazil produced the highest domestic interest rates in more than three years, halving the growth rate of the economy. Conditions got worse in 1999 with GDP falling by 3%. President Fernando De La Rua, who was in office in December 1999, sponsored tax increases and spending cuts to reduce the deficit, which had ballooned to 2.5% of GDP in 1999. Growth in 2000 was a disappointing 0.8%, as both domestic and foreign investors remained skeptical of the government’s ability to pay debts and maintain its fixed exchange rate with the US dollar. Argentina, soon enough was in the realm of default. 

In addition to such tensions a sovereign may face, the eminent problem which is highlighted in parts of Argentina’s story and which stems from the theory that a potentially healthy economy can experience a “self-fulfilling” financial crisis (Krugman 1999) is attributed to the role of balance sheet problems in limiting investment by the private sector, and the impact of the real exchange rate on those balance sheets which produce such powerfully negative effects on a potentially healthy economy that they lead to, for our purposes, such an enormous “credit constraint” that the sovereign falls in a state of  crisis.  To illustrate my point, three conditions exit in a “potentially healthy economy” subsequent to each other as the sovereign defaults. 

The conditions are as follows.

1. The first is that a “Goods Market” exists and contributes to the crisis,

2. The second is the “Equilibrium in the Asset Market”.

The assumption is that capital lasts only one period; this period’s capital is equal to last period’s investment.  So, the capital produced through investment and entrepreneurs is equal to the interest rate for this period times the exchange rate on goods for this period, and

3. The third condition for our purposes, is the “Credit Constraint”.  With this condition, the assumption is that investment cannot be negative and lenders cannot lend more than half their wealth (I < lW), which is a result of the profits (P) minus the domestic debt (DD), minus the foreign debt (FD); (Q) the exchange rate is applied to the foreign debt for conversion. 

If time permitted, applying real numbers to these conditions would indicate that the interaction of these three conditions will result in a depreciating exchange rate, the sovereign’s wealth will be significantly less since the declining exchange rate has already triggered a downward-spiral, and debt would be on the rise.  Figure 1 illustrates that as the exchange rate (Q) shifts to the right and continues to do so, the “Credit Constraint Line” at conflict with the “Goods Market Line” results in the sovereign’s debt rising and leading towards default.

The IMF Country Bankruptcy Court Proposal & Economic Analysis:

As illustrated in Figure 1, since lenders will no longer want to lend the sovereign funds, and the sovereign will have no option, but to default as a result of its downward-spiral economy.  For such sovereigns the question that comes up is: did Ms. Krueger’s IMF Country Bankruptcy Court proposal rescue them?  In order to answer this, we will review the proposal more closely.  Ms. Krueger sets up her approach to restructuring sovereign debt on two pillars: firstly, on “reforming the architecture” of the IMF and secondly, on “involving the private sector in crisis resolution”.  Regarding the first pillar, she believes since the IMF is focusing on better national policies and reforms, such as “encouraging better communication between IMF and its members, creating the Contingent Credit Line facility offering countries with sound policies a public “seal of approval”, and now with more urgency, assisting to resolve balance sheet problems in the financial and corporate sectors”, today, the IMF is in a better position to have additional powers.  These revisions to prevention and crisis management measures were highlighted by Ms. Krueger to justify that if such centralization of power were to occur, the IMF, despite the satirical political machine that it is with a multitude of politically aligned motivations it has had in emerging countries, has the foundation necessary in resolving sovereign debt issues. 

To date, there is no IMF Country Bankruptcy Country Court and Ms. Krueger’s proposal, a novel idea and resolution has not happened via the IMF yet. There are however, technical assistance and remedies to resolve sovereign debt default of countries and managing the domestic turmoil caused offered by the IMF. These resolutions are a solution and aid in restructuring sovereign debt issues, but most of all the economy is in constraint like the “credit constraint” illustrated earlier. My thought is that sovereign default is one of the worst predicaments a country can face: it impacts rising food costs, unemployment, inflation, political unrest likely, reduction in essential healthcare services, and extreme poverty overall. The remedy seems to be a restructuring of debt at favorable terms and a plan in place over time to achieve this goal. What good is the IMF if there is no collaboration or resolution scenarios? The IMF Bankruptcy Court was not just a novel idea but if does ever come to fruition it would lead to aiding many countries with default scenarios and effective resolutions that can also get private sector support.

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On The Relevance of Dollarization: Advantages & Disadvantages of the US Dollar

Implementing a monetary policy of dollarization has a multitude of implications. Before implementing such a monetary policy, it is imperative to examine what the implications of dollarization are, what the costs and benefits may be, and whether adopting dollarization at any time for our country would serve to be an effective monetary policy. The theoretical answer to this, and to use dollarization is that “it really depends on which side one decides to be on”. For example, if you are with the United States, through dollarization is one of the obvious benefits is seigniorage, revenue from issuing currency. If you are with the country adopting dollarization, one of the obvious benefits is the reduction of exchange rate risk, since the domestic currency is eliminated. The question of to dollarize or not to dollarize is certainly difficult to satisfy, particularly since we are lacking in historical precedence, as of July 2021 with Panama as the sole sizable comparative point (Berg & Borenztein, 4). Nevertheless, I will first present the overall advantages and disadvantages of dollarization, then examine whether adoption of this monetary policy is a wise course of action for a country in the western hemisphere and at what juncture.

Before I divulge any further into this, it is important to provide a definition of dollarization.  In the most basic sense, dollarization occurs when the residents of a foreign country continuously use foreign currency concurrently (in our case the US$) or instead of the domestic currency (if we are looking at any other country).  Dollarization can occur unofficially, individuals holding foreign currency bank deposits or paper money, or officially, the government adopting foreign currency as the dominant legal currency.  Panama and East Timor are two examples of official dollarization, while others, such as Ecuador, were also considering official dollarization in 2021; in the case of East Timora and Panama economic stability and credibility avoiding political unrest is the primary reason why dollarization there works well (for East Timor, Indonesia, this has served as rescue tactic from the Asian Financial Crisis which occurred in late 1990s in East and Southeast Asia). I do agree the lack of controls with regards to their money supply and devoid of any local currency advantages are a concern, but for these countries dollarization has served to be beneficial. Now, I will look at dollarization as an official policy for the US.     

