William Krist's Blog, page 6

Adapting Trade Policy for Supply Chain Resilience: Responding to Today’s Global Economic Challenges

Foreword

Four years ago, the Covid-19 pandemic and attendant disruptions to global trade revealed the terrifying and destructive effects of fragility in our supply chains. These networks of workers and businesses both at home and abroad supplied the U.S. market with goods ranging from semiconductors and medical supplies to many other consumer and industrial goods. Before the pandemic, “just in time” sourcing from “global value chains” was the governing principle, and concern over how or where goods were made and whether their manufacture harbored latent risks and vulnerabilities was not widespread. But faced with sudden shortages, production delays, and price spikes – taking the hardest toll on those with the least – “just in time” has given way to “just in case.”

The architecture of many supply chains, however, had been taking shape for decades. Their fragility had in part been enabled by a trade and investment policy that prioritized short-term cost-efficiency, profit maximization, and shareholder returns. This approach helped shape investors’ and producers’ decision-making processes that, in many cases, fostered geographical concentration, operational complexity, and bottlenecks, which in turn heightened the risk of volatility, harms to competition, and inflationary dynamics – all of which have been felt in the United States and around the world.

The Biden-Harris Administration has forged new approaches to advancing supply chain resilience across the government. Here at the Office of the United States Trade Representative (USTR), this work has been carried out through trade negotiations, enforcement actions, and other policy initiatives. As we have understood existing trade incentives, rules, and biases to form a fundamental part of what led the world to the brink with brittle supply chain networks, we are confident that new and different trade policies and approaches can and must be a part of the solution.

As we navigate new territory, we have sought to use a “building blocks” approach as we craft, in real time, a version of globalization that is organized according to a new set of principles – ones that are more responsive to the needs of people and planet and to the painful lessons we have learned these past few years. Over time, it became clear that in support of this approach, we needed to provide our stakeholders and partners with a dedicated process to share their input and learnings derived from navigating recent unprecedented supply chain disruptions. As it turns out, no one can do trade, much less change the way trade is done, alone.

Accordingly, early last year, my team and I initiated a stakeholder engagement process to formulate and articulate a more holistic approach to promoting supply chain resilience using trade tools and policies. In March 2024, USTR requested public comment through a Federal Register notice. In outlining a new trade policy vision, the notice explained that resilient supply chains provide a range of sourcing options; adapt, rebound, and recover with agility following shocks; uphold labor rights and environmental protections; strengthen the U.S. manufacturing base and workforce; and mitigate risks of price spikes and volatility that contribute to inflationary dynamics. USTR staff heard testimony at four public hearings from 84 witnesses and received nearly 300 written submissions from a wide range of stakeholders, including labor unions and labor rights non-governmental organizations (NGOs), think tanks, environmental NGOs, companies small, medium, and large, and trade associations, as well as foreign governments. 

The enclosed policy paper series “Adapting Trade Policy for Supply Chain Resilience: Responding to Today’s Global Economic Challenges” marks the culmination of this public engagement effort by distilling our progress in strengthening supply chains and outlining new approaches and strategies covering the following topics:

“Reshaping the Global Trade Paradigm” (Policy Paper No. 1) explores four distinct but complementary dimensions of resilience—sustainability, security, diversity, and transparency—by synthesizing stakeholder views and relevant literature, reviews USTR actions that have advanced supply chain resilience, and builds a conceptual foundation for exploring new tools and approaches.
“Sustaining Resilient Textile and Apparel Supply Chains” (Policy Paper No. 2) provides an overview of the domestic textile and apparel industries and related U.S. trade agreement provisions, examines the challenges confronting the sector, identifies areas for further discussion and analysis, and presents trade policy approaches to support more resilient textile and apparel supply chains.
“Harnessing Rules of Origin for Resilience” (Policy Paper No. 3) examines both preferential and non-preferential rules of origin, discusses emerging stakeholder concerns about their vulnerabilities, and outlines new policy approaches and areas for further analysis.
“Countering Non-Market Policies and Practices to Strengthen Supply Chain Resilience” (Policy Paper No. 4) describes the challenges that non-market policies and practices (NMPPs) present to healthy markets and competition, explains how certain actors use NMPPs to undermine supply chain resilience, and outlines approaches to addressing NMPPs and their effects on supply chains.
“Improving Data and Analytical Tools to Promote Supply Chain Resilience” (Policy Paper No. 5) highlights recent studies and analyses of supply chain sustainability, security, diversity, and transparency; examines data and analytical challenges in measuring and assessing supply chain resilience; reviews U.S. government supply chain-related data gathering efforts; and outlines new approaches and implications for harnessing existing and new data and analytics resources to address limitations.
“Strengthening Supply Chain Resilience through Sectoral Trade Agreements” (Policy Paper No. 6) discusses how a new model of formal trade agreements targeting specific sectors or industries, establishing enforceable disciplines, and encompassing like-minded partners across the supply chain could provide a broad and meaningful framework for achieving the principles and objectives of supply chain resilience.

Of course, much more remains to be done to realize the goal of improving supply chain resilience. Each policy paper outlines new policy tools and approaches that merit further study and collaboration between USTR and interagency partners, stakeholders, Congress, and like-minded trading partners. Beyond the issues taken up in the policy papers, there are opportunities to explore in greater depth how resilience objectives in these next years should inform new trade policy approaches to topics ranging from services and agriculture, to technology and regulation of the digital economy. And finally, new ideas must translate into impact; the hard work of meeting new supply chain challenges with concrete, innovative policy actions and tools will continue.

To advance supply chain resilience, we must and we will traverse new ground in trade and investment policy. The policy papers that follow remind us of where we have traveled, acknowledge the challenges that shape our journey today, and light our path ahead to better serving all Americans for generations to come.

Ambassador Katherine Tai,

United States Trade Representative,

January 2025

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To read the series of policy papers as published by the Office of the United States Trade Representative, click here.

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The Global Cooperation Barometer 2025 – Second Edition

As the world transitions from what had been a stable post-Cold War global order to a new, more unsettled and unpredictable period, political and geopolitical turbulence has the potential to degrade global cooperative efforts. But it does not need to. Amid mounting economic, environmental, technological and security challenges, constituencies may not be in favour of current methods but are looking for collaborative solutions to, rather than retreat from, these issues.

As a result, leaders will need to be adaptive and innovative within today’s more disordered context, identifying new ways to work with partners to deliver results. Progress will be especially important, not only because the patience of populations is wearing thin but because time is running out. As the world enters the latter half of the decade, there is limited time to meet the Sustainable Development Goals (SDGs), of which just 17% are currently on course.

This lack of progress comes as the past year was the hottest on record, the global economy faces weak growth prospects and global security is at a crisis point. Many of these challenges caused voters around the world to express a desire for a change to the status quo. Yet, despite strong voter backlash last year against sitting governments, there are signals that constituencies are looking to accelerate rather than derail solutions. For instance, a large share of the global population wants their respective country to do more when it comes to addressing climate change.

At the same time, advancements in frontier technologies are racing ahead faster than mechanisms can be developed to address their risks and share their benefits. Leaders – even those who may be market or geostrategic competitors – will need to work together to unlock the benefits of technology while placing appropriate safeguards around it.

The Global Cooperation Barometer 2025 uses 41 indicators to measure the current state of global cooperation. As with last year’s inaugural edition, the aim is to offer leaders a tool to better understand the contours of cooperation broadly and along five pillars: trade and capital flows, innovation and technology, climate and natural capital, health and wellness, and peace and security. In this way, leaders can identify what is working and what is not, and adjust course accordingly.

The barometer finds that after trending mostly positively for the better part of a decade, overall global cooperation is above pre-COVID-19 pandemic (hereafter referred to as “the pandemic”) levels but has flatlined over the past three years. A key reason for the stall has been the significant degradation in global peace and security, which has pulled the barometer’s overall measurement down. Still, the barometer shows that while cooperation may be slowing in some areas, there are also signs of growth.

