In an unprecedented move, President Trump justified the imposition of tariffs on Canada. China, and Mexico under the International Emergency Economic Powers Act (IEEPA) based on an “extraordinary threat” from illegal immigration and drug trafficking. The problem for the president, however, is that IEEPA does not explicitly grant tariff authority at all—indeed, the words “duty” or “tariff” appear nowhere in the statute—and to the extent that it grants power to restrict imports, it requires that there be a direct connection between the action taken (here, broad-based tariffs) and a properly declared national emergency (here, migrants and fentanyl crossing the southern border). But there is no direct connection between tariffs on imports of all goods—no matter how innocent or far removed from fentanyl—and the declared national emergency.

The president’s initial move to impose IEEPA-based tariffs came on Feb. 1, with 10 percent tariffs announced on all goods from China and 25 percent on all goods from Mexico and all goods other than energy products (which were subject to a 10 percent duty) from Canada. The president subsequently paused their application to imports from Canada and Mexico but increased the tariffs to 20 percent on all goods from China. On March 3, he proceeded with the 25 percent tariffs on Mexico and Canada (10 percent on energy products), only to further pause those additional tariffs on Mexico and Canada for any goods meeting the United States-Mexico-Canada Agreement (USMCA) rules of origin. He has also threatened additional IEEPA tariffs on a wide range of products, including cars, semiconductors, and oil, as well as on imports from various other countries. China has responded with retaliatory measures and initiated dispute settlement proceedings at the World Trade Organization. Similarly, Canada responded with tariffs of 25 percent on $155 billion of American goods.

IEEPA has never been used to impose tariffs. Congress enacted IEEPA nearly 50 years ago to give the president the power to act promptly to protect the nation’s security. Although this delegation grants the president broad discretion, it was not meant to provide him with a blank check on trade policy. The U.S. Constitution gives Congress the sole power to regulate foreign commerce and impose tariffs. The president’s powers can thus come only from authority that Congress expressly delegated. This begs the question: Did Congress clearly intend to hand over its tariff authority to the president or to permit him to exercise it in such a sweeping and procedurally skimpy manner? The answer is no, especially without establishing a clear relationship to a particular national emergency.

The Major Questions Doctrine

The U.S. Supreme Court’s articulation of the major questions doctrine may have created insurmountable hurdles to the president’s desire to use IEEPA as the legal basis for sweeping tariffs. Congress frequently delegates authority to the executive branch to regulate particular aspects of society, but in a number of recent decisions, the Supreme Court has declared that for an agency to decide an issue of major national significance, its action must be supported by clear congressional authorization. In 2022, the Court in West Virginia v. EPA explicitly referred to this concept as the major questions doctrine, which builds on years of understanding that Congress does not delegate sweeping and consequential authority in a “cryptic” fashion.

The major questions doctrine entails that the Court “expect[s] Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance’,” looking at the “the history and the breadth of the authority that [the Executive Branch agency] has asserted.” In Utility Air Regulatory Group v. EPA, the Court expressed skepticism when agencies claim to have discovered in a long-extant statute “an unheralded power to regulate ‘a significant portion of the American economy’.”

While the question of whether the major questions doctrine applies not only to agencies but also to the president remains unsettled, the doctrine’s aim to prevent actions that lack clear statutory authorization and carry vast economic and political significance to bypass congressional authority makes its application to presidential actions both logical and necessary. The major questions doctrine is grounded in the principle of separation of powers and a practical understanding of legislative intent, which suggests that it applies not only to the delegation of authority to executive branch agencies but also to the president himself. Several appellate court decisions strongly support this interpretation, such as from the Eleventh Circuit, which reasoned that since the major questions doctrine is an interpretive canon used throughout the administrative system, it should logically extend to the executive atop the administrative state. The imposition of broad tariffs under IEEPA not only raises concerns about executive overreach but also directly challenges the separation of powers and legislative intent, risking tariff policy becoming “nothing more than the will of the President.”

There can be no doubt that using IEEPA to impose broad tariffs is a major question. It falls squarely within the Supreme Court’s notion of a “novel” use of an “unheralded” power given that no other president has used IEEPA in its nearly 50-year history to impose tariffs. The decision to impose the new tariffs on the United States’s three largest trading partners constitutes a “transformative power expansion” and carries “vast economic and political significance” as it has significant breadth, national impact, and an effect on large segments of the economy. In 2024, imports from Canada, China, and Mexico exceeded $1.3 trillion. U.S. exports to Canada and Mexico totaled $680 billion, and trade among the three USMCA parties supports over 17 million jobs. Chinese imports of goods in 2024 were $439 billion, and additional tariffs on China will impact smartphones, computers, furniture, shoes, toys, food, and more. The Peterson Institute for International Economics estimates that these tariffs collectively are the “largest tax increase in at least a generation” and will cost the typical U.S. household more than $1,200 a year. Moreover, much of the burden of paying the tariffs will fall on lower- and middle-income households. Trade historian Douglas Irwin has noted that these IEEPA tariffs “would constitute a historic event in the annals of U.S. trade policy.”

Applying the major questions doctrine to IEEPA also shows that Congress did not “clearly authorize” the president to impose broad-based tariffs. IEEPA sets forth a wide array of actions that the president can take following the formal declaration of a national emergency, including the power to “regulate … importation or exportation” of any property in which a foreign government or foreign national has any interest. While the power to regulate importation can be read to include the imposition of tariffs, an argument can be made that this does not constitute a sufficiently explicit congressional authorization. If Congress clearly intended to delegate its tariff power, it would have used tariff terms (“tariffs,” “duties,” or “taxes”) and called for a tariff-related process to establish the factual predicate for and the appropriate level of such duties. This is not the case with IEEPA.

The words “tariff’ or “duty” appear nowhere in the statute, in contrast to other laws in which Congress has clearly delegated tariff authority (such as Section 301, specifically authorizing “duties” to respond to unjustifiable acts that burden U.S. commerce; or Section 201, permitting “duties” or “tariff-rate quotas” to respond to a surge in imports that seriously injures a U.S. industry). Indeed, the most commonly used additional tariffs (antidumping and countervailing duties) are imposed following detailed procedures focused on calculating the appropriate level of duties along with developing a formal record of the factual predicate for such duties. As Peter Harrell observes., the president has numerous tariff avenues available to him but has chosen the “minimal procedural hurdle” IEEPA instead, even though the legislative history of IEEPA does not include an explicit authorization by Congress to impose tariffs.

The Dubious Link Between Broad-Based Tariffs and a Crisis of Illegal Drugs and Immigrants

Even if the major questions doctrine is held not to apply to delegations to the president, or, as Addar Levi suggests, the courts are reluctant to apply the doctrine in the context of national security decisions, President Trump exceeded any potential IEEPA delegated powers by adopting across-the-board tariffs that bear no reasonable connection to his declared emergency.

The only court case called upon to examine the connection between emergency powers and tariff authority, United States v. Yoshida International, upheld President Nixon’s temporary surcharge under the Trading with the Enemy Act (TWEA), IEEPA’s predecessor. However, in addition to the case predating the major questions doctrine, there is a stark difference between the limited nature of Nixon’s tariffs and Trump’s broad-based tariffs. Nixon’s tariffs were narrowly tailored, temporary, imposed at levels that did not exceed the rates Congress had approved, and calculated to meet a particular national emergency that was susceptible to being addressed through tariffs—the balance-of-payments crisis arising out of the U.S. withdrawal from reliance on the gold standard to determine exchange rates. Indeed, while the lower court in Yoshida found that TWEA did not delegate tariff authority to the president, the appeals court ultimately upheld Nixon’s tariffs, finding that imposing a temporary surcharge at rates below congressionally approved ceilings in order to discourage imports bore an “eminently reasonable relationship” to the declared balance-of-payments emergency. Here, it appears that President Trump’s executive orders imposing across-the-board tariffs—10 percent on Canadian energy products and potash, 25 percent on other goods from Canada and those from Mexico (even if subject to a 30-day pause or an exemption for USMCA qualifying goods) and 20 percent on all goods from China—include neither the temporal nor other specific limitations that Nixon’s tariffs did. There is no time frame for removing the duties, the duties exceed the rates Congress approved for Canada and Mexico in the USMCA, and tariffs on all products do not bear “an eminently reasonable relationship” to fentanyl. They thus appear to fall precisely into the box that the Yoshida court suggested would not be permissible: tariffs imposed at whatever rates the president deems desirable that may render U.S. trade agreement programs (such as the USMCA) nugatory.

Not only does President Trump’s measure imply a far more significant change to U.S. tariff and trade policy than Nixon’s did, but it was also adopted under a more limited authority than TWEA. Two years after the Yoshida decision, Congress transformed TWEA into IEEPA with the stated goal of both narrowing the scope of the delegation of power and adding procedural limitations, including those in the National Emergencies Act (NEA), making it clear the president’s exercise of this authority is not absolute.