There are four broad sets of advantages for dollarizing: eliminating the risk of increasing exchange rate adjustments, lower transaction costs, lower inflation, and increasing economic stability and transparency.  The primary advantage for countries to dollarize is that it eliminates the risk of increasing exchange rate adjustments.  This benefit triggered by dollarization can produce a “domino-effect” for the dollarized country.  Countries which have very high exchange rates are often led to a state of currency crisis, dollarization helps avoid this scenario.  However, an immediate result of this advantage is that there would be lower interest rates and less country risk premia (Berg & Borensztein, 5). This additional benefit of dollarization would lead to stable international capital inflows.  Such capital movement stability will eventually lead to increasing investor confidence, lower international borrowing, and increasing foreign investments in the dollarized country. 

The second advantage is lower transaction costs, the cost of exchanging one currency for another, since the dollarized country does not have to pay for currency exchange with other countries in the unified currency zone.  This also increases trade and investment with countries within the unified currency zone due to the incentive of lower transaction costs.  Additionally, this incentive may compel banks to hold lower reserves, thereby reducing their cost of doing business.  The implications of a country’s domestic currency are that banks would have to separate their domestic currency and foreign currency portfolio.  However, with official dollarization, the portfolio in essence would be part of one large pot.

The third advantage is lower inflation. By using a foreign currency. a dollarized country obtains a rate of inflation close to that of the issuing country.  Dollarization for a country, such as Panama has served to be a significant advantage, with lower inflation today.  The risk of high inflation has always been of extreme concern for countries, since its consequences are so grave.  A historical example is the “drowning Argentina” when the peso sunk from one-to-the-dollar to three-to-the-dollar.  From deflation, Argentina has moved to inflation, with a rise of 4% in the consumer price index for March. (Financial Times, 5/2002). For Argentina the big question is whether it will be able to rise above water before it reaches hyperinflation.  In view of Argentina’s predicament in 2021, implementing dollarization to reduce inflation appears to be the imminent savior. Using not only the dollar, but also the Euro or the Yen would reduce inflation substantially for developing countries in the western hemisphere.

The fourth advantage is greater economic stability and transparency.  With regards to greater economic stability, since there is no domestic currency that needs to be factored in, the threat of magnified depreciation and devaluation are no longer there.  Therefore, dollarization eliminates the balance of payments crisis, effectively a currency crisis when the value of the currency declines, and there is less support for exchange controls, restrictions on buying foreign currency.  Also, another element of economic stability would be a closer financial integration of the foreign country to the issuing country.  Such integration would decrease the financial vulnerabilities a developing country may have, decreasing country risk and this is because the “integration” itself eliminates this “risk”.  With regards to transparency, since there is a greater economic openness on the part of the government, by eliminating its power to create inflation, and dollarization promotes an inevitable budgetary discipline.  This means that deficits must be financed by transparent methods, and these are higher taxes or increased debt, rather than through printing money. 

In outlining the advantages of dollarization, it appears to be an attractive alternative for some countries, but this would not be a fair assessment, unless the disadvantages are highlighted as well.  There are four main disadvantages of dollarization: the cost of lost seigniorage, default risk, the irreversible monetary policy dilemma, and elimination of the lender-of-last-resort function.  The first disadvantage involves seigniorage (profit made by a government for minting currency).  The magnitude of the “cost of lost seigniorage” is embedded in its two components: stock cost and flow cost.  The “stock cost” is the cost of obtaining enough foreign reserves needed to replace domestic currency in circulation.  An IMF study estimated that the stock cost of official dollarization for an average country would be 8% of gross national product (GNP was $23 trillion); a notably large amount. To compare an extreme example, in 2001, for the United States the stock cost was over $700 billion.  In terms of gross domestic product, the stock cost would be about 4% instead of 8%, which is still a significant number.  The other component of seigniorage, “the flow cost” is the continuous amount of earnings lost every year.  This cost generates future revenue for a country by reprinting of money every year to meet the increase in currency demand.  Besides the obvious attraction of seigniorage being a revenue source, it can be used to purchase assets or used towards resolving a deficit. (Berg & Borensztien, 15)  Seigniorage can also be used to finance a portion of the government’s expenditures potentially without having to raise taxes.

The second disadvantage is the risk of default by the dollarized country, which may occur as a consequence of devaluation risk increasing sovereign risk.  The sovereign risk may occur as a result of eliminating currency risk, which would reduce the risk premium on dollar-denominated debt.  Such an effect potentially could be prevented by a devaluation of the exchange rate, which may improve the domestic economy, thereby decrease default risk.  This disadvantage almost negates the rationale for dollarizing, since the desired affect of dollarization is to improve a country’s financial position and save it from a country crisis scenario.  

The third disadvantage is that dollarization is irreversible.  The lack of a flexible monetary policy may bear a high cost to the dollarized country in a situation where the issuing country is tapering its monetary policy during a boom, while the dollarized country needs a more flexible monetary policy because it is in a recession.  A country’s tolerance for economic shocks decreases due to this.  Another aspect of this disadvantage is that with dollarization being irreversible, a country losses its’ symbol of nationalism forever.  Although, this may not carry as much weight comparatively, it is a key factor in being a cost to the country, particularly, in view of the gold standard period.

The fourth disadvantage is that dollarization eliminates the lender-of-last-resorts function, which would mean that the dollarized country would lose the domestic central bank as a lender of last resort, which is a grave predicament for any country and if dollarized then it should be proven that it is infact an advantages policy to implement for that particular country.  The issue is that the dollarized country may not be able to obtain sufficient funds to save individual banks if need be.  This would create further banking problems in the dollarized country.  Since the banking systems in many developing countries are weak and vulnerable to market problems, they are not capable of handling the system-wide banking problems.  Such a disadvantage would lead to a handicapped dollarized country, an even worse predicament.