Trade and capital: cooperation dropped slightly, driven mostly by reductions in goods trade in China and developing economies. These declines were partially offset by growing flows of capital, services and people.
Innovation and technology: digitization of the global economy continues to drive increased cooperation, but global fragmentation of frontier technologies could slow global productivity growth.
Climate and natural capital: cooperation continues to show strength, but it needs to improve much more and much faster if the world is to meet climate and natural capital goals.
Health and wellness: health outcomes like life expectancy continue to improve postpandemic, but cross-border development assistance for health is falling.
Peace and security: the world’s collective security system is under severe pressure from geopolitical tensions. Cooperation on this pillar deteriorated and pulled down the overall barometer. Increased conflicts and the high number of forcibly displaced people are prominent challenges.

Ultimately, as last year’s edition presented, the foundation of resilience, security and growth is cooperation. The question leaders must ask themselves, then, is not whether they should cooperate, but how.

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To read the insight report as it was published by World Economic Forum, click here.

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Top 10 Trade Trends for 2025

The focus of the global trade world is, rightly, on President-elect Donald Trump and his incoming U.S. administration debating and deciding how far Washington will go in enacting new import tariffs and sanctions. How high will the tariff wall go? Will the USMCA be renegotiated? Which industries will be exempted from the new protectionism? There are a lot of outstanding questions to be answered. But the world is bigger than the U.S. or any particular sector. There are, for instance, around 5,300 different codes in the harmonized tariff code system overseen by the Brussels-based World Customs Organization. In the mountain of import and export statistics catalogued by Trade Data Monitor, here are ten trends to watch for 2025:

1. Globalization Is Not Dead: The scale of global trade is such that, even if government adopts protectionist measures en masse, it’s unlikely to collapse. Total exports in 2024 are expected to be around $25 trillion. The logistics sector along is worth over $10 trillion. Global trade isn’t going anywhere. In October, the WTO said total trade in goods should increase by 2.7% in 2025, and by a few more percentage points if conflict in the Middle East is contained. In the first 10 months of 2024, the U.S., the world’s top import market, ramped up imports 5% to $2.7 trillion.

2. American Pie: As the world’s top consumer market, the U.S. has leverage in controlling access to its markets, and its outsourcing manufactures should easily find countries able to replace China and other targets for tariffs on more favorable terms. America’s top source of imports is now Mexico, followed by China and Canada. President Trump has threatened to impose hefty tariffs on all three countries. The next biggest exporters to the U.S. are Germany, Japan, South Korea, Vietnam, Taiwan, Ireland, and India. Ireland is an interesting case. It’s the U.S.’s top supplier of pharmaceuticals, shipping in $42.8 billion worth in the first 10 months of 2024. It’s hard to imagine Washington slapping tariffs on a product as politically sensitive as pharmaceuticals. In other words, there’ll still be pie to go around.

3. China Buying: An issue that could upend geopolitics — with unintended consequences that will affect big issues like war and peace, migration, and supply chains — just as much is what appears to be a crumbling in Chinese domestic demand. In a time of geopolitical shifting and adjustments, it’s one of the key factors to watch. In the first six months of 2024, according to TDM, China was the world’s second largest importer, shipping in $1.3 trillion worth of goods, behind only the U.S. at $1.6 trillion, and followed by Germany, the Netherlands, and the UK. (France, Japan, India, South Korea and Italy round out the top ten.) In November, total Chinese imports fell 3.9% to $214.9 billion from $223.6 billion a year ago. Almost certainly knowing these numbers were coming, Beijing on Monday said it would unroll an “appropriately loose” monetary policy in 2025.

4. Rich Asian Markets: Luckily, many of China’s neighbors have been on a newfound path to prosperity. The dream of an open and inviting Chinese market for Western businesses might have withered, but an overlooked sector of the global economy that cumulatively is just as impressive is other rich Asian markets. They’ve also benefited from globalization to expand their middle classes. Many of the fastest-growing import markets in the world are in Asia. Take Malaysia. In the first ten months of 2024, Malaysia increased imports 13.2% to $248.5 billion. Or Thailand, where imports increased 6.7% to $259.6 billion. And most of their trading partners are also in Asia. That’s why the WTO expects Asian export volumes to increase by as much as 7.4% in 2024. In Europe, by contrast, exports are expected to contract 1.4%., the WTO said.

5. German Engineering: Although Germany’s export economy has hit some headwinds, with exports slightly down in 2024, it’s still the globe’s dominant auto exporter. In the first three quarters of 2024, German auto exports increased 18.8% to $132.7 billion. Meanwhile, Japan’s car exports rose 10.2% to $77.8 billion, while China’s shipments nudged up 4.8% to $67.6 billion. In the electric car sector, two countries by far dominate global trade: Germany, with $29.1 billion, down 4.7% year-on-year, shipped out in the first nine months of 2024, and China, with $25.4 billion, up. 1.4%. That’s followed by South Korea, Mexico, Japan, and the U.S.

6. Chips Ahoy: There is less merchandise trade than there used to be, partly because there’s more service and digital trade. But you can’t have digital or service trade unless you have silicon chips. And chips trade is now the key strategic vector. The word’s top chip exporter is Taiwan, and China’s top supplier electronics and electrical parts such as chips is Taiwan, followed by South Korea, China, Japan, Vietnam and Malaysia. In the first 10 months of 2024, China imported $157.7 billion worth of electronics and parts from Taiwan, up 11.1% from the same period in 2023. The position of Taiwan as the center of global high-tech trade complicates its relationship with Beijing.

7. Russia’s meltdown: After the 2022 invasion, Russia cut off its trade statistics, but the TDM database allows us to reverse-engineer Russia trade statistics. And they show an economy that is struggling. In the first nine month of 2024, Russia’s imports fell 6.5% to $148.9 billion, according to TDM. Russia’s top suppliers were China, Kazakhstan, Turkey, Germany and India. China’s number one export to Russia was cars, worth $19.3 billion, up 17.7% year-on-year in the first nine months of 2024. In key consumer sectors such as electronics and footwear, Russian imports from China declined. Germany’s top export to Russia was pharmaceuticals, worth $1.8 billion.

8. Africa: The world’s poorest continent has been showing some bright spots. It’s among the fastest-growing regions in imports from China. Total exports from Kenya rose 14.6% to $6.9 billion in the first 10 months of 2024. The country’s top export markets were Uganda, UAE, the U.S., Pakistan and the Netherlands. Ethiopia’s shipped out $3 billion worth of goods, up 8.9% from the year before. Its chief destinations were Saudi Arabia, the Netherlands, U.S., Germany and the UAE.

9. Grain Markets: The world’s food supplies are at risk because of climate change, protectionism, and war. One country to watch will be Ukraine. Despite Russia’s 2022 invasion, it’s been holding steady as one of the world’s top grain exporters. It’s currently ranked 4th, behind only the U.S., Argentina and India. In the first 9 months of 2024, it exported $7.1 billion worth of cereals, up 10.6% over the same period in 2023. Its top markets were Spain, China, Egypt, Turkey and Italy. One country that could pick up the slack if Ukraine falters: Argentina. Its cereals export rose 19.5% to $8.6 billion in the first 9 months of 2024.

10. Energy Devolution: The rise of populist governments around the world is sure to deflate the move toward green energy products. Total imports of solar panels and related parts shrank 13.3% to $135.3 billion in the first 9 months of 2024. China is the world’s number one buyer, importing $19.9 billion, followed closely by the U.S., Germany, the Netherlands, and India.

Trade Data Monitor supplies governments, corporations, law firms and trade associations around the world with monthly trade statistics for over 120 countries. Visit tradedatamonitor.com for more information.