Among the changes was limiting what can constitute a national emergency to “unusual and extraordinary threats” from outside the U.S. While these terms are not defined in the statute, legislative history indicates that “emergencies are by their nature rare and brief, and are not to be equated with normal, ongoing problems.” Given how long the United States has been fighting the drug war, the fentanyl trade, and the influx of illegal migrants, it is hard to see these emergencies as “rare” or “brief.” Moreover, the national emergency declaration focused on illegal migrants and illicit narcotics at a time when illegal southern border crossings and both fentanyl deaths and overall preventable drug deaths have been down since 2023.

The need to transform TWEA into IEEPA arose largely due to concerns that TWEA had essentially become “an unlimited grant of authority” and actions were adopted that did not bear any relationship to a specifically declared emergency. To address these concerns, a procedural restriction was added—in §1703(b)—that required the president to immediately report to Congress explaining why the particular actions under IEEPA are “necessary” to specifically “deal with” the declared emergency. This provision indicates that the measures taken (here, tariffs) must be directly linked to the unusual and extraordinary threat declared (here, a public health crisis), while the cross-references in §§1701 and 1702(a)(1) reinforce the limitation that the president may exercise authority only to the extent necessary to deal with the declared threat.

No such relationship between the measure and the declared objective exists in the present case. The president has contended that illegal trafficking of fentanyl from Canada, China, and Mexico is the cause of “a public health crisis” in the U.S., justifying broad tariffs under IEEPA. However, IEEPA requires that the president demonstrate why the imposition of tariffs on all goods is necessary to resolve the crisis, which is rooted in the excessive promotion of opioid painkillers in the U.S., the lack of prevention and addiction-treatment policies, and a number of other factors not linked to imports from Canada, China, or Mexico. Nor is it clear that tariffs on unrelated goods can address the fact that the vast majority of those caught during border crossings with fentanyl are U.S. citizens. IEEPA’s authority to regulate is not meant for domestic circumstances or for non-economic aspects of international relations.

Nowhere in the executive orders does the president provide the required explanation of why tariffs on all goods—including those that have nothing to do with drugs—are the necessary or appropriate tool to deal with a public health crisis in the U.S. To the contrary, to the extent that the tariffs cause a major economic downturn in Mexico, the impact of the tariffs may be increased illegal migration and smuggling of illicit goods. Moreover, the tariffs will also be applied to legal, needed drugs and essential hospital supplies, thereby causing price increases that will negatively impact public health in the U.S. Rather than making the required link between tariffs and the declared public health crisis, the White House’s fact sheet accompanying the executive orders states that the IEEPA tariffs were being imposed as a source of leverage.

In addition, IEEPA requires that the president declare a national emergency with respect to such a threat before adopting any actions under 50 U.S.C. § 1702(a)(1)(B). The only free-standing National Emergencies Act declaration was issued on Jan. 20, proclaiming a national emergency on the southern border. The Feb. 1 executive orders simply extended this emergency to apply to both Canada and China due to their failure to counter drug and human trafficking (Canada) and chemical precursor suppliers and money laundering (China). There was no new, separately declared national emergency. It is unclear whether embedding a national emergency declaration in an executive order imposing tariffs satisfies the requirements of the NEA that emergency powers can be exercised only when the president “specifically declares a national emergency” via a proclamation that is immediately transmitted to Congress and published in the Federal Register, nor the requirement in IEEPA that the president, “in every possible instance,” consult with Congress before taking action.

To permit IEEPA—a statute that does not mention tariffs and is designed to deal with unusual and extraordinary threats to America’s national security—to be used to impose tariffs at whatever level the president decides in order to create leverage to address any national emergency, no matter how disconnected from trade or imported goods, is to suggest that there are virtually no limits on the president’s power to impose tariffs. This can subvert the rule of law, undermine the Constitution and its separation of powers, risk exacerbating tensions with our trading partners, and invite destructive retaliation.

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

2025 Trade War Timeline

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

Country-Specific Tariffs:

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

Product Specific Tariffs:

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

2025 Trump Tariffs: Economic Effects

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

• A 20 percent tariff on all imports from China and ending de minimis treatment of all imports from China.
• A 25 percent tariff on all imports from Mexico.
• A 25 percent tariff on all imports from Canada (excluding energy resources under HTS codes 2709, 2710, 2711, and 2716, which face a 10 percent tariff).
• A 25 percent tariff on all imports from the European Union.
• Expansions to the Section 232 steel and aluminum tariffs
  • Ending the country exemptions for the existing steel and steel derivatives tariffs, which increases imports subject to the tariffs from $5.5 billion to $34.6 billion (excluding interactions with tariff rate quotas)
  • Ending the country exemptions for the existing aluminum and aluminum derivatives tariffs, which increases imports subject to the tariffs from $6.1 billion to $18.5 billion (excluding interactions with tariff rate quotas)
  • Increasing the tariff rate on aluminum and aluminum derivatives from 10 percent to 25 percent
  • Expanding the steel and aluminum derivatives list to other steel and aluminum derivative articles, which increases steel imports subject to tariffs by $38.1 billion and aluminum imports by $6.2 billion
  • Excluding the expanded articles outside chapters 73 and 76 (Note: We exclude due to lack of data on the steel and aluminum content of these products. The excluded imports totaled $99.8 billion in 2023; however, the tariffs would not apply to the full import value. For example, the tariffs would apply to the metals content of tennis rackets, fishing reels, and some types of furniture.)

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

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

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

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

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

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

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

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

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

2024 Campaign Proposals

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

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

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

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

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

Tariff Revenue Collections Under the Trump-Biden Tariffs

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

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

Historical Evidence: Tariffs Raise Prices and Reduce Economic Growth

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

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

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

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

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

2018-2019 Trade War Timeline

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

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

Section 232, Steel and Aluminum

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

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

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

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

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

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

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

Section 301, Chinese Products

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

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

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

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

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

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

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

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

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

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

WTO Dispute, European Union

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

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

Section 201, Solar Panels and Washing Machines

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

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

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

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

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

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

Trade Volumes Since Tariffs Were Imposed

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

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

The post Trump Tariffs: Tracking the Economic Impact of the Trump Trade War appeared first on WITA.

Introduction

On January 20, 2025, the first day of his second term, President Donald Trump sought to delay enforcement of a 2024 law that banned distribution of the popular Chinese-owned social media app TikTok. The intent of this delay was for his administration to work out a deal by which TikTok’s Chinese parent, ByteDance, could divest the app. Regardless of the ultimate resolution of the TikTok case, restrictions on Chinese communications technologies, software, and internet-connected devices are becoming a major pillar of U.S. economic and technology policy toward Beijing, alongside tariffs and export controls. Over just the past twelve months, the United States cited potential electronic espionage as the basis for restricting the use of new Chinese cargo terminal cranes at U.S. ports, passed legislation and issued a new executive order limiting certain data transfers to China, imposed draft “Know Your Customer” (KYC) requirements on U.S. cloud services providers, published a draft rule to ban Chinese autonomous cars being sold or used on American roads, and launched a process to restrict the use of Chinese-made commercial and hobbyist drones—by far the world’s most popular—in the United States. Indeed, while public attention in January focused on Trump’s actions toward TikTok, a trade-related executive order that Trump signed his first day in office appeared to tee up an expansion of these sorts of restrictions on Chinese technologies.

Over the past decade, the United States quietly has built an increasingly extensive set of regulatory tools to regulate U.S. data flows to China and the operation of Chinese software and connected technologies in the United States. Although individual actions generally are tailored to address a specific risk, the growing sweep of regulatory authorities has the potential to dramatically change America’s economic relationship with China, restricting not only a growing array of internet-connected devices and consumer products made in China but also products made by Chinese companies in third countries. Beijing, meanwhile, is intensifying its mirror-image campaign against products made by U.S. firms, with the Chinese government imposing new security restrictions on U.S. semiconductors, computers, and other connected tech.

American officials’ desire to limit data flows to China and to restrict Chinese software and connected tech in the United States is understandable: China is America’s foremost strategic competitor, and China’s access to data and control of software and connected technology in the United States provides Beijing with potential tools to conduct espionage; influence politics; and, in extreme cases, attack critical infrastructure, commercial, and government networks inside the United States. But the central role that data, software, and connected technology play in the modern economy means that in principle restrictions could impact even anodyne-seeming trade, either because it depends on data or because even devices like toasters and thermostats increasingly connect to the internet.