Dollarization is not the optimal route for every country, but it is also not to be eliminated as an option and my recommendation is that the macroeconomic and microeconomic factors of any country should be carefully evaluated if dollarization is to be considered there, and in view of optimum currency areas. Optimum currency areas will allow us to judge whether dollarization is desired.  This theory states that the economy is part of an optimum currency area when a high degree of economic integration makes a fixed exchange rate more beneficial than a floating rate.  However, it is difficult to define this area accurately.  Measuring the implications of “not dollarizing” economically will indicate when we should implement dollarization and factor in an exchange rate.  For a mid-sized country in the Western Hemisphere, the characteristics, such as high exchange rates, susceptibility to higher inflation and overall weak economic conditions will lead to increasing default risk, which will lead to a country crisis. (Paul Krugman, 1998).

To illustrate this country crisis three conditions exit for our country:

1.The first is that a “Goods Market” exists and contributes to the crisis, expressed as Y = C + G + CA + I (Q). In this economy, (Y), the output or goods a economy produces is a result of a certain amount consumed (C), consumption of goods by government (G), goods exported and imported in (CA), and whatever amount is left over invested (I) to produce more goods for the economy. Since all the goods invested (I) are not domestic, (Q) is the price of foreign goods relative to a domestic good. As (Q) increases, the foreign goods are more expensive.

2.The second is the “Equilibrium in Asset Market”, expressed as MPK = (K, L) =

(1 + R*) Qt/Qt , where the marginal product of capital (MPK) is created through investment (K) and entrepreneurs or lenders (L). The assumption is that capital lasts only one period; this period’s capital is equal to last period’s investment. So, the capital produced through investment and entrepreneurs is equal to the interest rate for this period multiplied by the exchange rate on goods for this period.

3.The third condition, for our purposes, is the “Credit Constraint”, expressed as I ≤λW = λ (P) – (DD) – Q (FD). With this condition, the assumption is that investment cannot be negative and lenders cannot lend more than half their wealth (I ≤ λW), which is a result of the profits (P) minus the domestic debt (DD), minus the foreign debt (FD); (Q) the exchange rate is applied to the foreign debt for conversion.

If time permitted, applying real numbers to these conditions would indicate that the interaction of these three conditions will result in a depreciating exchange rate, our sovereign’s wealth will be significantly less since the declining exchange rate has already triggered a downward-spiral, and debt would be on the rise. Figure 1 illustrates that as the exchange rate (Q) shifts to the right and continues to do so, the “Credit Constraint Line” at conflict with the “Goods Market Line” results in our sovereign’s debt rising and leading towards default.

Figure 1. Country Crisis Model

Therefore, with such a distressing illustration of a country leading to the predicament of a country in crisis, with country characteristics such that default is an inevitable consequence, Dollarization is the best alternative, and it is arguable that just before this juncture is the optimal point at which dollarization should be implemented, thereby proving my case for Dollarization here.  

Today, the ideas of de-dollarization has become more widespread and it seems that the geopolitical events in many countries is the major factor for this. Once the dominant reserve currency is becoming more expensive due to high interest rates being another factor. “The US dollar’s shares in international foreign reserves, global trade invoicing, international debt securities, and cross-border loans are many times greater than the United States’ shares of global gross domestic product (GDP) and international trade (The International Banker 2024). The question at hand is how does de-dollarization help any situation from a macro-perspective when it diminishes the US stance and position in the foreign currency world and in the past this supremacy has always aided countries and represented a nationalism that advances trade policies generally? Exceptions to this are always there; dollarization today for Argentina is not conducive and rather the economy would be expensive, however, among the list of the countries that have de-dollarized today are Russia, India, China, Kenya, and Malaysia, while promoting local currencies for them is an enormous motivation, and the many advantages they aspire to gain.

The following illustration (from JP Morgan as of April 2023) on “The Dollar’s Contrasting Fortunes” highlights the US’s share of global FX volumes increasing tremendously, and US’s share of global exports (%) decreasing equally, which implies that the value of the US currency is decreasing and its demand, at least as of late 2018. So where exactly are we with dollarization today?

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Trump Tariffs: Tracking the Economic Impact of the Trump Trade War

Key Findings

President Trump has threatened and imposed a variety of new tariffs for his second term in office, from universal baseline tariffs to country-specific tariffs.
We estimate that the imposed tariffs on China would reduce long-run GDP by 0.1 percent, the proposed tariffs on Canada and Mexico by 0.3 percent, the proposed expansion of steel and aluminum tariffs by less than 0.05 percent, and the proposed tariffs on motor vehicles and motor vehicle parts by 0.1 percent—before accounting for foreign retaliation.
The first Trump administration imposed tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019, amounting to one of the largest tax increases in decades.
The Biden administration kept most of the Trump administration tariffs in place, and in May 2024, announced tariff hikes on an additional $18 billion of Chinese goods, including semiconductors and electric vehicles.
We estimate the 2018-2019 trade war tariffs imposed by Trump and retained by Biden reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs.
Academic and governmental studies find the Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy.

2025 Trade War Timeline

President Trump signed an executive order on January 20, 2025, instructing certain cabinet secretaries to develop reports on trade practices and recommendations for tariffs due by April 1, 2025. Since then, several new tariffs and tariff investigations have been threatened, initiated, and/or imposed.

Country-Specific Tariffs:

Canada, Mexico, China: President Trump signed three executive orders on February 1, 2025, to impose tariffs on Canada, Mexico, and China using International Emergency Economic Powers Act (IIEPA) authority. The 10 percent tariffs on all imports from China took effect on February 4, 2025. The tariffs on Canada and Mexico received a 30-day suspension and are scheduled to take effect March 4. On February 27, Trump said the tariffs on China will increase by another 10 percent beginning March 4.
China Retaliation: China announced retaliation on about $13.9 billion worth of US exports at rates of 10 percent and 15 percent which took effect on February 10.
Reciprocal Tariffs: President Trump signed a presidential memorandum on February 13, 2025, to develop a plan for increasing US tariffs in response to other countries’ tariffs, tax policies, and any other policies including exchange rates and unfair practices. The recommendations are due April 1, 2025.
European Union: President Trump announced plans on February 26, 2025, to impose tariffs of 25 percent on imports from the European Union. The authority to impose these tariffs has not been specified.

