It’s all too easy to get lost in the daily disorder of the global trade war. Which tariff doubled? What deal has been ostensibly struck? Why are certain semiconductor chips no longer subject to export controls? These day-to-day twists and turns move markets and make news. More important are the underlying trends that will define the international economy, and the United States’ role in it, over the long term.
In an effort to take a step back from the day-to-day noise and assess the future of the global trading system, I just published a new essay in Foreign Affairs magazine, “After the Trade War.” On the off chance you don’t read the full article, here are my highlights and related observations.
The first step towards a new international economic order is admitting the global trading system as we have known it is dead. A return to the status quo is impossible with both the United States and China following their own set of rules. But the death of the global rules-based trading system doesn’t mean we should accept a beggar-thy-neighbor world as the new normal. The challenge going forward is to develop rules where and when we can among like-minded countries, even if the fully multilateral rules-based system grinds to a halt. This is as important to the United States as it is to other economies—and it will take our leadership.
If the unilateral, mercantilist approach of the United States and China proves to be contagious, and other countries begin to act in a similar fashion, we could find ourselves back in a situation that looks a lot like the pre-WWII period, when trade was used as a weapon among states. And we know where that ultimately can lead.
Short of conflict, the trend toward greater protectionism, subsidization and de-integration could lead to slower global growth which, in turn, could adversely affect U.S. exports—and the U.S. businesses, workers, and farmers who produce those exports. In 2024, those exports totaled some $3.2 trillion. We have moved from a world in which most economies sought to derisk themselves from overdependence on China: now, they are considering derisking from the United States as well. The United States is still an incredibly attractive market and resilient economy, but we should expect to see other countries pursuing expanded trade with other partners to diversify their partnerships.
Thus far, we have seen relatively little retaliation against Trump’s tariff actions. But that could change as the impact of tariffs begins to bite. Other countries have politics too, and trade has a way of spurring on domestic political reactions because of the direct and indirect effects it has on particular constituencies.
One thing that has become increasingly clear is our dependency on other countries, especially but not limited to China. China has spent the last several years gaining an in-depth understanding of where it has leverage over other economies and has shown, through restrictions on magnets and critical minerals, exactly how much leverage it has.
Where should we go from here? We can’t put the toothpaste back in the tube. Nostalgia is not a strategy; neither is hope. But a world without rules is one which runs too much risk. We need to consider a pragmatic strategy of “open plurilateralism”—groups of like-minded countries coming together to define a set of rules that reflect new realities. These would be “coalitions of the ambitious” which share interest in specific areas and come together to adopt high standards on certain issues. Importantly, these coalitions would be open so other countries who share similar interests and are prepared to implement those standards can join.
For some countries, that could be trade liberalization, opening markets, and integrating economies. The United Kingdom joined the (Comprehensive and Progressive) Trans-Pacific Partnership, and evidently the European Union is considering doing so. The United States is not likely to do so anytime soon. But for the United States, there is value in bringing together countries to adopt common views about controlling the export of key technologies, developing secure supply chains, establishing principles for the use of industrial policy and state subsidies, and coordinating competition with China. There might well be an opportunity to pull countries together to set the rules of the road for artificial intelligence and other emerging technologies or for the digital economy more generally.
While open plurilateralism is messier than the multilateral trading system, it is a pragmatic, second-best response to the new world we live in. Whether such a plurilateral system forms with us, despite us, or around us, is very much an open question.
Go ahead and give the full essay a read, and let me know what you think by replying to president@cfr.org.
What I’m reading this week:
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Greg Ip’s analysis in the Wall Street Journal on the United States’ march toward state capitalism with American characteristics is a reminder that in the war over who gets to define the rules of the road of the global economy, the battle is over, at least for now. And China won. I wrote an essay earlier this year for Foreign Affairs that dives deeper into Washington’s long march to adopting Beijing’s economic playbook.
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The Financial Times recently published insightful analysis on Ukrainian President Volodymyr Zelenskyy’s “moment of maximum pressure” ahead of Trump and Russian President Vladimir Putin’s meeting in Alaska. A deep dive by CFR’s own Charlie Kupchan, Liana Fix, and Paul Stares is also worth the read.
- Trump’s tariffs are here to stay, and Bob Zoellick’s op ed in the Wall Street Journal underscores why.
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Joseph Torigian’s recent interview on Odd Lots provides unique insights on the life of Xi Zhongxun, (the father of Chinese President Xi Jinping) and the inner workings of the Chinese Communist Party.
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Former Commerce Secretary Gina Raimondo shares how she got her start in foreign policy as part of a new CFR series.