Moreover, the United States and China are hardly alone in being concerned about dependence on foreign technology. A growing number of European experts and government officials would like to see the continent reduce its dependence on both Chinese and U.S. technology as a way of increasing Europe’s own strategic autonomy. Since the late 1990s, American officials generally have argued against foreign government policies that would restrict data flows or limit software or connected technologies, believing that an open internet ecosystem would advance both American values and the commercial interests of U.S. firms. If the United States is now embracing restrictions on its own tech relationship with China, American officials will need to articulate a new vision for global data flows, software, and connected devices that enable allies to address their legitimate security interests while preserving the moral, commercial, and economic benefits of the open internet.

The current U.S. regulatory regime is spread across numerous government agencies and derives from multiple legal authorities. This paper is intended to help policymakers, business, and other stakeholders develop a more strategic approach to addressing the risks of China’s access to U.S. data and control of software and connected tech. It begins by describing the three major sets of risks that need to be addressed: espionage; influence campaigns; and attacks on commercial, government, and civilian networks. It then traces the history of the emerging regulatory regime and describes its multiple constituent elements. Finally, it offers a set of recommendations to policymakers as they build out this area of work over the next several years.

The Risks of Chinese Access to Data and Control of Software and Connected Technologies

Since the late 2000s, and particularly over the past decade, three major factors have driven rising U.S. government concern about Chinese access to U.S. data and Chinese control of software and connected technology in the United States.

The first factor is China’s emergence as America’s primary strategic rival. Trump’s 2017 National Security Strategy stated that “China and Russia challenge American power, influence, and interests, attempting to erode American security and prosperity.” Former president Joe Biden’s 2022 National Security Strategy stated that “The People’s Republic of China harbors the intention and, increasingly, the capacity to reshape the international order in favor of one that tilts the global playing field to its benefit.” A bipartisan consensus has emerged across both Congress and executive branch officials that China presents a security and economic challenge and that Washington needs to develop policies to reduce Beijing’s ability to conduct espionage and to establish leverage over the United States.

The second trend has been the rise of Chinese companies across important global technologies. When China first emerged as an economic power following Deng Xiaoping’s economic reforms and opening in the 1980s, Chinese companies principally manufactured low-tech, comparatively low-value consumer items. Even as Western tech companies began to shift their manufacturing to China in the late 1990s and early 2000s, China’s technology manufacturing consisted largely of assembly for Western-designed and operated products. That state of affairs changed during the 2000s and 2010s as Chinese firms became technological powerhouses in their own right. By the 2010s, Huawei and ZTE held significant market positions in international telecommunications network infrastructure, and today companies such as Xiaomi hold substantial shares of global mobile handset markets. Automotive companies like BYD rank among the world’s largest electric vehicle manufacturers. Chinese heavy industry firm ZPMC manufactured 80 percent of the cranes used at American cargo ports. And during the COVID-19 pandemic, social media platform TikTok became one of America’s most popular apps, used by more than 150 million Americans monthly.

The third trend driving U.S. government concerns is China’s extensive cyber hacking, which first emerged as a significant issue in the late 2000s. China-linked hackers appeared to infiltrate the 2008 presidential campaigns of both Barack Obama and John McCain, and over the following years Beijing’s hackers targeted an ever-expanding range of U.S. corporate and government networks. U.S. government officials recently have expressed concern that Chinese hacking efforts are intended to give China the ability to disrupt computer networks, infrastructure, and business in the United States, and Chinese objectives are no longer limited to espionage activities. Although publicly reported cases of Chinese hacking generally have not relied on the cooperation of China’s own international tech companies, China’s extensive hacking efforts provide a basis for U.S. government concerns that China could exploit its companies in the future, particularly as the companies achieve greater scale in U.S. and global markets.

Against this backdrop, there are four broad categories of risk associated with China’s access to U.S. data and Chinese company control of software and connected technologies:

(1) espionage and data security risks;

(2) influence campaigns;

(3) potential cyber attacks on critical infrastructure and government operations; and

(4) potential use of connected devices to mount physical attacks inside the United States.

Espionage and data security risks: The first major category of risk is China’s ability to leverage data, software, and connected technologies for espionage purposes and to secure access to data for other purposes potentially harmful to U.S. interests. Trump administration officials, for example, cited the risk of espionage as a major rationale for restricting Huawei and other Chinese telecommunications network infrastructure companies from providing equipment for U.S. telecommunications networks. Government officials have cited espionage risks as a justification for restricting the use of Chinese-made security cameras in the United States and as a primary justification for the data security executive order that Biden signed in 2024. Chinese autonomous cars driving on U.S. roads collect substantial, detailed information about their surroundings. Even Chinese-made subway or rail cars contain sophisticated sensors that could be used for espionage. An app like TikTok collects data about its users, including their location data, that could be exploited for espionage purposes. China could use such data to train AI systems and review real-time or recorded access to the feeds of U.S. security cameras or other sensors to monitor people and goods entering and specific facilities. Beyond espionage, China could seek access to proprietary datasets, such as genetic datasets, for AI training purposes to try to obtain an edge in aspects of AI development.

Influence campaigns: The second major category of risk, which is particularly associated with Chinese control of social media apps and similar software, is the risk of covert influence over U.S. public opinion. China is an active practitioner of global influence operations: a study released in 2024, for example, found that China is increasing covert social media and publicity campaigns to influence U.S. elections. The U.S. government has highlighted this risk in legal filings related to TikTok. For instance, in a July 2024 filing, it stated that China could use TikTok’s algorithm to “illicitly interfere with our political system and political discourse, including our elections.” Other, more targeted types of influence are also possible. A Chinese-controlled smart television, for example, could disfavor ads from companies that have been critical of China, while an American company that depended on Chinese software or devices for vital parts of its own corporate information technology (IT) infrastructure could be blackmailed into staying silent on political issues important to Chinese officials.

Potential cyber attacks on critical infrastructure and government networks: A third major category or risks that U.S. officials have identified is the risk that China could leverage its control of software and connected technologies to mount cyber attacks on U.S. government networks and/or critical infrastructure in the United States. U.S. government officials are increasingly concerned that China’s hacking of critical infrastructure providers is designed to provide China with an ability to attack and disrupt networks in the United States and not simply to conduct espionage. For example, the U.S. government has warned critical infrastructure operators that recent Chinese cyber intrusions may give China the ability to disrupt U.S. critical infrastructure during a Sino-U.S. conflict, echoing long-standing concerns expressed by cybersecurity experts.

Potential use of connected devices to mount physical attacks in the United States: Finally, officials are concerned that China could use connected devices such as internet connected vehicles or drones to mount physical attacks in the United States. Former commerce secretary Gina Raimondo focused on this set of risks when announcing plans to restrict the sale of Chinese connected cars in September 2024, arguing that “in extreme situations, a foreign adversary could shut down or take control of all their vehicles operating in the United States, all at the same time, causing crashes (or) blocking roads.” While widespread attacks are unlikely outside of the context of military conflict, the government is concerned about the possibility of more targeted attacks during peacetime as well as the potential for attacks during military conflict.

U.S. officials recognize that Chinese companies provide only one vector for China to conduct espionage, influence U.S. opinion, and threaten cyberattacks. Indeed, a public compilation of major cybersecurity incidents since 2006 maintained by the Center for Strategic and International Studies (CSIS) does not appear to include a single incident that clearly involves Beijing relying on a major international Chinese tech company to enable its hacking. (That said, not all details regarding every documented hack have been made public, so it is possible that these hacks may have involved Chinese tech companies.) Moreover, Chinese companies typically assert their independence from Beijing: TikTok’s CEO, for example, testified to Congress in 2023 that TikTok’s parent company ByteDance “is not an agent of China” and that TikTok had never and would never share U.S. user data with the Chinese government. The Chinese government doubtless also is aware that relying on a major Chinese tech company to facilitate hacking would result in that company—and potentially other Chinese companies—being excluded from global markets in the future. Such considerations may make Beijing wary of actively using Chinese companies to facilitate hacking until their products and services are already deeply embedded in global networks and difficult to remove.

These issues aside, there are at least three reasons to assess that Chinese companies with direct access to U.S. data or control of software or connected technology create risks beyond the inherent risks posed by Chinese hacking of U.S. and other Western firms.

First, bulk data transfers to China or Chinese control of software or connected devices provide an opportunity for significant, low-cost data collection. Purchases of bulk data can allow China or another U.S. adversary to inexpensively procure sensitive information about millions of individuals and can provide information on their interpersonal relationships and connections. Chinese autonomous driving companies collect detailed location data and imagery via sensors mounted on their cars and reportedly have driven more than 1.8 million miles in the United States—a potentially significant source of data. TikTok has 150 million American users and could turn over substantial information about its userbase to Beijing if Beijing legally compelled it to do so.