Product Specific Tariffs:

Steel and Aluminum: President Trump signed two proclamations on February 10, 2025, to expandthe existing Section 232 tariffs on steel and aluminum. The orders end all existing exemptions for the tariffs, expand the list of derivative articles, and raise the tariff rate on aluminum from 10 percent to 25 percent. The changes are scheduled to take effect March 12, 2025.
Autos: President Trump announced on February 14, 2025, that he plans to impose tariffs on auto imports beginning on April 2, 2025. He said on February 18 the rate on autos would be “in the neighborhood of 25 percent” while the rates on semiconductors and pharmaceuticals would be “25 percent and higher.” The authority to impose these tariffs has not been specified.
Copper: President Trump directed the Commerce Department on February 25, 2025, to begin a Section 232 national security investigation for copper imports; the findings of the report are due by November 22, 2025.
Semiconductors and Pharmaceuticals: President Trump said on January 27, 2025, he would announce new tariffs on computer chips, semiconductors, and pharmaceuticals. On February 18 he announced the rates on semiconductors and pharmaceuticals would be “25 percent and higher.” The authority to impose these tariffs has not been specified.

2025 Trump Tariffs: Economic Effects

President Trump has imposed and threatened a variety of tariffs. We model the following policies:

A 20 percent tariff on all imports from China and ending de minimis treatment of all imports from China.
A 25 percent tariff on all imports from Mexico.
A 25 percent tariff on all imports from Canada (excluding energy resources under HTS codes 2709, 2710, 2711, and 2716, which face a 10 percent tariff).
A 25 percent tariff on all imports from the European Union.
Expansions to the Section 232 steel and aluminum tariffs


Ending the country exemptions for the existing steel and steel derivatives tariffs, which increases imports subject to the tariffs from $5.5 billion to $34.6 billion (excluding interactions with tariff rate quotas)
Ending the country exemptions for the existing aluminum and aluminum derivatives tariffs, which increases imports subject to the tariffs from $6.1 billion to $18.5 billion (excluding interactions with tariff rate quotas)
Increasing the tariff rate on aluminum and aluminum derivatives from 10 percent to 25 percent
Expanding the steel and aluminum derivatives list to other steel and aluminum derivative articles, which increases steel imports subject to tariffs by $38.1 billion and aluminum imports by $6.2 billion
Excluding the expanded articles outside chapters 73 and 76 (Note: We exclude due to lack of data on the steel and aluminum content of these products. The excluded imports totaled $99.8 billion in 2023; however, the tariffs would not apply to the full import value. For example, the tariffs would apply to the metals content of tennis rackets, fishing reels, and some types of furniture.)




A 25 percent tariff on autos, which we illustrate by applying the tariff to imports of motor vehicles and motor vehicle parts under HTS codes 8703 (valued at $224.4 billion in 2024) and 8708 (including, where possible, parts related to 8703 only, valued at $61.8 billion in 2024).
Tax Foundation will model additional tariff proposals when more details become available.

We estimate that before accounting for any foreign retaliation, the tariffs on Canada, Mexico, China, and motor vehicles would each reduce US economic output by 0.1 percent; the tariffs on the European Union would reduce US economic output by 0.2 percent; and the expansion of the steel and aluminum tariffs would reduce US economic output by less than 0.05 percent.

China has announced it will impose retaliatory tariffs on about $13.9 billion worth of US exports effective February 10. Certain US exports of coal and liquefied natural gas (totaling $3.2 billion in 2024) will face a 15 percent tariff, while exports of oil, agricultural machinery, and large motor vehicles (totaling $10.7 billion in 2024) will face a 10 percent tariff. Because the retaliatory tariffs are currently limited, we do not model their macroeconomic or revenue effects.

If imposed on a permanent basis, the tariffs would increase tax revenue for the federal government. We have modeled each tariff in isolation; however, if tariffs are imposed together, and tariff rates stack on top of existing tariffs, the revenue raised would be lower as imports would fall by a greater amount. Revenue is lower on a dynamic basis, a reflection of the negative effect tariffs have on US economic output, which reduces incomes and resulting tax revenues. Revenue would fall more if foreign countries retaliated, as retaliation would cause US output and incomes to shrink further.

We estimate the following 10-year conventional and dynamic revenue effects:

China Tariffs: $373.8 billion conventional, $323.1 billion dynamic
Canada Tariffs: $470.6 billion conventional, $406.6 billion dynamic
Mexico Tariffs: $662.6 billion conventional, $572.4 billion dynamic
European Union Tariffs: $786.3 billion conventional, $679.2 billion dynamic
Expanded Steel and Aluminum Tariffs: $123.9 billion conventional, $123.5 billion dynamic
Motor Vehicle and Parts Tariffs: $404.7 billion conventional, $349.8 billion dynamic

To estimate ending de minimis treatment, we rely on Congressional Research Service (CRS) estimates that de minimis imports from China totaled nearly $45 billion in fiscal year 2021. We use CRS data to construct a baseline of de minimis imports from China and assume that most de minimis imports would face the existing Section 301 tariff rate of 7.5 percent. We assume a higher elasticity for ending de minimis (-1.5) than we do for our broader tariff modeling.

Altogether, the tariffs would reduce after-tax incomes by an average of 1.7 percent in 2026. Factoring in how incomes would shrink further on a dynamic basis as tariffs reduce US economic output, we estimate after-tax incomes would fall by 2.2 percent.

We estimate the average tariff rate on all imports would rise from its baseline level of 2.5 percent in 2024 to 13.8 percent if all the tariffs President Trump has proposed as of February 27, 2025, were imposed. The average tariff rate on all imports under Trump’s proposed tariffs would be the highest since 1939.

2024 Campaign Proposals

Tariffs featured heavily in the 2024 presidential campaign as candidate Trump proposed a new 10 percent to 20 percent universal tariff on all imports, a 60 percent tariff on all imports from China, higher tariffs on EVs from China or across the board, 25 percent tariffs on Canada and Mexico, and 10 percent tariffs on China.

We estimate Trump’s proposed 20 percent universal tariffs and an additional 50 percent tariff on China to reach 60 percent would reduce long-run economic output by 1.3 percent before any foreign retaliation. They would increase federal tax revenues by $3.8 trillion ($3.1 trillion on a dynamic basis before retaliation) from 2025 through 2034.