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The Future of Global Trade in a Multipolar World: Evaluating How Emerging Economic Powers and Shifting Alliances Are Reshaping Global Trade Patterns

The evolving landscape of global trade is undergoing a significant transformation as it shifts from a unipolar system dominated by the United States (U.S.) to a multipolar framework characterized by the emergence of new economic powers, particularly China, India, and Brazil. This transition is not just a mere change in economic dominance; it heralds a profound restructuring of trade patterns influenced by the establishment of strategic alliances such as BRICS+ and the Regional Comprehensive Economic Partnership (RCEP). As these nations assert their influence, the balance of power within the global trade ecosystem is being recalibrated, prompting a reevaluation of established norms and practices.

Concurrently, advancements in technology are playing a pivotal role in this transformation, with digital trade revolutionizing how goods and services are exchanged, fintech innovations streamlining financial transactions, and artificial intelligence (AI) optimizing supply chain management. However, this multipolar trade world does not come without its challenges; geopolitical tensions, rising protectionism, and the threat of economic fragmentation pose significant risks to the stability and predictability of international commerce. Nevertheless, this environment also presents unique opportunities for smaller economies to navigate and leverage the shifting dynamics to their advantage.

This paper aims to critically analyze these multifaceted changes, exploring how emerging economies and technological advancements are reshaping global trade patterns while addressing inherent challenges and identifying strategies for resilience and growth in a complex global economy. Through case studies and future scenarios, we seek to provide valuable insights for policymakers, businesses, and institutions aiming to thrive in this new era of global trade.

The Rise of Emerging Economic Powers in Global Trade

How are China, India, and Brazil influencing current trade patterns?

The influence of China, India, and Brazil on current trade patterns is multifaceted, reflecting both their growing economic capacities and strategic positioning within global economic frameworks. These nations have significantly impacted the World Trade Organization (WTO), challenging the established order and contributing to a breakdown of multilateralism within the organization. This shift is part of a broader power struggle, as these emerging economies increasingly contest the traditional dominance of the U.S. and other developed nations. As a result, international governance organizations have undergone changes to better represent and incorporate the interests of these major growing economies. Their rise is not only altering trade relations but is also contributing to the evolution of the global economy, as they demand a more equitable role in shaping trade rules and policies. The economic advancements of China and India, in particular, have been notable, with both countries experiencing above-average growth in industrial value added, which further underscores their increasing influence on global trade dynamics. This ongoing evolution necessitates strategic adjustments in international trade policies and practices as the balance of economic power continues to shift toward these emerging economies.

What role do alliances such as BRICS+ and RCEP play in this shift?

Alliances such as BRICS+ and RCEP are pivotal in redefining global trade dynamics, particularly in the context of the shifting power balance between emerging economies and traditional powers. BRICS+ serves as a framework that not only expands the set of alliances for member countries but also leverages existing trade or investment agreements to foster multilateral cooperation within an enlarged group, thereby enhancing global trade integration. By incorporating key regional integration blocks like MERCOSUR, SACU (South African Custom Union), and EEU (Eurasian Economic Union), BRICS+ forms a crucial “regional rim” of partnerships, facilitating a collaborative environment that strengthens the influence of member countries in global economic affairs.

Additionally, the BRICS+ initiative emphasizes inclusiveness and diversity, aiming to create alliances that are comprehensive and representative of major regions across the developing world, thus challenging existing hegemonies and contributing to a more balanced international trade order. These efforts underscore the potential of BRICS+ and RCEP not only to redefine trade patterns but also to establish a new global platform for economic integration, promoting a multipolar world that diminishes the dominance of traditional Western powers. As these alliances continue to evolve, they could play a crucial role in coordinating trade strategies and fostering cooperation frameworks that bridge the gap between developing and developed nations, thereby necessitating ongoing dialogue and collaboration to ensure equitable and sustainable growth. 

How is the balance of power changing in the global trade landscape?

The shifting balance of power in the global trade landscape can be seen in the dynamics within the WTO, where emerging powers have progressively altered the traditional power structures. The collapse of the Doha Round serves as a watershed event, marking a significant breakdown in the WTO’s core negotiating function and highlighting the transforming power dynamics at play. Emerging economies such as Brazil, India, and China have played pivotal roles in this transformation, effectively challenging the previously unchallenged dominance of developed countries like the U.S. and the European Union (EU). These emerging powers have consolidated their influence by forming strategic coalitions and alliances, such as the G20-T, G33, and G77+China, which have been instrumental in reshaping negotiation roles and countering the aggressive stances of traditional powers. The concerted effort by developing nations to assert their agendas underscores a new era of multipolarity in global trade, where power is more dispersed and no single entity can unilaterally dictate terms. This evolving landscape necessitates renewed strategies for cooperation and negotiation, reflecting a more inclusive and equitable balance of power in the global trade system.

The Role of Technology in Reshaping Global Supply Chains

In what ways is digital trade transforming international commerce?

Digital trade is fundamentally reshaping international commerce by introducing digital technology multinational enterprises (digital economy MNEs) that are actively transforming both the manufacturing and service sectors. These enterprises prioritize non-physical assets, such as data and intellectual property, over traditional physical assets, leading to a shift toward asset-light forms of international production. This shift is not only redefining the competitive strategies of businesses but also altering global value chains (GVCs) as technological advancements facilitate new forms of digital trade and disrupt traditional commercial practices.

The digitization associated with Industry 4.0 further influences this transformation by changing the nature of tasks performed by machines versus humans, which in turn affects the geographic distribution of production and the interactions among buyers and suppliers. As a result, the “lightness” attributed to digital economy MNEs might suggest a wider trend towards increased “lightness” across various industries, potentially influencing development outcomes across different regions. This ongoing transformation in digital trade underscores the need for regions to adapt by fostering technological capabilities and rethinking traditional economic models to harness the benefits of a rapidly digitizing global economy. 

How are fintech innovations impacting global trade operations?

Fintech innovations are playing a fundamental role in reshaping global trade operations, much like the economic rise of emerging markets is challenging traditional powers in the WTO. These innovations are not only altering the landscape of financial services but are also streamlining global trade processes. The fintech industry is striving to create a unified medium of exchange and comprehensive apps for global transactions, aiming to simplify and expedite trade operations worldwide. This transformation is particularly significant as it parallels the shifts in economic power dynamics seen with the modernization and market reforms in countries like China and India.

Additionally, fintech’s influence extends to optimizing supply chain finance (SCF), introducing new business models that improve operational performance and efficiency, which is crucial for maintaining competitiveness in a rapidly changing global market. As fintech continues to evolve, it presents both challenges and opportunities, necessitating strategic adaptations by global trade stakeholders to harness its full potential and maintain a competitive edge.

What influence is AI having on supply chain management?

In the complex framework of global supply chain management, AI emerges as a pivotal force in enhancing operational resilience and efficiency. The integration of AI into supply chains has been particularly influential in managing disruptions, a vital capability underscored by the recent challenges posed by the Covid-19 pandemic. AI not only bolsters supply chain resilience by improving visibility and transparency across various phases but also enhances readiness, response, recovery, and adaptability, thereby ensuring a robust continuity of operations. Furthermore, AI contributes significantly to optimizing sourcing and distribution capabilities, which are crucial for maintaining uninterrupted supply chain activities, especially in volatile market conditions.

This technological advancement aids firms in mitigating risks by providing real-time insights and facilitating agile decision-making processes, thus reducing the risk of disruptions. Ultimately, the strategic incorporation of AI within supply chains not only fortifies them against unforeseen disturbances but also fosters dynamic capabilities that are essential for long-term sustainability and growth. Such advancements highlight the need for continuous innovation and collaboration among supply chain networks to fully leverage AI’s potential, ensuring that businesses remain competitive and resilient in an ever-evolving global market.