Second, Chinese companies are subject to a set of legal regimes that could compel them to cooperate with Chinese defense and intelligence services. The legislation includes a national security law that establishes a “whole of society” approach to China’s national security, including defining broad obligations for Chinese citizens to “provid[e] convenient conditions or other kinds of assistance to national security work” and to “provid[e] the necessary support and assistance to national security bodies, public security bodies and relevant military bodies.” A 2017 cybersecurity law requires cooperation with government inspections of networks and could enable Chinese government access to stored data. Cyber vulnerability regulations from 2021 require Chinese companies to report cyber vulnerabilities to the Chinese Ministry of Industry and Information Technology within forty-eight hours of discovering them—almost certainly before patching the vulnerabilities or disclosing them to customers. This legal requirement could give Chinese hackers an opportunity to exploit the vulnerability before it is patched.

A separate 2017 National Intelligence Law obliges Chinese companies and citizens to “support, assist, and cooperate with national intelligence efforts in accordance with law, and shall protect national intelligence work secrets they are aware of,” which appears to authorize the Chinese government to compel its companies to support intelligence gathering. A 2021 Counter Espionage Law mandates that Chinese nationals cooperate with China’s national security agencies, and a 2023 update to the law widens the scope of the law to cover “documents, data, materials or items related to national security and interests.” And the growing presence of Chinese Communist Party (CCP) cells active in Chinese businesses may provide more informal ways for the Chinese government to exploit data, software, and connected devices.

The third factor driving U.S. government concerns with China’s control of software and connected tech is the potential for software and/or regular firmware and software updates from China to create particularly significant risks. The global IT meltdown that cybersecurity firm CloudStrike caused in July 2024 when it distributed a botched software update to customers around the world—an event that likely caused between $5 billion and $10 billion in damage—illustrates the potential for updates to cause widespread disruptions. Although encryption and third-party storage could help mitigate many data security risks, the potential for malware intrusions is high when a company maintains ongoing control of software—particularly when such control is combined with China’s legal ability to compel a Chinese company to cooperate with Chinese defense and national security objectives.

Chinese and Third-Country Parallels

Although this paper is focused on Washington’s growing concern about Chinese companies with access to U.S. data and control of software and connected devices, Beijing is engaged in a parallel campaign against what it perceives as the risks of U.S. firms that have access to Chinese data and that provide software and connected technologies in China.

China has a long history of excluding U.S. technology companies and products, particularly news media outlets and social media platforms such as Facebook and YouTube, over censorship concerns. In the wake of Edward Snowden’s revelations regarding American cyber espionage in 2013, China began to promote a “secure and controllable” IT sector that gradually would wean itself off foreign IT companies. Initially, China’s efforts to reduce its use of Western IT proceeded slowly, but Beijing has intensified the campaign in recent years. In 2022, the Chinese government reportedly issued an order for state-owned companies in critical sectors, including finance and energy, to replace non-Chinese software on their networks by the end of 2027. Press reports suggest that many Chinese agencies and enterprises are banning employees from bringing phones manufactured by Western companies into government office buildings. China also has targeted U.S. chipmakers: in 2023, it restricted the use of Micron chips from some domestic critical infrastructure networks, and in 2024, it announced plans to phase out Intel and AMD chips from government computers. China also has taken broader measures to address perceived data security risks, notably far-reaching national data security laws that limit the flow of Chinese data internationally. And for U.S. tech companies that remain in China, Beijing increasingly is signaling that they will have to comply with measures to mitigate risk. In mid-2024, China gave U.S. car company Tesla permission to begin testing high-end autonomous driving features, which rely on precision imaging and sensors and large volumes of data, only after Tesla entered into a partnership with Chinese tech firm Baidu to help manage the data and mapping technology. Tesla also recently passed a Chinese government data security audit that has allowed Tesla automobiles to be included on Chinese government procurement lists.

A number of other countries also have begun to take steps to reduce what they perceive as the risks associated with their reliance on both U.S. and Chinese tech companies. For example, in 2023 the European Union considered restrictions on the foreign ownership of companies providing certain cloud services in Europe, though in mid-2024 it dropped proposed ownership restrictions in favor of data labeling and localization requirements. Absent diplomatic work by Washington to reassure allies about the trustworthiness of U.S. firms, and the development of principles to differentiate the risks associated with U.S. technology from the risks of Chinese technology, this trend is likely to continue. Indeed, Trump’s initial aggressive actions toward a number of traditional U.S. allies, such as his threats of tariffs against Canada and European countries, risk elevating allied concerns that Trump could weaponize their dependence on U.S. technology against them and encouraging allies to more aggressively reduce their own use of U.S. technology. This makes proactive engagement even more important.

Historical Background

The specific risks the United States faces from China’s access to data and control of software and connected devices are a product of the twenty-first century. Before the creation of the World Wide Web in 1989, there was no meaningful public internet or readily accessible online data, and “connected devices” meant government and university computer servers attached to early U.S. government IT networks like ARPANET. It was not until the 2000s that Chinese companies became significant players in designing and manufacturing high-tech products like telecommunications network infrastructure equipment, electric vehicles, and social media platforms. Indeed, in the years following the global spread of the internet in the 1990s, U.S. officials generally argued against foreign government plans to restrict international data flows and to close markets to software and connected devices, arguing that an open internet would advance both American values and American commercial interests, given the dominant role that U.S. companies played in the tech sector.

Even though the specific risks associated with China’s access to data and control of software and connected devices are new, the underlying concerns about foreign control of U.S. infrastructure and ability to influence U.S. opinion are not. More than two centuries ago, in the aftermath of the War of 1812, Congress passed a law restricting foreigners from owning ships that sailed between American ports, hoping both to strengthen U.S. industry and to ensure that foreigners could not control America’s domestic trade. At the dawn of America’s commercial aerospace industry in the 1920s, Congress extended ownership restrictions to airlines, in part out of concern that foreign companies flying aircraft over the U.S. heartland could hurt U.S. national security.

American concern about foreign ownership of communications networks and broadcast media similarly emerged during the first decades of wireless communications. In the early 1900s, the U.S. Navy became concerned that foreign spies could use the then-new medium of radio to send information abroad and to direct military attacks during a time of war. In 1912, at the Navy’s behest, Congress prohibited foreign nationals from acquiring or owning radio broadcast licenses in the United States. Many decades later, in 1985, laws restricting foreign ownership of U.S. broadcast television licenses forced Australia media baron Rupert Murdoch to become a U.S. citizen before he could buy the stations that become the foundation for his U.S. television empire.

The United States has never directly imposed foreign ownership prohibitions on print media, but there is a long history of laws trying to ensure that American print media was free of foreign influence. During World War I, the Trading with the Enemy Act required German-language newspapers to file English translations of their publications with the postal service, and the post office could refuse to mail publications it deemed to support Germany. During the 1930s, the U.S. government passed the Foreign Agent Registration Act in an attempt to require pro-German propagandists and publications to register as agents of the German government. Even today, the Committee on Foreign Investment in the United States (CFIUS), a Treasury-led process that reviews foreign acquisitions of U.S. companies for national security risks, can limit foreigners trying to buy U.S. media properties. In 2023, for example, CFIUS scrutiny contributed to the collapse of a planned buyout of Forbes magazine. Similarly, German publisher Alex Springer had to address CFIUS issues when it bought Politico in 2021.

The United States began imposing restrictions on foreign ownership of telephone networks in the 1930s. The first comprehensive U.S. communications law, the Communications Act of 1934, included provisions prohibiting foreigners from owning more than 20 percent of most U.S. “common carrier” phone and telegraph companies. The Federal Communications Commission (FCC) has for decades required companies that want to offer telecommunications services between the U.S. and foreign countries to obtain licenses.

Even when the United States liberalized its domestic telecommunications markets in the 1990s, it retained the authority to limit foreign ownership if it identified a specific national security risk. For example, the United States pledged to end most per se statutory prohibitions on foreign investment in U.S. telecommunications markets as part of its 1997 commitments to join the World Trade Organization. But the FCC simultaneously created a new government body, known as “Team Telecom,” that tapped U.S. national security agencies to review the national security risks associated with foreign investments in U.S. telecommunications and applications to provide telecom services to Americans.

Against this historical backdrop, U.S. government concerns about Chinese access to data and control of software and connected devices first seriously emerged in 2005, when a little-known Chinese computer company, Lenovo, struck a deal to acquire IBM’s legendary but low-margin PC division—a deal that would give a Chinese company control over computers and laptops used in businesses, schools, and government agencies. CFIUS ultimately approved the deal but only after imposing “mitigation measures” to address potential security risks, such as requiring the physical separation of Lenovo employees working on PCs from IBM employees who would continue to work on more sensitive servers and other products.