2018-2019 Trade War: Economic Effects of Imposed and Retaliatory Tariffs

Using the Tax Foundation’s General Equilibrium Model, we estimate the Trump-Biden Section 301 and Section 232 tariffs will reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and hours worked by 142,000 full-time equivalent jobs. The reason tariffs have no impact on pre-tax wages in our estimates is that, in the long run, the capital stock shrinks in proportion to the reduction in hours worked, so that the capital-to-labor ratio, and thus the level of wages, remains unchanged. Removing the tariffs would boost GDP and employment, as Tax Foundation estimates have shown for the Section 232 steel and aluminum tariffs.

We estimate the retaliatory tariffs stemming from Section 232 and Section 301 actions total approximately $13.2 billion in tariff revenues. Retaliatory tariffs are imposed by foreign governments on their country’s importers. While they are not direct taxes on US exports, they raise the after-tax price of US goods in foreign jurisdictions, making them less competitively priced in foreign markets. We estimate the retaliatory tariffs will reduce US GDP and the capital stock by less than 0.05 percent and reduce full-time employment by 27,000 full-time equivalent jobs. Unlike the tariffs imposed by the United States, which raise federal revenue, tariffs imposed by foreign jurisdictions raise no revenue for the US but result in lower US output.

Tariff Revenue Collections Under the Trump-Biden Tariffs

As of the end of 2024, the trade war tariffs have generated more than $264 billion of higher customs duties collected for the US government from US importers. Of that total, $89 billion, or about 34 percent, was collected during the Trump administration, while the remaining $175 billion, or about 64 percent, was collected during the Biden administration.

Before accounting for behavioral effects, the $79 billion in higher tariffs amount to an average annual tax increase on US households of $625. Based on actual revenue collections data, trade war tariffs have directly increased tax collections by $200 to $300 annually per US household, on average. The actual cost to households is higher than both the $600 estimate before behavioral effects and the $200 to $300 after, because neither accounts for lower incomes as tariffs shrink output, nor the loss in consumer choice as people switch to alternatives that do not face tariffs.

Historical Evidence: Tariffs Raise Prices and Reduce Economic Growth

Economists generally agree free trade increases the level of economic output and income, while conversely, trade barriers reduce economic output and income. Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for US businesses and consumers, resulting in lower income, reduced employment, and lower economic output.

Tariffs could reduce US output through a few channels. One possibility is a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labor and capital income. Because higher prices would reduce the return to labor and capital, they would incentivize Americans to work and invest less, leading to lower output.

Alternatively, the US dollar may appreciate in response to tariffs, offsetting the potential price increase for US consumers. The more valuable dollar, however, would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters. This would also result in lower US output and incomes for both workers and owners of capital, reducing incentives for work and investment and leading to a smaller economy.

Many economists have evaluated the consequences of the trade war tariffs on the American economy, with results suggesting the tariffs have raised prices and lowered economic output and employment since the start of the trade war in 2018.

A February 2018 analysis by economists Kadee Russ and Lydia Cox found that steel‐​consuming jobs outnumber steel‐​producing jobs 80 to 1, indicating greater job losses from steel tariffs than job gains.
A March 2018 Chicago Booth survey of 43 economic experts revealed that 0 percent thought a US tariff on steel and aluminum would improve Americans’ welfare.
An August 2018 analysis from economists at the Federal Reserve Bank of New York warned the Trump administration’s intent to use tariffs to narrow the trade deficit would reduce imports and US exports, resulting in little to no change in the trade deficit.
A March 2019 National Bureau of Economic Research study conducted by Pablo D. Fajgelbaum and others found that the trade war tariffs did not lower the before-duties import prices of Chinese goods, resulting in US importers taking on the entire burden of import duties in the form of higher after-duty prices.
An April 2019 University of Chicago study conducted by Aaron Flaaen, Ali Hortacsu, and Felix Tintelnot found that after the Trump administration imposed tariffs on washing machines, washer prices increased by $86 per unit and dryer prices increased by $92 per unit, due to package deals, ultimately resulting in an aggregate increase in consumer costs of over $1.5 billion.
An April 2019 research publication from the International Monetary Fund used a range of general equilibrium models to estimate the effects of a 25 percent increase in tariffs on all trade between China and the US, and each model estimated that the higher tariffs would bring both countries significant economic losses.
An October 2019 study by Alberto Cavallo and coauthors found tariffs on imports from China were almost fully passed through to US import prices but only partially to retail consumers, implying some businesses absorbed the higher tariffs, reducing retail margins, instead of passing them on to retail consumers.
In December 2019, Federal Reserve economists Aaron Flaaen and Justin Pierce found a net decrease in manufacturing employment due to the tariffs, suggesting that the benefit of increased production in protected industries was outweighed by the consequences of rising input costs and retaliatory tariffs.
A February 2020 paper from economists Kyle Handley, Fariha Kamal, and Ryan Monarch estimated the 2018–2019 import tariffs were equivalent to a 2 percent tariff on all US exports.
A December 2021 review of the data and methods used to estimate the trade war effects through 2021, by Pablo Fajgelbaum and Amit Khandelwal, concluded that “US consumers of imported goods have borne the brunt of the tariffs through higher prices, and that the trade war has lowered aggregate real income in both the US and China, although not by large magnitudes relative to GDP.”
A January 2022 study from the US Department of Agriculture estimated the direct export losses from the retaliatory tariffs totaled $27 billion from 2018 through the end of 2019.
A May 2023 United States International Trade Commission report from Peter Herman and others found evidence for near complete pass-through of the steel, aluminum, and Chinese tariffs to US prices. It also found an estimated $2.8 billion production increase in industries protected by the steel and aluminum tariffs was met with a $3.4 billion production decrease in downstream industries affected by higher input prices.
A January 2024 International Monetary Fund paper found that unexpected tariff shocks tend to reduce imports more than exports, leading to slight decreases in the trade deficit at the expense of persistent gross domestic product losses—for example, the study estimates reversing the 2018–2019 tariffs would increase US output by 4 percent over three years.
A January 2024 study by David Autor and others concludes that the 2018–2019 tariffs failed to provide economic help to the heartland: import tariffs had “neither a sizable nor significant effect on US employment in regions with newly‐​protected sectors” and foreign retaliation “by contrast had clear negative employment impacts, particularly in agriculture.”