Challenges and Opportunities in a Multipolar Trade World

How do geopolitical tensions affect global trade dynamics?

Geopolitical tensions have introduced significant complexity into global trade dynamics, with profound implications for multilateral trade policies and economic alliances. The EU, for instance, finds itself at a crossroads, grappling with the intricacies of formulating and implementing effective trade policies amid a backdrop of escalating geopolitical strains. The challenges faced by the EU in this regard are not merely superficial but are fundamental and potentially enduring, as these tensions continue to evolve and influence global trade landscapes. A critical aspect of addressing these challenges lies in maintaining unity within the EU’s trade policy framework, which acts as a shield against the destabilizing effects of geopolitical tensions. This need for cohesion is underscored by the shifting geopolitical landscape, where major powers such as China are asserting greater influence, thereby introducing new challenges and necessitating a reevaluation of existing multilateral trade agreements.

Additionally, the increasing trend towards unilateralism and protectionism, particularly by influential players like the U.S., further complicates the global trade environment, necessitating adaptive strategies to safeguard international trade and investment frameworks. To navigate these turbulent waters effectively, it is imperative that global trade policies evolve to enhance resilience and adaptability, ensuring that they are robust enough to withstand the multifaceted challenges posed by ongoing geopolitical tensions.

What strategies can smaller economies employ to thrive in this environment?

Considering the shifting global trade dynamics dominated by major players like China, India, and Brazil, smaller economies must adopt a multi-faceted strategy to ensure their survival and growth. A critical approach involves forming strategic partnerships and entering into trade agreements, which can enhance their market access and competitiveness on the global stage. These partnerships not only allow smaller economies to tap into larger markets but also help in diversifying their economic dependencies, thereby reducing vulnerability to external shocks. Concurrently, engaging in dialogue with larger economies and international organizations is imperative to clearly articulate their unique needs and challenges within the global trade context.

This dialogue can pave the way for technical assistance and capacity-building support, enabling smaller economies to better adapt to the rapidly changing trade environment. Furthermore, building coalitions and alliances is vital for amplifying their voices during negotiations, thereby gaining a stronger influence over trade policies that affect them. Such coalitions can act as a counterbalance to the dominance of larger economies, fostering a more equitable trading system. Ultimately, these strategies not only empower smaller economies to thrive in a competitive global market but also contribute to a more balanced and inclusive international trade regime.

How might protectionism and economic fragmentation impact future trade relationships?

The evolving landscape of global trade, marked by protectionism and economic fragmentation, poses significant challenges to future trade relationships. As globalization shows signs of retreat, there is an increased likelihood of protectionist measures reshaping international trade dynamics. This shift is not only influenced by economic considerations but is also deeply intertwined with geopolitical factors leading to economic disintegration. Such fragmentation could result in a transition from prioritizing efficiency in global value chains to ensuring their resilience, thus altering the structure and nature of future trade relationships. For instance, the slowing growth of international trade is likely to lead to more fragmented trade relationships, complicating global economic interactions, and making it more difficult to establish cohesive trade policies. Understanding these dynamics is crucial for anticipating and navigating the potential impacts of protectionism on future trade policies, thereby ensuring that countries can adapt to the changing global economic environment. This necessitates a strategic approach that balances protectionist tendencies with the need for international cooperation and integration to maintain a stable global trade system.

Impact of the Second Trump Presidency on Global Trade

How might “America First” policies affect bilateral trade deals?

Donald Trump’s return to the presidency signals a renewed emphasis on his signature “America First” policy, which reshaped global trade in his first term. With Trump’s re-election, many anticipate a further retreat from multilateral trade agreements and an even greater focus on protecting American industries and jobs. In a multipolar world, where economic influence is increasingly shared among countries like the U.S., China, India, and the EU, a second Trump presidency could lead the U.S. to prioritize bilateral deals and protective measures such as tariff barriers and quotas. Proposed policies include a baseline tariff of 10-20% on all imports, with targeted tariffs reaching up to 60% on Chinese goods, 100% on electric vehicles from China, and 50% on semiconductors and solar panels. Additionally, Trump has suggested a 100% tariff on cars manufactured in Mexico, aimed at curbing efforts by Chinese automakers to use Mexico as a hub to bypass U.S. tariffs. These measures reflect a continuation of the unilateral trade strategies seen in his first term, signaling heightened protectionism and potential trade tensions in the years ahead.

This approach may further disrupt established global trade frameworks, favoring direct, one-on-one trade agreements over large, multilateral deals. By prioritizing American economic independence and reducing reliance on international supply chains, Trump’s second term may catalyze a shift toward a fragmented, regionalized trade environment where alliances shift to adapt to a complex global landscape of competing powers.

The “America First” policy has significant implications for the negotiation and sustainability of bilateral trade deals, primarily due to their emphasis on prioritizing American interests, which may lead to complex challenges in reaching mutually beneficial agreements. For instance, these policies often focus on unilateral actions, such as raising tariff barriers, which can disrupt trade dynamics and compel other nations to retaliate against the U.S. As an outcome, trade partners might seek alternative relationships, potentially forming new alliances to mitigate the risks associated with these policies.

This shift in global trade priorities not only affects the negotiation process but also diminishes trust among partners, further complicating both current and future bilateral trade agreements. Consequently, there is a pressing need for the U.S. to balance its national interests with collaborative approaches to maintain its position in global trade networks and ensure the efficacy and longevity of bilateral trade deals.

What are the potential consequences for traditional multilateral trade frameworks?

The potential consequences for traditional multilateral trade frameworks are vast and interconnected, primarily revolving around the erosion of established mechanisms that have historically promoted global economic cooperation. A significant concern is the rise of protectionist policies, as exemplified by the Trump Administration’s approach, which could challenge the foundational aspects of the U.S-led liberal economic order built on cooperation and shared governance since the end of World War II. This shift toward protectionism and unilateralism threatens to undermine traditional multilateral trade frameworks, leading to increased economic competition among nations, as countries may prioritize national gains over cooperative trade.

Additionally, developing countries, which often depend on multilateral frameworks like the WTO for mediating trade disputes, could find themselves particularly vulnerable if these frameworks lose their influence. The retreat from multilateralism could also exacerbate global inequality, as it may undermine efforts to establish equitable trade and development frameworks. Moreover, the shift towards bilateral agreements and regional economic blocs could fragment the global trading system, further weakening institutions like the WTO and creating an unpredictable environment for international trade. To counter these challenges, there is an urgent need for traditional multilateral trade frameworks to adapt, ensuring they can address the pressures of protectionism, protect vulnerable economies, and maintain pathways for international cooperation.

In what ways could emerging powers like China, India, and the EU influence trade norms in response?

Emerging powers such as China, India, and the EU are poised to play significant roles in shaping global trade norms, particularly in light of shifting economic landscapes. The EU, with its robust and diverse economy, can influence trade norms by leveraging its strong internal market as a buffer against external economic shocks. This resilience allows the EU to adopt a strategic approach to trade tensions, particularly by taking measured responses to proposed tariffs. Such measured responses are crucial to limiting exposure and preventing overreactions that could destabilize its economy. However, the interaction between China and the EU, especially through reciprocal measures such as symmetric tariff increases, highlights the potential for counterproductive outcomes. These actions could inadvertently escalate tensions, leading to broader economic repercussions for all involved parties. Similarly, India, alongside other emerging economies like Indonesia and Brazil, is expected to experience impacts similar to those of the established economies, further illustrating the interconnectedness of global economies and the importance of cohesive trade strategies. Therefore, it is vital for these emerging powers to navigate trade relations thoughtfully, employing targeted protective measures where necessary, rather than broad retaliations, to avoid provoking a full-scale trade war that could be detrimental to global economic stability. By doing so, these powers can contribute to the creation of balanced and stable trade norms that accommodate the diverse needs of the global economy.