In the years following that 2005 case, CFIUS emerged as a major tool in U.S. government efforts to limit China’s access to U.S. data and software. Publicly reported CFIUS cases involving Chinese access to data and software over the past two decades include acquisitions of U.S. computer server companies, a U.S. health data company, LGBTQ dating app Grindr, money transmitter MoneyGram, and the insurance industry, among others. At times, CFIUS blocked takeovers or required a Chinese buyer to divest U.S. operations that a Chinese company had already acquired. At other times, as it had in 2005, CFIUS approved a transaction but required measures to mitigate risks. Though CFIUS does not publish the terms of specific deals, a review of its public annual reports over the past fifteen years indicates that mitigation measures can include limiting access to company and customer data to specific employees or to U.S. citizen employees (for example, no Chinese parent company or Chinese national access to the data); establishing security committees to limit access to sensitive technology and data; ensuring that certain products remain in the United States; and ensuring that only authorized vendors provide the U.S. company with certain products and services.

By the late 2000s and early 2010s, however, American national security officials began to encounter the limits of CFIUS. CFIUS can block a Chinese acquisition of a U.S. company that holds American data or develops software or devices, but it has no authority to block U.S. companies from selling data to China or purchasing Chinese technology, or to prevent Chinese companies from simply directly marketing their products to Americans. With Chinese companies playing an increasing role in global markets, U.S. policymakers began seeking new tools to address perceived risks.

At first, these tools focused on informal pressure on the corporate sector and on information gathering. In 2010, for example, Secretary of Commerce Gary Locke called the CEO of mobile carrier Sprint to urge that Sprint not consider a bid from Chinese national champion telecommunication company Huawei to perform extensive upgrades to Sprint’s telecommunications networks in the United States. The following year, realizing that it did not know the extent to which Chinese equipment already had been installed in U.S. telecommunications networks—particularly by smaller, rural telecommunications companies—the Obama administration used a Cold War−era law to require U.S. telecoms providers to report on Chinese networking equipment installed in U.S. networks.

After Trump was inaugurated in 2017 and identified China as America’s chief economic and strategic competitor, congressional and executive branch officials began to develop a more formal regulatory apparatus to address perceived risks posed by China’s access to data and its ability to exploit Chinese-owned software and connected devices. The initial focus was on telecommunication network infrastructure: Trump officials expressed concern about the risk that China could exploit its telecommunications gear to spy on U.S. citizens and to engage in industrial espionage in the United States. In response, the Trump administration launched domestic and international campaigns to reduce the use of Chinese equipment in telecommunications networks. The government also became increasingly concerned about the its own reliance on other types of Chinese equipment that China potentially could use to conduct espionage. In 2018, for example, Congress prohibited the use of many Chinese surveillance cameras at U.S. government facilities and directed the government to establish the Federal Acquisition Security Council (FASC) to review the security risks associated with U.S. government procurement of information communications technology software and devices.

By 2019, the government was concerned not only about telecommunications networks and the government’s infrastructure, but also about American private sector uses of Chinese-connected technologies. In May 2019, Trump signed Executive Order (E.O.) 13873, which directed the Commerce Department to set up a process to review and address risks in America’s information and communications technology supply chain (ICTS), including potentially restricting Chinese software and devices. As then commerce secretary Wilbur Ross said when the executive order was announced, the goal was to ensure that “Americans will be able to trust that our data and infrastructure are secure.” In March 2020, Congress passed the Secure and Trusted Communications Networks Act of 2019, which directed the FCC to maintain a public list of communications equipment and services that posed an unacceptable risk to U.S. national security.

The pace of rules and regulations increased during Trump’s final months in office, notably with new executive orders that sought to ban TikTok and nine other Chinese apps from being distributed in the United States. Although those bans were enjoined by courts and ultimately did not come into effect, they were a precursor for more recent actions, including Congress’s TikTok divestment law in 2024. Appendix A provides a timeline of major Trump administration actions.

Although Biden had been critical of aspects of Trump’s policy toward China while on the campaign trail in 2020, the Biden administration steadily—and in 2024 substantially—expanded the regulatory regime it inherited from Trump. In June 2021, while withdrawing the Trump administration’s court-blocked executive order attempting to ban Chinese apps, Biden issued E.O. 14034, which expanded on Trump’s ICTS executive order by directing the Commerce Department to evaluate Chinese software and connected devices for security risks and to take steps to mitigate identified risks. In November 2021, Biden signed the Secure Equipment Act of 2021, which authorized the FCC to effectively ban internet-connected products that it determined threaten U.S. national security and not simply to maintain a public list. A year later, in November 2022, Biden’s FCC used that authority to ban new security cameras made by two Chinese companies from being connected to the internet in the United States, effectively banning their sale or use.

In 2024, the Biden administration and Congress took additional steps to begin restricting data flows to China and to address the risks associated with Chinese software and connected devices. Some of these involved bureaucratic changes to support the U.S. government’s work. In early 2024, the Commerce Department hired former Microsoft executive Liz Cannon to run a newly established Office of Information and Communications Technology Services that would implement Commerce’s authorities over the ICTS supply chain. Other measures involved new restrictions on Chinese data flows, software, and connected technologies. In February 2024, Biden signed a new executive order to address cybersecurity risks at U.S. ports, and the U.S. Coast Guard issued a directive to U.S. port operators directing them to address security risks associated with their use of Chinese-manufactured cargo cranes, which U.S. defense officials previously had raised as a concern. Less than a week later, Biden signed E.O. 14117, which directed the Justice Department to establish regulations restricting data brokers from selling or transferring multiple different types of data to China and to Chinese companies in instances where doing so could impact U.S. security.

Two months later, in April, Congress passed a bill that would give ByteDance until early 2025 to divest its ownership of TikTok; failure to do so would mean that TikTok would face a ban on distribution through U.S. app stores. On January 20, 2025, Trump announced that he would seek to extend the deadline by seventy-five days to give his administration additional time to work out a deal, but Trump continues to indicate that he expects TikTok to be at least 50 percent owned by Americans. Congress’s April 2024 law also authorizes the government to impose similar divestment restrictions on other widely used Chinese social media apps, and to ban apps that do not comply with a divestment order. And as with E.O. 14117, this law included Federal Trade Commission (FTC) enforcement provisions to prohibit data brokers from selling personally identifiable information to China.

Also in 2024, the Biden administration announced plans to restrict the sale of internet connected cars manufactured in China, citing the national security risks that such cars could pose on U.S. roads, and it finalized the rules in early 2025. The Biden administration also launched a process in early 2025 that, if continued by Trump, could result in a ban on Chinese-made drones in the United States, in light of potential security risks. Appendix B provides a timeline of significant Biden administration actions to address the risks associated with Chinese access to U.S. data and Chinese software and connected devices in the United States.

Additional measures reportedly are under consideration. In a trade policy executive order that Trump signed on his second Inauguration Day, Trump directed his commerce secretary to “consider whether controls on ICTS transactions should be expanded to account for additional connected products.” Meanwhile, the leadership of the U.S. House of Representatives Select Committee on the Chinese Communist Party has urged the executive branch to examine and address security risks posed by Chinese cellular modules, Wi-Fi routers, drones, and semiconductors.

The Emerging U.S. Regulatory Regime

This decade-plus of U.S. government work to address the risks posed by China’s access to data and control of software and connected technologies has created a growing array of regulatory authorities. These authorities regulate Chinese software; Chinese devices, and technologies that connect to the internet; Chinese telecommunications companies that connect to the United States; and the flow of American data to China. They are spread across multiple agencies, including the Commerce Department, the Justice Department, the FCC, and the Department of Homeland Security. Some of the authorities consist of formal rules and regulations; others are voluntary standards and awareness-raising efforts by the U.S. government intended to influence private sector decisions without directly regulating them. Core elements of the existing regulatory regime include the following:

• The Commerce Department’s ICTS authorities to restrict the distribution and use of information and communications technology and software: Two executive orders, E.O. 13873 on the information and communications technology supply chain and E.O. 14034 on foreign adversary controlled apps and software, empower the Commerce Department to review and address risks associated with information and communications technology and services and/or software applications designed or developed by designated “foreign adversary” countries, which currently is defined to include China, Russia, and several other countries. These executive orders empower the department to review the risks associated with a broad range of technologies, including network infrastructure equipment, software, and devices that connect to the internet, and to impose restrictions or mitigation measures to address identified security risks. The department issued its first major restriction pursuant to these authorities in June 2024, when it banned the U.S. distribution and sale of software made by Russia cybersecurity firm Kaspersky Labs. In September 2024, the department published a draft rule restricting the sale of Chinese autonomous driving technology in the United States as well as cars using certain Chinese connectivity modules.
• The Federal Communications Commission’s “Covered List,” which effectively prevents covered items and services from connecting to U.S. communications networks or internet: The FCC maintains a “Covered List” of items or services “deemed to pose an unacceptable risk to the national security of the United States or the security and safety of United States persons.” Pursuant to the Secure Equipment Act of 2021, as of February 2023, the FCC will deny authorizations to equipment and services on the Covered List, meaning that the equipment cannot connect to U.S. telecommunications networks. This denial effectively prohibits covered devices, software, or telecommunications services from being used in the United States. The FCC does not make its own independent decisions on whether to include specific equipment or services on the Covered List, but instead takes direction from relevant national security agencies. For example, when the FCC added two Chinese telecommunications providers to the Covered List in September 2024, it stated that it did so at the request of the Department of Commerce and with the concurrence of the Department of Justice and Department of Defense. The Covered List currently restricts several types of Chinese telecommunications network infrastructure, several Chinese security cameras, Kaspersky software, and several Chinese telecommunications services.
• The Commerce Department’s “Know Your Customer” requirements for U.S. cloud services providers: In January 2024, the Commerce Department proposed a rule that would require companies providing internet infrastructure as a service—effectively, cloud services providers—to establish KYC rules that would enable them to identify their customers and the owners of their customers. The intent of the rule is to help U.S. companies and ultimately the U.S. government to better identify and cut off foreign companies and entities that use cloud services to support espionage and other malicious cyber activity.
• “Team Telecom” to prevent high-risk communications companies from operating in the United States or connecting to U.S. networks: The FCC’s “Team Telecom” process reviews applications by foreign companies to start offering communications services in the United States or to offer international communications services (such as via submarine telecommunications cables) to the United States. In recent years, it has denied authorizations to China-linked companies while also requiring a planned Google- and Meta-operated cable that had a Chinese partner to adopt measures to mitigate potential data security risks.
• The Department of Justice’s “Data Security” executive order that authorizes the department to limit bulk data transfers to China: Pursuant to E.O. 14117, the Department of Justice is drafting rules to prohibit or otherwise restrict the transfer of certain U.S. government or U.S. bulk data to China and other jurisdictions deemed to pose a threat. The department’s authority includes both the ability to regulate only arms-length sales or transfers of sensitive U.S. data to China, and to restrict vendor agreements between U.S. firms and Chinese companies that could provide the Chinese companies with access to the data, such as an agreement between a U.S. hospital chain and a Chinese firm to process U.S. patient data. The data transfer rules also effectively may limit the deployment of certain Chinese software and connected devices in the United States, given that many types of software and connected devices collect data—particularly personal information and geolocation data—that a Chinese company ordinarily would process back in China.
• The Federal Trade Commission’s enforcement of the Protecting Americans’ Data from Foreign Adversaries Act: In April 2024, Congress enacted the Protecting Americans’ Data from Foreign Adversaries Act, which prohibits data brokers from selling certain categories of U.S. individuals’ personally identifiable sensitive information to China or to Chinese companies. This law overlaps significantly with but is also distinct from and in some ways broader than Biden’s 2024 data security executive order.
• The Committee on Foreign Investment in the United States: CFIUS continues to have authority over foreign acquisitions of U.S. companies that control telecommunications or other key infrastructure or that hold sensitive U.S. data, including the authority to mandate mitigation measures and to recommend that the president block acquisitions outright. In 2018, Congress amended the CFIUS statute to increase the committee’s focus on sensitive data (among other reforms). In 2022, Biden issued an executive order directing CFIUS to increase its focus on data security risks as well as several other national security concerns.
• Congress’s divestiture requirements for Chinese-owned social media companies: In April 2024, Congress enacted legislation to prohibit app stores from distributing popular social media app TikTok starting in early 2025 unless TikTok’s Chinese parent, ByteDance, divested itself of the company. The same legislation authorized the president to impose a similar divestment requirement or distribution ban for other Chinese social media companies that have more than 1 million U.S. users and which the president determines pose a threat to U.S. national security. This requirement could impact fast-growing Chinese social media companies such as MiniMax and Hypic. (On January 17, 2025, the Supreme Court upheld the constitutionality of the law.)
• The Federal Acquisition Security Council and other federal procurement restrictions: The Office of Management and Budget (OMB) chairs the FASC, which Congress chartered in 2018. The FASC consists of key security and procurement agencies. Its mandate is to reduce cybersecurity and supply chain risks in federal procurement, including the risks posed by foreign ownership or control of an item that the government is buying. It has the authority to prohibit the federal government from purchasing specified products and, in particularly high-risk instances, to order the “rip and replace” of software and other equipment already in federal systems. Although FASC decisions are limited to restrictions on federal procurement, FASC restrictions generally also will be noticed publicly, potentially sending a signal to private sector purchasers as well.

Beyond the FASC, the government has other authorities to regulate its own procurement of high-risk products. One such example is the Department of Homeland Security’s authority to issue “Binding Operational Directives” to agencies to mitigate identified cybersecurity risks. Moreover, Defense Department procurement regulations prohibit it from purchasing goods made by Chinese companies that the department has identified as part of China’s military-industrial complex.

• Sectoral regulators: Although the United States does not have a cross-cutting cybersecurity regulator, several sectoral regulators have the potential to impose restrictions on the use of Chinese software and connected technology if they determine that such products or services threaten the integrity of networks or undermine U.S. security. For example, in February 2024 the U.S. Coast Guard, which has regulatory authority over ports and shipping, issued a maritime security directive on the security risks posed by use of Chinese-made port terminal cargo cranes and directed port operators to take steps to address these risks. Federal regulators overseeing the banking and healthcare sectors also have the authority to direct regulated companies to take steps to ensure appropriate cybersecurity protections that will restrict regulated entities from transmitting data to China and from relying on Chinese software and connected technologies. For example, in December 2024 the Consumer Financial Protection Bureau proposed rules that will prohibit data brokers from selling certain financial information in support of efforts to protect sensitive U.S. data from foreign adversaries. The U.S. Treasury Department and Federal Reserve have authorities to mandate that financial institutions impose data security measures, while the Department of Health and Human Services has some authorities to ensure the protection of U.S. health data.

Beyond these core regulatory authorities, the U.S. government has other tools at its disposal to address the risks posed by data transfers to China and by Chinese control of software and connected devices. These include awareness-raising efforts to ensure that the U.S. private sector and U.S. citizens understand relevant risks, mechanisms to leverage private sector guidance documents and standards, and the Commerce Department’s authority to restrict imports that threaten U.S. national security.

• Department of Homeland Security and law enforcement awareness-raising efforts: The Department of Homeland Security, the Federal Bureau of Investigation (FBI), and U.S. intelligence agencies possess only limited regulatory authority over the use of Chinese software and connected technology in the United States, but they do have tools to raise public and business awareness of potential risks. Earlier this year, for example, the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency issued a formal warning to companies operating critical infrastructure about the risks associated with using certain Chinese-connected devices, such as drones. FBI field offices can engage with local companies to discuss potential espionage and cybersecurity risks. And the Director of National Intelligence has published a summary document describing Chinese laws that could compel Chinese companies to cooperate with national security and intelligence work—a type of public outreach that could be expanded.
• Voluntary cybersecurity standards: The U.S. National Institute of Standards and Technology publishes a national Cybersecurity Framework that provides guidance to U.S. businesses, including small businesses, on cybersecurity best practices and ways to identify and address cybersecurity risks. Other agencies, including the Cybersecurity and Infrastructure Security Agency, promote voluntary cybersecurity standards for companies that operate critical infrastructure across a range of sectors. To date, these standards have not incorporated specific risks related to data transfers to China or use of Chinese software or connected technology, but they do provide guidance on a wide range of more general cybersecurity risks and best practices.
• The Commerce Department’s “Section 232” authorities: Section 232 of the Trade Expansion Act of 1962 authorizes the Commerce Department to regulate imports of products when the department determines that imports threaten to impair U.S. national security. The department historically has used Section 232 to protect U.S. manufacturing: Trump, for example, used Section 232 to regulate U.S. imports of steel. The Commerce Department could leverage these authorities to restrict imports of products where the product itself was determined to create a national security risk: at least one outside assessment, for example, has noted that the department could use Section 232 to impose tariffs or other import restrictions on U.S. imports of Chinese semiconductors if it determined that the semiconductors posed a threat to U.S. national security.
• Federal Trade Commission authorities: Finally, the FTC has general authority to act against unfair and deceptive trade practices, including by tech companies. In recent years, for example, the FTC has taken action against companies that do not honor the privacy commitments they make in their own terms of service, and the FTC recently warned companies against deceptively changing their terms of service to allow themselves to exploit user data to train AI models. The FTC potentially could use its authorities to penalize a Chinese company that shared information with the Chinese government without adequate user consent.