2018-2019 Trade War Timeline

The Trump administration imposed several rounds of tariffs on steel, aluminum, washing machines, solar panels, and goods from China, affecting more than $380 billion worth of trade at the time of implementation and amounting to a tax increase of nearly $80 billion. The Biden administration maintained most tariffs, except for the suspension of certain tariffs on imports from the European Union, the replacement of tariffs with tariff-rate quotas (TRQs) on steel and aluminum from the European Union and United Kingdom and imports of steel from Japan, and the expiration of the tariffs on washing machines after a two-year extension. In May 2024, the Biden administration announced additional tariffs on $18 billion of Chinese goods for a tax increase of $3.6 billion.

Altogether, the trade war policies currently in place add up to $79 billion in tariffs based on trade levels at the time of tariff implementation. Note the total revenue generated will be less than our static estimate because tariffs reduce the volume of imports and are subject to evasion and avoidance (which directly lowers tariff revenues) and they reduce real income (which lowers other tax revenues).

Section 232, Steel and Aluminum

In March 2018, President Trump announced the administration would impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. The value of imported steel totaled $29.4 billion, and the value of imported aluminum totaled $17.6 billion in 2018. Based on 2018 levels, the steel tariffs would have amounted to $9 billion and the aluminum tariffs to $1.8 billion. Several countries, however, have been excluded from the tariffs.

In early 2018, the US reached agreements to permanently exclude Australia from steel and aluminum tariffs, use quotas for steel imports from Brazil and South Korea, and use quotas for steel and aluminum imports from Argentina.

In May 2019, President Trump announced that the US was lifting tariffs on steel and aluminum from Canada and Mexico.

In 2020, President Trump expanded the scope of steel and aluminum tariffs to cover certain derivative products, totaling approximately $0.8 billion based on 2018 import levels.

In August 2020, President Trump announced that the US was reimposing tariffs on aluminum imports from Canada. The US imported approximately $2.5 billion worth of non-alloyed unwrought aluminum, resulting in a $0.25 billion tax increase. About a month later, the US eliminated the 10 percent tariff on Canadian aluminum that had just been reimposed.

In 2021 and 2022, the Biden administration reached deals to replace certain steel and aluminum tariffs with tariff rate quota systems, whereby certain levels of imports will not face tariffs, but imports above the thresholds will. TRQs for the European Union took effect on January 1, 2022; TRQs for Japantook effect on April 1, 2022; and TRQs for the UK took effect on June 1, 2022. Though the agreements on steel and aluminum tariffs will reduce the cost of tariffs paid by some US businesses, a quota system similarly leads to higher prices, and further, retaining tariffs at the margin continues the negative economic impact of the previous tariff policy.

Tariffs on steel, aluminum, and derivative goods currently account for $2.7 billion of the $79 billion in tariffs, based on initial import values. Current retaliation against Section 232 steel and aluminum tariffs targets more than $6 billion worth of American products for an estimated total tax of approximately $1.6 billion.

Section 301, Chinese Products

Under the Trump administration, the United States Trade Representative began an investigation of China in August 2017, which culminated in a March 2018 report that found China was conducting unfair trade practices.

In March 2018, President Trump announced tariffs on up to $60 billion of imports from China. The administration soon published a list of about $50 billion worth of Chinese products to be subject to a new 25 percent tariff. The first tariffs began July 6, 2018, on $34 billion worth of Chinese imports, while tariffs on the remaining $16 billion went into effect August 23, 2018. These tariffs amount to a $12.5 billion tax increase.

In September 2018, the Trump administration imposed another round of Section 301 tariffs—10 percent on $200 billion worth of goods from China, amounting to a $20 billion tax increase.

In May 2019, the 10 percent tariffs increased to 25 percent, amounting to a $30 billion increase. That increase had been scheduled to take effect beginning in January 2019, but was delayed.

In August 2019, the Trump administration announced plans to impose a 10 percent tariff on approximately $300 billion worth of additional Chinese goods beginning on September 1, 2019, but soon followed with an announcement of schedule changes and certain exemptions.

In August 2019, the Trump administration decided that 4a tariffs would be 15 percent rather than the previously announced 10 percent, a $5.6 billion tax increase.

In September 2019, the Trump administration imposed “List 4a,” a 15 percent tariff on $112 billion of imports, an $11 billion tax increase. They announced plans for tariffs on the remaining $160 billion to take effect on December 15, 2019.

In December 2019, the administration reached a “Phase One” trade deal with China and agreed to postpone indefinitely the stage 4b tariffs of 15 percent on approximately $160 billion worth of goods that were scheduled to take effect December 15 and to reduce the stage 4a tariffs from 15 percent to 7.5 percent in January 2020, reducing tariff revenues by $8.4 billion.

In May 2024, the Biden administration published its required statutory review of the Section 301 tariffs, deciding to retain them and impose higher rates on $18 billion worth of goods. The new tariff rates range from 25 to 100 percent on semiconductors, steel and aluminum products, electric vehicles, batteries and battery parts, natural raphite and other critical materials, medical goods, magnets, cranes, and solar cells. Some of the tariff increases go into effect immediately, while others are scheduled for 2025 or 2026. Based on 2023 import values, the increases will add $3.6 billion in new taxes.

Section 301 tariffs on China currently account for $77 billion of the $79 billion in tariffs, based on initial import values. China has responded to the United States’ Section 301 tariffs with several rounds of tariffs on more than $106 billion worth of US goods, for an estimated tax of nearly $11.6 billion.

WTO Dispute, European Union

In October 2019, the United States won a nearly 15-year-long World Trade Organization (WTO) dispute against the European Union. The WTO ruling authorized the United States to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. Beginning October 18, 2019, tariffs of 10 percent were to be applied on aircraft and 25 percent on agricultural and other products.

In summer 2021, the Biden administration reached an agreement to suspend the tariffs on the European Union for five years.

Section 201, Solar Panels and Washing Machines

In January 2018, the Trump administration announced it would begin imposing tariffs on washing machine imports for three years and solar cell and module imports for four years as the result of a Section 201 investigation.

In 2021, the Trump administration extended the washing machine tariffs for two years through February 2023, and they have now expired.