The global trade landscape is undergoing a profound transformation as emerging economic powers like China, India, and Brazil reshape trade patterns, challenging traditional Western dominance. This shift from a unipolar to a multipolar framework signals a crucial evolution in trade relations, with new alliances such as BRICS+ and RCEP fostering cooperation among developing nations and enhancing their influence on global trade rules. Simultaneously, technological advancements, including digital trade, fintech, and AI, are fundamentally altering how goods and services are exchanged, prompting strategic adaptations in global value chains.

However, this transition is not without challenges. Geopolitical tensions, rising protectionism, and the risk of economic fragmentation raise concerns about the stability of international commerce, posing a significant threat to cohesive trade policies. Smaller economies may face both obstacles and opportunities, as they can leverage these shifts to navigate new trade alliances and enhance their positions within the global market.

This research highlights the need for innovative approaches to cooperation and multilateral frameworks that accommodate the diverse interests of a multipolar world. Ensuring a sustainable and resilient global trade system will require continuous dialogue, adaptability, and inclusiveness, allowing all nations to participate effectively in an increasingly complex economic environment. Future research should explore how emerging alliances, and technological innovations can contribute to a more balanced, equitable, and sustainable global trade system in the years to come.

To read the insight as it was published by Trends Research & Advisory, click here.

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Can Tariffs Be a Good Thing?

In a day-after-the-election briefing to a group of business executives on what the trade policy of a second Trump presidency might look like, the question was asked, “What would an example of a good tariff be?”

The answer is the same one that the 16th century Swiss physician and alchemist Paracelsus gave about dosages of medicine—given in moderation and for the right purpose, they can help heal. Given in excess, they become a poison.

Special additional tariffs are part of current trade remedies, adopted as a matter of national policy and embedded in domestic US law and international agreement. They are recognized therefore as “good” by Congress even if hardly ever welcomed by the measures’ opponents. Additional tariffs are mandatory to offset dumping (sales at less than fair value) and foreign subsidies where material injury is found. And where there is serious injury, the president is given discretion to impose additional tariffs under a safeguard provision. The policy behind the use of these remedies is not just one of equity. The provision of trade remedies may well have been necessary to allow a system of generally open trade to survive with sufficient domestic political support.

There is a second grouping of tariffs (and subsidies, which are another form of protection) that was considered good by the Biden administration and perhaps by a majority in Congress. These measures were selective. A key US national security objective during the Biden administration was to assure that the United States had the ability to manufacture leading edge semiconductors. This was done through subsidies in the CHIPS Act and through tariffs imposed under separate presidential authority. Similarly, climate change and geopolitics were seen during the Biden White House as worthy objectives for support. This accounts for the current additional tariffs and subsidies for batteries, electric vehicles (EVs), and the like.

The use of tariffs (and subsidies) is not free of controversy, however. The tariffs on EVs and batteries slow the ability of the country to meet climate objectives. At the other extreme, whether climate change is seen as a problem or even acknowledged by the next administration is unknown.

President Trump went far beyond suggesting the selective use of tariffs in his campaign. He spoke very often of imposing a blanket tariff of 10 or 20 percent on all imports, with a 60 percent tariff on Chinese imports. The blanket tariff of 10 or 20 percent would not readily be avoided unless an adequate domestic supply of the goods in question can be produced domestically at a higher price due to the tariff or a sufficient bureaucracy is installed from which to seek exemptions from the tariff.

It is clear that several of those likely to have a major role in the incoming Trump administration, as well as the president-elect, consider this to be a good use of tariffs. Others, outside the new administration, will continue to disagree—including nearly all economists, many US businesses dependent on imports for necessary inputs, and all US trading partners.

It is widely agreed that the high tariff signed into law in 1930 by President Herbert Hoover was a colossal error. Thirteen presidents, from Franklin D. Roosevelt up to and including Barack Obama, accepted the premise that lowering tariffs and conducting trade based on agreed rules would increase global economic activity and generally benefit the US. That policy ended with Donald Trump and was not revived by Joseph R. Biden Jr.  High tariffs may now be tried with the announced goals of reining in the US trade deficit and raising US manufacturing employment. Trade deficit reduction, if it occurs, might be achieved at a lower level of economic activity at home and abroad. In that case, manufacturing employment could actually decline. A blanket tariff will clearly generate upward price pressure and lower consumption of imports. That much is sure.

The American people have not been told that they will bear the cost of the tariff (in fact, they were told foreign exporters would pay it) nor that they should consume less. The blanket tariff is a way to lower consumption without admitting that this is what is going to take place. No US administration has sought to impose a value added tax (a national sales tax) because of its domestic unpopularity. There was no mandate from the election to make consumption less attractive, and even less possible for those at the lower end of the economic scale.

It has been claimed that a blanket tariff will cause the shifting of production to domestic factories. It is not at all clear, however, that this works. US production of steel and aluminum did not increase because of the Trump tariffs of 25 and 10 percent, respectively. Nor is it credible that goods that now are almost entirely sourced abroad, like shoes and clothing, will substantially return to being produced domestically. Does a 10-20 percent tax bring about a recapture of industries lost when competitive advantage has shifted abroad? And where would the additional resources come from to make these new goods, if not from sectors that are already producing needed goods and services, including for export industries. The economy is at full employment. It is true that a 10-20 percent cost advantage solely due to the tariff might be sufficient to determine future investment decisions about plant locations. But the US would have to be closer to being cost competitive for the product in question for that to take place, and tariffs would make the US a less competitive base for exports.

Winning the popular vote by a wide margin, reelected President Trump will consider that he has a clear mandate to make greater use of tariffs. A cautionary note should be sounded, however, due to the UK’s experience with Brexit. Brexit made trade far more difficult between Britain’s largest trading partner, the EU. 

The Conservative government sold Brexit as a cost-free stroke of good fortune. It wasn’t. In June 2016, 51.89 percent of the British electorate had voted for Leave compared with 48.11 percent for Remain, a margin of 3.78 percentage points. This year, the political party responsible was resoundingly beaten at the polls. Current polling (as of May 2024) shows that now over 55 percent think leaving was a mistake versus 33 percent that it was the right thing to do. Nonetheless, there are immense obstacles to Britain now returning to the EU. Some damage cannot easily be undone.

In the 2024 US presidential election, the vote for Trump was 50.3 versus 48.1 percent for Kamala Harris. This is a similar margin to the other major economic vote of our time, Brexit. Now there is little doubt that Trump is going to impose much higher tariffs perhaps with the aid of Congress. The 2026 mid-term election may show what voters think of an abrupt and substantial tariff imposed by President Trump early in 2025. Even if they change their minds, some of the resulting damage to the world trading system and the US economy will be hard to undo.

To read the blog as it was published by The Peterson Institute for International Economics, click here.

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Harris vs. Trump on Trade Policy: The Good, the Bad, or Just Ugly?

This paper explores potential trade policy directions for the United States under either a second Trump administration or a Harris Presidency. Under Trump, trade policy would likely be more aggressive, centred on tariffs, isolationism, and protectionism. Trump views trade as a zero sum game and would likely escalate measures against China and allies like the EU to reduce the US trade deficit. His administration would prioritise domestic manufacturing and autarky, viewing trade as a national security and geopolitical leverage tool.

In contrast, Kamala Harris is not expected to prioritise trade, at least in the early part of her Presidency. Her approach would largely continue the Biden administration’s “worker-centric” trade policies, emphasising sustainable and fair trade practices, with a focus on human rights, labour, and environmental standards. Harris would likely pursue strategic partnerships and multilateral frameworks, though she would also be willing to use tariffs selectively, particularly against China, to safeguard American jobs and industries, thus also not complying with multilateral rules.