Policy Recommendations

As the history and regulatory authorities described in this paper illustrate, over the past decade—particularly since the late 2010s—the United States has developed a surprisingly complex regulatory regime to restrict data transfers to China and to address the risks posed by Chinese software and connected technology. This regime has potentially profound significance for the U.S.-China relationship, given that a growing share of U.S. imports—including even household and consumer devices like kitchen appliances and lighting systems—connect to the internet, creating security vulnerabilities and potentially subjecting them to regulation. Chinese tech startups, as well as established companies like Temu and Shein, remain focused on the United States as a potential market and almost will certainly find themselves subject to increased U.S. government scrutiny and regulatory pressure. China’s parallel regulatory regime to address the risks Beijing assesses it faces from reliance on U.S. tech will have similarly significant impacts on U.S. companies operating in the world’s second-largest economy. And, as governments around the world begin to develop their own measures to reduce data, software, and connected device risks, the United States will need to ensure that those measures address legitimate security risks posed by China without adversely impacting U.S. firms.

Pressure to use these authorities to further restrict U.S. data flows to China and the operations of Chinese software and connected devices in the United States almost certainly will increase over the coming years, driven by intense Sino-U.S. geopolitical competition and continued American concern about Chinese cyber risks to the United States. As the United States continues to develop its regulatory regime for U.S.-China data flows and for Chinese software and connected devices, policy recommendations include the following:

Embed China-focused measures within a broader set of measures to improve data privacy and cybersecurity. China’s sophisticated hacking operation has multiple avenues to exploit U.S. data, influence U.S. opinion, and breach U.S. networks without relying on Chinese companies obtaining direct access to U.S. data or controlling software or technology. The United States cannot effectively protect against China-related data, influence, and cybersecurity risks without adopting broader and more comprehensive measures to protect Americans’ data and to enhance U.S. cybersecurity. Indeed, recent events have illustrated this fact: While the United States took steps in the late 2010s to limit the use of Chinese telecommunications network infrastructure equipment in U.S. telecommunications networks, over the past several years China mounted a sophisticated hacking program into U.S. telecoms networks—providing vast and unprecedented access to Chinese spies, including to the communications of senior U.S. government officials.

A U.S. national data privacy law that limits data collection in the first place, for example, would limit the pools of sensitive American data that China potentially could hack regardless of whether they are held by U.S. or Chinese firms—not to mention the domestic privacy benefits. A national data privacy law would also have domestic privacy benefits and help align U.S. policy with allied nations that have strong privacy protections. A strong national data privacy law and cybersecurity measures should be the government’s primary focus, with measures specifically targeting data transfers to China and Chinese software and connected devices playing an important supporting role.

Publish a formal risk assessment and strategy for the government’s work. The U.S. government should publish a comprehensive assessment of the risks posed by China’s access to U.S. data and control of software and connected technologies and a strategy to address those risks, publicly including specific priority areas for U.S. government focus. In 2024, the Commerce Department published a list of priority technologies it is focused on, pursuant to authorities limiting Chinese software and connected technology in the United States, which could serve as a partial basis for a broader cross-U.S. government strategy. However, the U.S. government has not published an overarching strategy identifying specific cross-cutting technologies of concern; describing when it will seek to mitigate risks with regard to blocking data transfers, software, and connected devices; or describing cross-cutting steps that it would like to see U.S. private sector companies take to begin addressing risks on its own. A formal U.S. government risk assessment and strategy would harmonize work across agencies while providing a signal to the U.S. private sector of specific priority areas to reduce reliance on Chinese software and connected technologies.

Develop clear guidelines for assessing risks: Different government agencies and authorities have established overlapping but also somewhat different criteria for evaluating the risks posed by China’s access to data and its control of software and connected technologies. Some tools, such as the FCC’s Covered List, do not appear to be guided by published risk criteria at all. As part of its published risk assessment and strategy, the government should publish a clear set of the criteria it uses and recommends that private entities use these criteria to assess the risks associated with data transfers to China and use of Chinese software and connected technology. Such criteria could include the following elements:

• Data sensitivity and volume
• Ownership or control of companies with access to data and control of software and connected devices
• Whether software or a device is intended to be used to for sensitive applications, such as critical infrastructure
• The scale of use or dependency—for instance, is it widely used, or is it one of several similar products that also are being used and could be substituted if necessary?
• The potential for software or a connected device to be used to mount attacks or facilitate influence campaigns
• The ease of replacing software or devices—for instance, the difficulty of “rip and replace” if subsequent risks are identified
• The ability to provide software updates not subject to oversight, including whether malware could be inserted
• The extent of involvement of trusted parties in the development and distribution of the software or connected device, such as whether a third party can monitor for potential malicious activity
• The availability of mitigation options such as encryption, data localization, technical reviews of code, and independent monitoring and oversight

These criteria should be updated as risk perceptions evolve.

Develop clear principles to guide the development and deployment of software and connected device restrictions: While the United States has a compelling interest in imposing sensible restrictions on the use of high-risk Chinese software and connected devices, it also has a compelling interest in both avoiding broader-than-necessary restrictions and in avoiding setting a precedent that foreign governments skeptical of U.S. technology firms could use to impose their own national restrictions on the use of U.S. technology. The United States can balance these interests by developing and publishing a clear set of principles to guide the deployment and development of restrictions on Chinese software and connected devices. Articulating clear principles can help limit the potential overuse of restrictions by U.S. agencies as well as providing a framework for international cooperation with allies and partner nations.

Improve information disclosure and monitoring. Although U.S. government officials have spoken publicly about the risks of data flows to China and Chinese control of software and connected technology, they generally have not disclosed specific instances of China’s use of its software or connected devices for harmful purposes. Moreover, the U.S. government appears to have little systematic information regarding the extent of data transfers to China or the prevalence of Chinese software and connected technology in the United States beyond high-profile examples such as TikTok and Chinese automobiles. Closing this information gap will be essential to effective policymaking. The Commerce Department could, for example, conduct a survey of various U.S. critical infrastructure companies to determine the extent to which they are using Chinese software or connected devices in their networks. It also could require Chinese companies selling certain types of technology in the United States to file a notice with the U.S. government so that the government understands their role in the market. The U.S. government may also consider expanding the KYC requirements that currently apply to cloud services providers to app store providers to ensure that major software distributors (and their customers) in the United States know if they are distributing Chinese technology.

Develop standards for mitigation measures. Mitigation measures likely will play an important role in addressing China-related data security, software, and connected device risks. A Chinese-designed home vacuum cleaner robot, for example, might be able to collect substantial sensitive information, including interior maps of the homes of government officials and corporate executives. Those risks, however, could be mitigated with technical solutions that prevent customer data from traveling to China and third-party auditing of software to ensure that malicious code is not inserted. Over more than three decades, the CFIUS process has developed a set of mitigation measures that can reduce the risks associated with a foreign takeover of a U.S. company, with CFIUS blocking transactions only in particularly high-risk scenarios. The United States should develop and promote mitigation measures to reduce the risks of less risky Chinese products, while reserving bans for higher-risk products and applications.

Codify the executive branch’s authorities. Both the Trump and Biden administrations have relied heavily on a 1970s statute, the International Emergency Economic Powers Act (IEEPA), as the legal basis for limiting certain data flows to China for regulating certain Chinese software and connected devices in the United States. IEEPA, for example, forms the basis of both Trump’s ICTS executive order and Biden’s software executive order. IEEPA, however, was drafted before the internet existed and does not, for example, clearly authorize the government to impose all of the mitigation measures that policymakers might want to pursue. Moreover, there are limits to IEEPA’s reach: in 2020, when the Trump administration sought to use IEEPA to ban TikTok, U.S. courts concluded that IEEPA did not grant the executive branch the authority to impose such a ban. Given recent U.S. court rulings holding that major policies should be clearly authorized by Congress, Congress should codify authorities to regulate in this area both to provide a sound statutory basis and to provide appropriate oversight of executive branch policymaking.

Develop international standards with like-minded allies: The United States has both an interest and an opportunity to collaborate with like-minded allies in the development of shared approaches to the regulation of Chinese access to data and control of software and connected devices. Shared approaches to standards will reduce the risks that U.S. allies and partners will find themselves dependent on Chinese software and connected devices and that U.S. allies, concerned about their own vulnerabilities, will impose restrictions of their own on both Chinese and U.S. firms. Moreover, key allies appear to be interested in joint approaches: Japan has been promoting its “data free from with trust” framework for several years, while both U.S. and European Union officials are developing labeling programs to label connected devices that meet cybersecurity standards. The United States should launch a new initiative to cooperate with allies to establish joint approaches to addressing the risks of data flows to China and of Chinese-controlled software and connected devices.

Conclusion

In 2000, as China was embarking on a multidecade process to crack down on domestic internet usage, then president Bill Clinton jokingly wished Beijing well. “Good luck,” he quipped. “That’s sort of like trying to nail Jell-O to the wall.” But over the ensuing decades, China did largely succeed in regulating its domestic internet economy, developing systematic censorship, building national champion enterprises, and restricting many major Western firms from entering its market. The United States, meanwhile, remained open to China, not just for information from and about China—openness that the United States should always value—but also open to a growing array of cross-border data flows, Chinese software, and connected devices.

