US President Donald Trump\u2019s \u201creciprocal\u201d tariffs amount to a unilateral, self-defeating, and completely unjustified challenge to the international order\u2014a challenge without any economic justification. As Willem H. Buiter demonstrated in 1981, the kinds of trade imbalances that Trump blindly condemns are a useful mechanism that allows economies with different time preferences to benefit from trade by shifting resources to different periods. Trump\u2019s commitment to ignoring economic reality and pressuring America\u2019s trading partners will end up hurting the United States the most.<\/p>\n
America\u2019s global hegemony has relied heavily on the country\u2019s provision of global public goods. Under Trump, however, the US is acting as a \u201cprofit absorber,\u201d offering nothing in return. The trade deals that the Trump administration is \u201cnegotiating\u201d by threatening partners with high tariffs perfectly illustrate this extractive mentality.<\/p>\n
Consider the agreement reached with Japan. To begin with, its content is rather vague, reflecting the Trump administration\u2019s indifferent negotiating style and its preference for premature declarations of victory over conscientious policymaking. What is clear is that Japanese exports to the US are still subject to a fairly high tariff rate of 15%, with some goods (such as steel and aluminum products) potentially subject to an even higher rate. In addition, Japan was forced to commit to $550 billion worth of investment in the US \u2013 a significant portion of which may well end up in the hands of Trump and his billionaire friends.<\/p>\n
If that\u2019s the reward for making a deal with the Trump administration, why bother? For now, the United States maintains a strategic advantage in negotiations that is based in part on its aggressive stance. By unilaterally imposing very high tariffs on economies that have cultivated the American market for decades and have thus become dependent on it, the Trump administration makes even bad deals look good.<\/p>\n
But for Trump\u2019s negotiating partners, the talks are not simply a matter of economic calculation. Almost all face a psychological barrier to standing up to the United States, which has long been the world\u2019s dominant economy and geopolitical hegemon.<\/p>\n
One orthodox way to resist the Trump administration\u2019s trade offensive\u2014which Canada and China have adopted\u2014is to respond in kind, by raising tariffs on U.S. imports. But it is a dangerous strategy, one that could lead to the collapse of a global trading system that has supported widespread growth and development for decades. And, given the economic and psychological factors currently favoring the United States, few economies would dare to pursue it.<\/p>\n
But the only way countries can maintain global trade, mitigate the impact of U.S. tariffs, and erode America\u2019s ability to bully others in the future is to work together, rather than \u201cplaying ball\u201d with the U.S. The late Japanese Prime Minister Abe Shinzo pursued a similar strategy to counter Chinese bullying. Abe made it a policy priority to build coalitions of countries that share Japan\u2019s interest in a \u201cfree and open\u201d Indo-Pacific.<\/p>\n
Of course, trying to simultaneously confront China in one area (geopolitics) and the U.S. in another (trade) raises its own challenges. However, China\u2019s trade relations with Japan appear to be heading in the right direction, despite the recent incitement of anti-Japanese sentiment in Chinese cinema. In late June, China partially lifted a ban on seafood imports from Japan that it had imposed in 2023 after Japan began dumping treated wastewater from the Fukushima nuclear plant.<\/p>\n
In any case, with his unilateral tariffs, Trump is alienating America\u2019s friends and partners and destroying the trust that has underpinned America\u2019s global influence. The effects are already being felt in financial markets. The yield on the 10-year US Treasury note \u2013 which soared after Trump announced the \u201creciprocal\u201d tariffs in early April \u2013 remains high, and the value of the US dollar has fallen by about 10% since the start of this year. It doesn\u2019t help that Trump is relentlessly pushing the Federal Reserve to cut interest rates, even as his tariffs create strong inflationary pressures.<\/p>\n
If Trump continues on his current course, he may be able to score a few more \u201cwins,\u201d in the form of exploitative trade deals with longtime U.S. allies and partners. But the cost of ignoring basic economic realities will be high, not just for American consumers, who face skyrocketing prices as a result of Trump\u2019s policies, but for the entire global economy, which could be irreparably damaged. U.S. global leadership may never recover.<\/p>\n","protected":false},"excerpt":{"rendered":"
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