Both candidates share concerns over avoiding China to become the new superpower and protecting the US economy, although Trump would likely pursue a more radical decoupling strategy. Neither administration is expected to prioritise free trade agreements, and multilateral engagement, especially with the World Trade Organisation (WTO), would be deprioritised under both candidates.

The European Union (EU) must prepare for an increasingly inward-looking US trade policy, regardless of the outcome. Under Trump, EU-US relations would likely face heightened tensions, with tariffs, trade disputes and a reshuffling of value chains significantly affecting EU exports and economic growth. A Harris Presidency would offer more stability, but EU-US relations may still be marked by cautious cooperation, particularly in addressing global trade challenges posed by China.

Key recommendations for the EU include balancing short-term and longterm priorities: deepening the EU cohesion allowing it to respond to unilateral aggressive initiatives, while deepening transatlantic cooperation through platforms like the Trade and Technology Council (TTC), strengthening ties with like-minded democracies, and adopting a unified approach to counterbalance US pressure. The EU should also continue its leadership in modernising global trade rules through the WTO.

Harris vs. Trump on Trade Policy: The Good, the Bad, or Just Ugly?

To read the policy paper as it was published on the Jacques Delors Institute webpage, click here.

To read the full policy paper, click here.

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The New US Trade Agenda: Institutionalizing Middle-Out Economics in Foreign Commercial Policy

Executive Summary

Over the past few years, the United States has made the most significant change in its approach to trade in generations. Starting in the 1970s, trade policy was focused on neoliberal priorities such as promoting efficiency through tariff and cost reductions and limiting the space for purely national regulation of commerce. This was done with an eye toward benefiting multinational corporations and with the view that trade was primarily a tool for advancing the foreign policy interests of the US (and its image as a global leader). Other goals, such as the quality of domestic jobs or environmental sustainability, were an afterthought. In recent years, however, a new set of values has started to guide US engagement with the global economy, with working class power, climate sustainability, and supply chain resilience at the core of a new approach to global leadership.

While evidence of this new approach can be found throughout the executive branch, it is perhaps most clearly evidenced in the Office of the US Trade Representative (USTR) under the leadership of Ambassador Katherine Tai. Since assuming office with the unanimous, bipartisan support of the US Senate in March 2021, Tai and her agency have laid out an ambitious new US trade policy agenda—one that has started to bear fruit for workers, industries, and the environment.

To take stock of these changes, the Roosevelt Institute convened a study commission of scholars, former policymakers, and labor leaders. Some are longtime trade experts, others economic policy generalists with a bird’s eye view of how trade connects to other economic policies. We sought to better understand how trade policy got to where it is and to sketch out ways this trade agenda could be refined and expanded by future policymakers. This stocktaking report summarizes our takeaways from the commission. However, nothing here should be taken as consensus recommendations or the group’s full range of ideas for the future of trade policy. Rather, the report represents our attempts to identify—through a group-informed process—fruitful areas for analysis and action in the months and years ahead.

The report is divided into three sections based on the following themes:

Producing what matters: Trade policy should be in service of the emerging theory of economic growth, rather than pursued for its own sake. Future trade negotiations should focus on problem-solving around production challenges in specific sectors, with the goal of deepening competition and promoting sustainable economic development at home and abroad.
Consuming with purpose: Past trade policies have been sold through emphasizing their benefits to US consumers in the form of lower prices. The new strategy organizes American consumers to use their collective strength as a $3.8 trillion import market (the world’s largest) to push countries, producers, and importers to follow high-road practices. In other words, access to the US market is a privilege, not a right, and “consumption power” through trade enforcement is how the privilege is managed.
Personnel is policy: Who serves in government and who government consults is vital to good policy outcomes. Trade policymakers, career staff, and expert advisors should be willing and able to build on this new trade policy model and should reflect America’s full diversity.

Foreword

By Felicia Wong, President and CEO of the Roosevelt Institute

In planning this first-of-its-kind study commission on trade policy and the Office of the US Trade Representative (USTR), the Roosevelt Institute team asked: Why us, and why now?

First off, it is our job to lift up and celebrate the legacy of Franklin and Eleanor Roosevelt. They remade the US and global economy in much the same way that the Biden administration is trying to do today, by rewarding work and not wealth, using the public sector to shape markets, and preserving our natural resources. These efforts are very much in line with the ideas and initiatives that have been developed at USTR under Ambassador Katherine Tai’s leadership.

Second, establishing better trade policy has been a core part of the Roosevelt Institute’s work. It featured as a theme in our flagship 2015 Rewriting the Rules report. After trade dominated the 2016 election cycle, we held extensive convenings with Open Society Foundations, New America, the Center for American Progress, and other partners to better understand the fault lines and opportunities around the issue. Trade was core to my own work as the US representative on the G7 Panel on Economic Resilience in 2021, and has been a regular part of the portfolio of Roosevelt’s own in-house experts including Joseph E. Stiglitz, J.W. Mason, and Todd N. Tucker. Indeed, a glance at our 2017 Sustainable Equitable Trade report will show how a series of Overton-window pushing recommendations from that time have now become conventional wisdom: the value of directing the benefits of trade to regions of the country left behind by globalization, greening production, putting guardrails around corporations’ privileges, and finding new bases for international cooperation with other democracies. 

Third, since 2015, Roosevelt has run a personnel project—part of what we now call the Roosevelt Society—that helps develop a pipeline of exciting and innovative people from the academy and civil society and into government. We are pleased that a number of our past and present fellows have served in government and were able to join the study commission, including Joelle Gamble, K. Sabeel Rahman, and Sameera Fazili. 

Finally, and most importantly, we believe that now is the right moment to have a deep conversation about trade and how it fits in with the emerging US economic strategy. The COVID-19 pandemic, climate crisis, exploding inequality, and precarious supply chains have brought into question much of the received wisdom about globalization. The US has begun charting a new path with increasing bipartisan support, but the exact contours of this path are still ripe for mapping.

In fact, much of the initial criticism of the US’s industrial policy from trading partners has subsided, suggesting that the breaking of established economic norms was both significant and broadly understandable once explained. It is thus no coincidence that many of the US’s closest partners and allies are considering or implementing similar industrial policy packages.

We hope that this study commission serves as a template for future evaluation of making government agencies deliver equitable economic policy for all Americans.

RI_New-Trade-Agenda-Middle-Out-Economics_Report_202410

 

Todd N. Tucker is a political scientist and director of industrial policy and trade at the Roosevelt Institute, where he helps lead research on how to build state capacity and supply chains. He is author of Judge Knot: Politics and Development in International Investment Law (Anthem Press), and received his PhD from the University of Cambridge. His popular writing has been featured in Politico, Time, Democracy Journal, the Financial Times, and the Washington Post. He served as special rapporteur for the expert Study Commission.

To read the report as it was published by the Roosvelt Institute, click here.

To read the full report as a PDF, click here.

 

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Fiscal, Macroeconomic, and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios

At several points over the course of the 2024 campaign, former President Trump has put forward a variety of different proposals for broadly raising tariffs across the board.  A tariff is a tax on imports, generally levied at an ad valorem rate on the import’s customs value. Americans purchase imports directly as a part of final demand—such as when a consumer buys imported clothing at a retailer, or a business buys imported software—or as an input into the domestic production process, such as when a domestic auto manufacturer imports a key part. Tariffs, therefore, carry the potential to affect many different layers of the economy.

Like all tax policy, tariffs involve trade-offs, and they have both fiscal and macroeconomic implications. Unlike narrow, targeted tariffs, the broad tariffs of the magnitude proposed by President Trump have the potential to raise meaningful revenue over the budget window. However, these effects are uncertain and sensitive to key assumptions about the behavior of both US and foreign consumers, businesses, and governments. 