In 2022, the Biden administration extended the solar panel tariffs for four years, though later provided temporary two-year exemptions for imports from four Southeast Asian nations beginning in 2022, which account for a significant share of solar panel imports.

In 2024, the Biden administration removed separate exemptions for bifacial solar panels from the Section 201 tariffs. Additionally, the temporary two-year exemptions expired and the Biden administration is further investigating solar panel imports from the four Southeast Asian nations for additional tariffs.

We estimate the solar cell and module tariffs amounted to a $0.2 billion tax increase based on 2018 import values and quantities, while the washing machine tariffs amounted to a $0.4 billion tax increase based on 2018 import values and quantities.

We exclude the tariffs from our tariff totals given the broad exemptions and small magnitudes.

Trade Volumes Since Tariffs Were Imposed

Since the tariffs were imposed, imports of affected goods have fallen, even before the onset of the COVID-19 pandemic. Some of the biggest drops are the result of decreased trade with China, as affected imports decreased significantly after the tariffs and still remain below their pre-trade war levels. Even though trade with China fell after the imposition of tariffs, it did not fundamentally alter the overall balance of trade, as the reduction in trade with China was diverted to increased trade with other countries.

To read the full research article as it appears on the Tax Foundation website, click here.

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2025 Trade Policy Agenda and 2024 Annual Report of the President of the United States on the Trade Agreements Program

A Trade Policy for the Next Great American Century

The United States of America is the most extraordinary nation the world has ever known. From the very beginning, and even more so as it unfolded across the entire continent, the United States was populated with people of immense talent, drive, and grit. In the previous century it saved the entire world, dispatching three rounds of adversaries by winning two world wars and defeating Communism. It put an American on the moon.

The United States accomplished those feats because it was a tremendous industrial power fueled by innovation and blessed with abundant agricultural and energy resources. Indeed, the very success of the American way of life—its freedom and its prosperity—is supported by two things: a robust middle class earning high wages and a strong national defense. These are, in turn, created by a combination of innovation that fuels productivity growth, domestic work and investment in industry, and the day-to-day choices of individual Americans.

Today, the upward mobility offered by the manufacturing sector is not widely available to the working class, much of our industrial might has moved overseas, and innovation has begun to follow. Manufacturing jobs in the United States declined from 17 million in 1993 to 12 million in 2016.1 Over 100,000 factories closed between 1997 and 2016. 2,3 And the U.S. goods trade deficit has soared to over a trillion dollars.4 These trends are the product of a withering, decades-long assault by globalist elites who have pursued policies—including trade policies—with the aim of enriching themselves at the expense of the working people of the United States. As a result, the middle class has atrophied, and our national security is at the mercy of fragile international supply chains.

President Trump alone recognized the role that trade policy has played in creating these challenges and how trade policy can fix them. Since he first took the oath of office in 2017, President Trump has reshaped the trade policy landscape to prioritize the national interest. He has built a new consensus that tariffs are a legitimate tool of public policy. He has demonstrated the imperative for tough trade enforcement against countries who think they can take advantage of the United States and get away with it. He has shown that the United States has leverage and can negotiate aggressively to open markets for Made in America exports, particularly for agricultural exports. He has proven that a robust and realist trade policy can create jobs, promote innovation, strengthen the national defense, raise wages, support farmers, and foster the manufacturing renaissance that many elites long thought was impossible for the United States to achieve.

Toward a Production Economy

To reach these objectives, the United States must have an economy focused on production. For much of our history, the American way of life was defined by creating, inventing, building, growing, and producing. Americans are more than just what they consume. And the United States is more than an economy that merely moves money around—it is a nation of intertwined communities, oriented around the production of manufactured goods, agricultural products, services, and knowledge. Ensuring that trade policy favors a Production Economy will help the President Make America Great Again.

Why? It’s simple:

A Production Economy is a high-wage economy. Manufacturing jobs have a wage premium of roughly 10 percent. However, as the United States deindustrialized, that wage premium declined for manufacturing workers in core production jobs. Using trade policy to increase the number of manufacturing jobs in our country – and the share of manufacturing contributing to gross domestic product – will help raise wages and return our country to one with a more vibrant and secure middle class.

A Production Economy creates jobs for all. Trade policy does not need to pit workers or sectors against each other. This is because manufacturing is a sector known for positive spillovers, including in the service sector, that benefit the economy overall. One study found that for every additional manufacturing job created in a community, 1.6 jobs were created in other sectors.6 And agriculture-related jobs—work that produces the sustenance vital for human life—comprise about 10.4 percent of total U.S. employment.

A Production Economy is a boon for innovation. Between 2003 and 2017, research and development (R&D) expenditures in China by U.S. multinationals grew at an average rate of 13.6 percent per year, while R&D investment by U.S. multinationals in the United States grew by an average of just 5 percent per year. Deploying trade policy tools to create incentives to reshore manufacturing will reverse this troubling trend and promote U.S. technological dominance.

A Production Economy is a vital component of our national defense. The United States was able to win World War II because of our industrial might, but our manufacturing base has atrophied. Although the United States produced less than 14,000 aircraft in the two decades prior to World War II, it produced 96,000 planes annually by 1944.9 By comparison, today the United States can only produce each month about a third of the 360,000 artillery rounds the military says it needs to deter our adversaries. Trade policy can help strengthen our defense industrial base.

Changing this alarming trajectory requires a trade policy that is strategically coordinated to achieve three things: an increase in the manufacturing sector’s share of gross domestic product; an increase in real median household income; and a decrease in the size of the trade in goods deficit.

An America First Trade Policy

On January 20, 2025, President Trump signed the Presidential Memorandum “America First Trade Policy” laying out a plan to accomplish the transformational change necessary to reverse our country’s economic decline. The Presidential Memorandum instructs USTR and other agencies to undertake rapid, unprecedented work to put America First on trade.

Right away, the Presidential Memorandum strikes at the threat posed by the trade deficit by directing USTR and other agencies to “investigate the causes of our country’s large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits.” By reversing the flow of American wealth to foreign countries in the form of the trade deficit, the United States can reclaim its technological, economic, and military edge.