President Trump’s proposals have also sparked a public debate about who bears the ultimate burden, or the incidence, of tariffs. This question is neither new nor broadly open in the forum of public finance and trade economics, however. A consistent theoretical and empirical finding in economics is that domestic consumers and domestic firms bear the burden of a tariff, not the foreign country.

This analysis’ purpose, therefore, is not to re-adjudicate the incidence question but to instead, from the standpoint of economic evidence, quantify the fiscal and macroeconomic effects of illustrative tariff proposals that capture the elements of various comments from President Trump. The Budget Lab (TBL) modeled 12 proposals that differ in their tariff rates on various countries and whether those countries retaliate against the US with their own counter-tariffs. TBL employed a widely-used global trade model to help measure the effects of these proposals on US and foreign trade flows, on US tax revenues, and on US consumer prices.

TBL’s main findings:

The tariff proposals TBL modeled raise between $1.2 to $4.4 trillion over 10 years under conventional assumptions, or 0.3 to 1.2% of average GDP.
When other countries retaliate against US tariffs, that lowers US tariff revenue relative to the same proposal under a no-retaliation scenario by 12-26%.
TBL  calculated that these tariffs also initially raise the level of consumer prices by 1.2 to 5.1%. To put this in perspective, this represents 7 to 31 months of normal inflation under the Federal Reserve’s target, and between a tenth and a third of the price level increase experienced over 2020-2023.
The loss in average disposable income from these price increases would be the equivalent of $1,900 to $7,600 per household in 2023 dollars (the final price increase and loss to household purchasing power would depend on, among other things, the extent of substitution away from tariffed goods and the Federal Reserve’s reaction to the tariff-driven price shock).
Effective (that is, weighted-average) tariff rates are 13 to 52 percentage points higher before substitution. Even after US consumers and businesses substitute towards domestic or lower-tariffed-imported options, effective tariff rates are 6 to 27 percentage points higher, raising the overall effective tariff rate to levels at least unseen since World War II and possibly since 1899.

Finally, while TBL performed most of its analysis under a conventional assumption of fixed US aggregate economic activity, we also present some partial estimates of dynamic effects on the size of US economy from the various tariff proposals.

In the medium-term, real US GDP contracts by between -0.5 to -1.4%. Under standard Congressional Budget Office (CBO) rules of thumb, these partial GDP effects imply tariff revenue would be smaller by an additional $400 billion to $1 trillion over 10 years.

The Budget Lab Tariffs Analysis 2024_0

To read the report as it was published on the Budget Lab webpage, click here.

To read the full report, click here.

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Waging a Global Trade War Alone: The Cost of Blanket Tariffs on Friend and Foe

For good or bad, not all campaign rhetoric converts to policy once it is examined systematically. We consider a 2024 presidential campaign proposal to escalate US tariffs against all trade partners, with exceptionally high tariffs on Chinese goods. With inevitable retaliation, this creates a trade siege of “fortress America,” which disadvantages US exports around the world in favor of trade from other countries. US tariff escalation creates a lucrative set of opportunities for everyone else. For instance, many US manufactured goods would exit European markets as Chinese goods enter, and European consumers and Chinese manufacturers benefit at the expense of US manufacturers. Strengthened trade ties between Europe and China also work in the other direction. China substitutes away from US business services in favor of European service exports. China further entrenches its reliance on agricultural goods from Latin America boosting income in countries like Brazil. Of course, there are costs of the trade war in terms of global efficiency and adverse local impacts on states and agricultural markets. Our new analysis of escalating protection suggests that nearly everyone outside the United States benefits as it moves to isolate itself from global trade. The United States disproportionately bears the global efficiency cost.

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

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

State of Play

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

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

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

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

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

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

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

Recent proposals

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

Results

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

United States

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

China

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

European Union

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

Other countries

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

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

US-EU Cooperation

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

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

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

Conclusion

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

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

Waging a Global Trade War Alone_ The Cost of Blanket Tariffs on F

To read the article as it was published on the University of Nebraska webpage, click here.

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Brazil’s Ecological Transition Plan: Paving the Way for the EU-Mercosur Agreement and Enhancing Global Perception

Introduction

The global issue of deforestation and its environmental consequences stand at the forefront of Brazil’s agenda as it directs a critical crossroads. In this context, the Brazilian Ecological Transition Plan, an initiative by the Ministry of Economy, emerges as a vital step towards positioning Brazil as a leader in sustainability and environmental responsibility. This plan, currently in progress, addresses urgent ecological challenges and sets the course for a more sustainable and resilient future.

However, Brazil’s path towards sustainability faces challenges, particularly concerning the EU-Mercosur Agreement. This agreement, designed at bolstering cooperation and economic growth, has been met with concerns. Increased trade in agricultural products between Mercosur countries and the EU could potentially aggravate deforestation, raising questions about the compatibility of the agreement with environmental goals.

Therefore, International Law serves as a guiding force in promoting responsible environmental practices. The interrelation of ecosystems transcends national boundaries, necessitating collaborative efforts among countries to mitigate environmental degradation. In this context, Brazil’s ambitious plan aligns with the principles outlined in international agreements such as the Paris Agreement. By adhering to these agreements, Brazil can signal its commitment to global efforts to combat climate change.

As negotiations proceed, finding common ground on environmental commitments is essential for successful ratification and the realization of mutual benefits. Brazil’s Ecological Transition Plan and the EU-Mercosur Agreement offer opportunities to demonstrate global responsibility and sustainability. By navigating these challenges, Brazil can emerge as a steward of the environment, contributing to a greener, more sustainable future.

Context

The Brazilian Ecological Transition Plan, announced by the Ministry of Economy, represents an initiative that seeks to position Brazil as a global leader in sustainability and environmental responsibility. This plan is still in progress and is set to tackle pressing ecological challenges and pave the way for a more sustainable and resilient future.

The Ecological Transition Plan, consisting of six major pillars, presents a comprehensive approach to address key environmental concerns in Brazil. These pillars include sustainable finance, technological densification, bioeconomy, energy transition, circular economy, and climate adaptation infrastructure. Each pillar aims to tackle critical challenges and foster a more sustainable and environmentally responsible future for the country.

The Plan also encompasses a wide range of measures to address key environmental concerns in Brazil. It includes initiatives such as establishing a regulated carbon market, implementing carbon taxes, and launching sustainable bonds to promote sustainable finance. In addition, the plan emphasizes a circular economy model that promotes resource efficiency, waste reduction, and innovation.

The implementation of the Ecological Transition Plan will be executed over the course of President Luiz Inácio Lula da Silva’s period, with some initiatives already starting this semester. Therefore, it is a testament to the government’s commitment to embracing sustainability and transitioning towards a greener and more ecologically responsible economy.

EU-Mercosur Agreement in the Context of Brazil

The EU-Mercosur Trade Agreement stands as a testament to the strengthening ties between the European Union and the Mercosur states, which include Argentina, Brazil, Paraguay, and Uruguay. This landmark agreement was politically finalized on 28 June 2019, marking a significant step towards fostering mutual growth, sustainable development, and increased trade and investment between the two regions.

Key components of the agreement include the reduction or elimination of tariffs on various goods and services, improved access to government procurement opportunities, protection of intellectual property rights, and facilitation of investment flows. By streamlining trade procedures and reducing barriers, the agreement aims to boost economic growth and create new opportunities for businesses in both the EU and Mercosur countries.

The agreement holds strategic importance for both parties. For the EU, it represents an opportunity to expand its market access in the dynamic economies of the Mercosur bloc and gain a competitive edge in sectors like machinery, chemicals, and automotive. On the other hand, Mercosur countries, especially Brazil, stand to benefit from increased export opportunities for their agricultural products, such as beef, soybeans, and poultry, which are vital components of their economies.

From Deforestation to Protection

The EU-Mercosur agreement, while aimed at fostering economic cooperation and trade between the two regions, has been marred by significant concerns surrounding logging in recent years in Brazil. Due to the intensified trade in agricultural commodities, from Brazil to the EU, there is a threat of deforestation being exacerbated. The expansion of agribusiness and the demand for these products could lead to further devastation, as agricultural land is cleared to meet the export demands.

In response to the growing concerns, the EU has sought to impose environmental requirements on Mercosur countries, including Brazil, to ensure adherence to sustainable practices and the Paris Agreement’s environmental goals. However, Brazil has been resistant to these proposals, raising concerns about the agreement’s compatibility with climate and environmental objectives.

Nonetheless, a striking contradiction reveals itself when inspecting the EU’s stance on deforestation. While the EU actively urges Mercosur nations to halt deforestation and embrace sustainable measures, it concurrently remains a potent catalyst for this very degradation due to its robust appetite for agricultural imports. Products like Brazilian soybeans and beef, in high demand in European markets, are frequently associated with the expansive clearing of forests for cultivation.

The EU’s consumption habits, marked by their significant imports, inadvertently fuel the deforestation they are keen to diminish. This juxtaposition not only muddies the agreement’s narrative but also casts a shadow on the EU’s true dedication to sustainability, given their prevailing consumption patterns.

As described by Knox in his exploration of “Imperialism, Hypocrisy and the Politics of International Law,” the contradictions and accusations of hypocrisy are not mere anomalies but rather intrinsic facets of international relations and policy-making. This framework can be aptly applied to the EU’s stance on deforestation. 

While on one hand, the EU guardian environmental sustainability and urges Mercosur nations to halt deforestation, its consumption patterns reveal a contrasting narrative. This duality in the EU’s actions mirrors the broader theme Knox emphasizes: the tension between proclaimed values and actual practices in the realm of international law and relations. 

Additionally, President Luiz Inácio Lula da Silva’s recent speech at the Power Our Planet event in Paris served as a poignant reminder of the complex interplay between environmental responsibility, global consumption, and historical accountability. With resounding applause, Lula stated, “It is not the African people who pollute the world, it is not the Latin American people who pollute the world… they must pay the historical debt they have with planet Earth.” These words resonate as an echo of the concerns arising from the EU’s demand on Brazil to address deforestation while European consumption drives it.

With the return of Luiz Inácio Lula da Silva to the presidency, there has been a significant shift in Brazil’s approach to the Amazon. Data from various sources indicate a substantial decline in deforestation rates since Lula assumed office. According to government satellite data, deforestation in the Amazon dropped by 33.6% during the first six months of Lula’s term. This decline is even more noteworthy when compared to the same period in the previous year.

Several factors contribute to this positive trend. The new administration has emphasized the importance of environmental conservation and has taken proactive measures to protect the Amazon. The government’s efforts, combined with international pressure and increased global awareness about Amazon’s significance, have played a critical role in this decline.

Challenges and Perspectives

The EU-Mercosur Agreement has faced several complications in the ratification process. Some EU member states have expressed objections regarding the environmental aspects of the deal. As of the current context, the agreement remains pending final approval and ratification from all the EU member states.

However, the European Commission President, Ursula von der Leyen, is determined to conclude the long-delayed trade deal between the European Union (EU) and Mercosur countries. With the geopolitical landscape evolving, the EU recognizes the importance of strengthening ties with Latin America and is eager to avoid neglecting the region any further.

During her tour of Latin American countries, von der Leyen, alongside Brazilian President Luiz Inacio Lula da Silva, emphasized the urgency of accelerating negotiations and finalizing the EU-Mercosur agreement. Both leaders expressed their ambition to reach a conclusion as soon as possible, aiming to achieve this milestone by the end of the year.

Nevertheless, even though both European and South American leaders are excited to sign the agreement and tout its potential benefits, authors such as Jason Hickel present a thought-provoking perspective that challenges the conventional notion of sustainable economic growth. 

His argument centers on the assertion that the pursuit of never-ending economic expansion is incompatible with the finite nature of Earth’s resources and the urgent need to mitigate environmental crises. According to this view, achieving genuine sustainability requires more than mere tweaks to existing systems—it demands a profound reevaluation of our societal values and consumption patterns.

At the heart of this perspective is the notion that true environmental resilience necessitates a departure from the relentless cycle of production and consumption that has characterized modern economies. Proponents of this viewpoint argue that focusing solely on increasing GDP and material accumulation exacerbates resource depletion, pollution, and ecological degradation. Instead, they suggest that by reining in production and consumption, we can reduce our collective ecological footprint, allowing ecosystems to regenerate and reducing the strain on vital resources.

The idea isn’t to strip away comforts or advancements, but rather to challenge the prevailing assumption that continual material accumulation equates to progress. By reimagining prosperity and embracing a more holistic perspective, societies can allocate resources more efficiently, reduce waste, and cultivate lifestyles that are both environmentally regenerative and personally fulfilling.

To address the pressing environmental crises, the reevaluation of growth becomes imperative. The view that sustainable economic growth is an oxymoron suggests that we must be willing to question the status quo and explore alternative pathways that prioritize harmony with the planet over unchecked expansion. This approach invites us to consider innovative economic models that prioritize well-being, foster resource equity, and champion ecological restoration.

Despite these issues, analysts remain optimistic about the agreement’s prospects. Trade between the EU and Mercosur countries has been steadily growing over the past two decades, even without a formal agreement. The conclusion of the EU-Mercosur agreement holds immense potential for enhancing trade, economic collaboration, and sustainability between the regions. As the negotiations progress, finding common ground on environmental commitments will be crucial in securing the deal’s successful ratification and realizing the mutual benefits for all parties involved.

Conclusion

The discourse surrounding Brazil’s Ecological Transition Plan, the EU-Mercosur Agreement, and global environmental concerns reveals a nexus of economic interests, sustainability goals, and geopolitical maneuvers. Brazil’s commendable efforts to position itself as an environmental steward are evident in its Ecological Transition Plan, aiming for a sustainable and resilient future. Also, the return of Luiz Inácio Lula da Silva to Brazil’s presidency signals a promising shift in environmental protection, supported by data indicating a reduction in deforestation.

Yet, challenges arise in aligning these intentions with the potential environmental implications of the EU-Mercosur Agreement, especially concerning deforestation. While the EU demands sustainable measures from Mercosur countries, notably Brazil, there exists a dichotomy in its actions, evident in the consumption habits that inadvertently spur deforestation. This discrepancy, exemplified through the EU’s simultaneous advocacy for environmental preservation and its consumption patterns, underscores the complex dynamics of international relations, as highlighted by Knox’s insights.

The arguments presented by thinkers like Jason Hickel provide an alternate perspective, suggesting that true sustainability might necessitate a departure from the traditional economic growth paradigm. Instead, a reconceptualization of prosperity, pivoting towards ecological harmony and well-being, might be the path forward.

The current global landscape, characterized by a heightened awareness of climate change and its ramifications, offers an unprecedented opportunity. Nevertheless, this shared vision for a prosperous and sustainable future requires not just agreements on paper but real-world actions, informed policymaking, and a steadfast commitment from all participants. 

Furthermore, as nations come together in this effort, they also have a single opportunity to lead by example. By successfully navigating these challenges, Brazil, the EU, and Mercosur nations could set a precedent for the world – illustrating how global collaborations can be rooted in both economic ambitions and an unwavering dedication to the environment. The path ahead may be complex, but with unity, innovation, and a shared ethos, they can illuminate the route for others, showcasing a harmonious blend of progress and preservation.

Pedro Serodio holds an LL.M in International and European Law at the Universität des Saarlandes and a Legal Assistant at MarketVector Indexes, in Frankfurt am Main, Germany

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

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