The Presidential Memorandum further instructs the USTR to review our country’s economic relationship with all nations in order to identify their unfair trade practices, including where trading partners engage in non-reciprocal trade with the United States. By identifying, and acting against, such unfair and non-reciprocal practices, the United States can use its leverage to open new markets for U.S. exports and re-shore the production that has been lost.

USTR has been empowered to chart a new course for any trade agreements to ensure they help raise wages and grow our industrial base. USTR will review existing trade agreements to guarantee that those agreements operate in the national interest. For instance, third countries should not be permitted to free ride on our trade agreements with other trading partners. Alongside this review, USTR will commence the statutorily required public consultation process of the United States-Mexico-Canada Agreement (USMCA) in order to “assess the impact of the USMCA on American workers, farmers, ranchers, service providers, and other businesses” in preparation for the mandated review of the agreement in July 2026. USTR will also identify opportunities for bilateral or sector-specific plurilateral agreements that might be negotiated to open new market access for U.S. exports and reorient the trading system to promote U.S. competitiveness.

The Presidential Memorandum also addresses U.S. trade relations with the People’s Republic of China, the single biggest source of our country’s large and persistent trade deficit and a unique economic challenge. In his first term, President Trump negotiated a historic and enforceable Economic and Trade Agreement Between the Government of the United States of America and the Government of the People’s Republic of China (also known as the Phase One Agreement). However, there has been no action taken to enforce the agreement where China has not lived up to its commitments. USTR will assess China’s compliance with the Phase One Agreement.

The Phase One Agreement grew out of USTR’s investigation under Section 301 of the Trade Act of 1974 into China’s acts policies, and practices related to technology transfer, intellectual property (IP), and innovation. Yet, technology and IP-intensive sectors are hardly the only ones that are threatened by China’s non-market behavior. USTR will look broadly at the bilateral relationship to identify, and respond to, additional unfair practices.

President Trump’s interest in addressing challenges in the relationship with China complements significant interest by the U.S. Congress on the topic. Pursuant to the Presidential Memorandum, USTR will assess the recent legislative proposals related to China’s Permanent Normal Trade Relation (PNTR) status and “make recommendations regarding any proposed changes to such legislative proposals.”

Taken together, these workstreams signal a national commitment to continuing the America First approach to trade developed in President Trump’s first term of office. By taking a strategic, yet vigorous, approach, the United States can finally address the structural challenges distorting the global trading system in ways that undermine U.S. competitiveness and course-correct for the short-sighted trade policy mistakes of the past.

Building on Past Success

To summarize: over the last several decades, the United States gave away its leverage by allowing free access to its valuable market without obtaining fair treatment in return. This cost our country an important share of its industrial base and thereby its middle class and national security. Although many sectors benefitted from trade, it was at too high a price—for example, despite its comparative advantage in agricultural production, the United States has even incurred a worrying trade deficit in agriculture over the past two years.

Going forward, the United States will take action to create the leverage needed to rebalance our trading relations and to re-shore production, including, but not limited to, through the use of tariffs. This will raise wages and promote a strong national defense.

Importantly, this America First Trade Policy builds upon President Trump’s accomplishments from his first term.

•  Though promised by Presidents past, but never accomplished until his first Administration, President Trump successfully renegotiated NAFTA. Its replacement, the USMCA, contains historic provisions to re-shore manufacturing (especially in the auto sector, which had been decimated by NAFTA), the strongest labor and environment provisions in any trade agreement, new market access for U.S. agricultural products, and high-standard digital trade rules.

•  Under his leadership, the United States entered into two important agreements with Japan, opening new access for U.S. agricultural products and securing USMCA-style digital trade rules.

•  The United States also engaged extensively at the WTO, calling attention to and defending U.S. rights to take action against non-market policies and practices and reclaiming American sovereignty from unaccountable foreign bureaucrats.

•  The United States responded assertively to China’s unfair trading practices, negotiating the Phase One Agreement to protect U.S. firms against China’s forced technology transfer and IP theft and imposing significant bilateral tariffs at the same time.

These past successes on trade demonstrates the wisdom and efficacy of President Trump’s America First approach.

First, the proof is in the pocketbook: In 2001, the year China joined the WTO, real median household income in the United States (measured in 2023 dollars) was $70,020. In 2016, the comparable figure was $73,520—real median household incomes had grown only 5 percent in sixteen years.11 That’s an annual average growth rate of 0.3 percent. Then, from 2016 to 2019, the last year before the U.S. economy was disrupted by COVID-19, real median household incomes had grown to $78,250—an increase of 10.5 percent over the course of only three years.12 That’s an average annual growth rate of 3.4 percent, over ten times the annual average growth rate that prevailed from 2000 to 2016. By putting America First on trade, President Trump restarted our Production Economy in a single term; something prior Presidents failed to do for a generation. Further proof is in our newfound national security strength resulting from President Trump’s first term. An America First posture, complemented by new investments in our industrial base, showed that the United States is still a superpower. President Trump’s first term peace dividend brought benefits not only to Americans, but also to the rest of the world.

Lastly, one of the most satisfying pieces of evidence for the America First approach is its bipartisan credibility: all of President Trump’s first term trade accomplishments were retained by the next administration and, in some cases, even expanded upon.

President Trump’s ability to deliver for all Americans while forging a new consensus on trade validates his inaugural pledge: the trade challenges facing our country will “be annihilated” because “from this moment on, America’s decline is over.”

2025 Trade Policy Agenda WTO at 30 and 2024 Annual Report 02282025 -- FINAL

To read the complete report as it was published by the United States Trade Representative click here.

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USTR Seeks Comment from the Public on Unfair and Non-Reciprocal Foreign Trade Practices

Washington – The Office of the United States Trade Representative is inviting comments from the public as part of its work pursuant to the America First Trade Policy Presidential Memorandum and the Reciprocal Trade and Tariffs Presidential Memorandum. These comments will assist the U.S. Trade Representative in reviewing and identifying any unfair trade or non-reciprocal foreign trade practices.

The deadline for submission of comments is March 11, 2025

Comments in response to this notice can be submitted or accessed here or, for alternatives to online submissions, please contact Catherine Gibson, Deputy Assistant USTR for Monitoring and Enforcement at 202.395.5725.

To view the Federal Register Notice, click here.

USTRAFRecipPMsFRN_PDF (1)

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