The United States should not follow in China’s model: its open society is a national strength. Moreover, unduly broad restrictions on Chinese companies’ access to data and on Chinese software and connected technology in the United States could have adverse unintended consequences: disrupting ordinary commercial trade that depends on data flows, for example, or reducing beneficial innovation because U.S. firms are not exposed to competition from Chinese competitors. But in today’s era of strategic competition, United States policymakers need to address the data security, disruption, and influence risks that come from cross-border data flows, Chinese software, and connected devices. Since the 2010s, they have begun to do so, with dozens of actions involving myriad government agencies. Now, government policymakers need to develop a more systematic and comprehensive framework for managing the relationship going forward.

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International trade has been a pillar of U.S. foreign and domestic policy for most of the post–World War II era. Policymakers from both major parties have treated strong international economic relationships built on expanding international trade as central to advancing economic growth at home and achieving American goals on international development and security abroad. Secretary of the Treasury Janet Yellen captured the old consensus position well in an April 2023 speech explaining that “our economic power is amplified because we don’t stand alone. America values our close friends and partners in every region of the world, including the Indo-Pacific. In the 21st century, no country in isolation can create a strong and sustainable economy for its people.” Her words echoed those of one of her predecessors, Henry Paulson, who remarked sixteen years earlier on the benefits of open economic exchange that “countries that weren’t afraid of competition, that opened themselves up to trade, competition and trade, investment and finance, benefited, [whereas] the rest of the world, others were left behind. And opening . . . up to this competition leads to innovation, it leads to better jobs, more jobs, it leads to a higher standard of living.”

But in a very different April 2023 speech, U.S. President Joe Biden’s national security adviser, Jake Sullivan, laid out the administration’s case against globalization as it had been pursued in the past and argued for a new economic approach. While acknowledging that international economic cooperation “lifted hundreds of millions of people out of poverty” and “sustained thrilling technological revolutions,” he also argued that it all came at a price. To wit: “A shifting global economy left many working Americans and their communities behind.” The inexorable push for scrapping trade barriers had other costs, too, he continued—among them, the hollowing out of America’s industrial base, inequality that has threatened U.S. democracy, increasing environmental consequences, and geopolitical risks created by dependence on rivals such as China.

According to Sullivan, the Biden administration was forging a new path: not one that entirely rejected trade liberalization, but also not one that embraced traditional free trade agreements or tariff reductions as the main destination. He framed the approach as a middle ground, focused on advancing economic cooperation by pursuing nontrade priorities such as supply chain resilience, secure digital infrastructure, sustainable clean energy transition, and job creation. Sullivan described a new economic model that would be worker-centric, combining industrial policy to support high priority sectors with efforts to harmonize labor and environmental standards and integrate supply chains with close allies and partners—but without offering new market access.

Admittedly, Biden has achieved a measure of success in working toward this vision. Domestically, there were important wins included in the Bipartisan Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act. Appropriated funding is being doled out to boost semiconductor production and spark investment in other cutting-edge technologies. Money in these bills will also support infrastructure development that creates manufacturing jobs and helps to rebuild parts of the industrial base, including those that support national defense.

On the other hand, success abroad has been more limited, even if not absent. The Biden administration has improved coordination with European allies in areas such as green technologies and artificial intelligence, supply chain integration, and critical minerals, for example. In Asia, Biden’s team has advanced the Indo-Pacific Economic Framework (IPEF) with thirteen other participants and reached agreements on issues such as supply chains, clean energy and infrastructure, and tax and anti-corruption efforts.

But there is a larger story. Whatever the intention of these narrow efforts, Biden’s economic approach has resulted in a doubling down on the harder turn away from relatively free trade that began under former president Donald Trump’s administration—a set of outcomes different from what Sullivan’s speech appeared to imply. The promised middle ground has remained elusive. Although Biden’s team has not officially “sworn off” market liberalization, expanded market access appears to have been almost completely shelved as a foreign policy tool—even when it would have significant benefits or could serve as an incentive to push progress toward key security and geopolitical objectives.

Nowhere has this been clearer or more consequential than in Asia—home to many of the fastest-growing economies in the world. Though the administration has signed trade “mini-deals” based on executive orders with Japan and Vietnam in limited sectors and encouraged continued U.S. leadership in private investment, it has relied on the IPEF as the main vector of U.S. economic policy in the region. The IPEF has explicitly excluded market access from negotiations across all four pillars, a decision that has limited its scope and durability. For example, without trade as an incentive, IPEF members have been hesitant to commit to costly reforms related to issues like climate change or worker protection, resulting in a set of agreements that are mostly aspirational and without credible enforcement mechanisms. The evolution of the IPEF’s trade pillar is also telling. Not only did the trade pillar’s draft framework agreement exclude tariff reductions but the United States pulled out of negotiations on this agreement in November 2023, leaving the pillar stalled indefinitely.

Washington’s reliance on the IPEF as its main economic lever in Asia has magnified other risks as well, including lost opportunities to consolidate geopolitical influence and strengthen relationships with allies and partners. Though the United States remains a major economic force in the region, private investment and executive trade agreements cannot replace a more expansive approach to trade in Asia when it comes to integrating the United States more deeply into the region’s multilateral economic networks.

Without a more robust trade agenda, Washington misses out on economic opportunities. For example, the United States has limited leverage to shape the rules for economic exchange in Asia while they are being rewritten to incorporate new global realities like the economic power of India, Japan, and South Korea, the spread of fast-evolving technologies and digital trade, and the pressures of climate change and global migration. Even U.S. security goals in Asia are compromised by American policymakers’ decision to eschew trade policy as a foreign policy tool. U.S. allies and partners, who are heavily dependent on trade with China and lacking many economic alternatives, are limited in how closely they can align with Washington in the security domain for fear of economic retaliation from Beijing.

A different approach to trade in Asia—and globally—can exist in the space between past policies and those of the present, one that would truly represent a middle way between the current approach and the so-called Washington Consensus of old. Such a strategy would amount to a more reflective version of global integration that attends carefully to domestic realities alongside interests abroad while retaining trade as a key foreign policy tool that links the economic and security domains.

The new approach would allow for some heterodoxy in economic policy across regions and sectors and would aim to revitalize the Biden administration’s current industrial policy with a series of trade innovations, such as mini-lateral and sectoral trade agreements with key partners, efforts to integrate key Asian allies more deeply into existing multilateral agreements, or modifications to attach some limited market access to the IPEF. Each expansion of market access would be narrow and tied to clearly defined criteria, but together these moves would be enough to reestablish trade as a foreign policy lever in a crucial region. These trade innovations would not replace government protection for strategic industries, and a substantial and immediate increase in federal spending on government training and assistance for dislocated workers would still be required.

With this type of approach, the United States could better communicate its economic and geopolitical commitment to the region, diversify its economic role in Asia, and position itself to compete more effectively with China, even as it protects key U.S. industries. The United States would still need to manage some risks, of course, including finding the balance between engagement and competition with China, relative and absolute economic gains, and national prosperity and security. Even with these challenges, the pursuit of this true middle ground should be a top priority in Washington.

Economic Integration and Its Discontents

In the early twenty-first century, questions for U.S. policymakers about how best to approach the intertwined issues of cross-border trade, migration, flows of information, and political ties in Asia occur alongside a broader backlash against “globalization.” At a time of major geopolitical upheaval and technological change, policymakers and the public are vigorously debating the merits of domestic policies suitable for an interconnected world. They are exploring new trade and migration rules, reviving strategies for national industrial and technological development, and reflecting on the lessons of globalization for international law and institutions substantially influenced by the United States. Discussions of “reshoring” supply chains and U.S.-China economic “decoupling” or “de-risking” are just a few examples of rising concerns in Washington about cross-border ties.

Despite occasional protestations from policymakers about the need for balance, the debate thus far has been mostly concentrated on the extremes: globalization that pushes for ever more economic cooperation or industrial policy that focuses inward to protect domestic jobs. Often lost in this debate, however, is that both of these approaches have substantial benefits and significant costs. This is true both globally and narrowly in Asia.

The U.S. commitment to comprehensive free trade has always been qualified. Even the World Trade Organization (WTO) embodies a contingent—not absolute—form of free trade. In this conditional form, globalization has had clear advantages for the United States. Most significantly, it has been responsible for tremendous domestic economic growth. The U.S. per capita GDP (in constant 2010 dollars) was about $19,000 in 1960 and $61,000 in 2021 (four times the global average per capita GDP, considerably higher than any other country with a large population)—a feat that would not have been possible without trade and international economic cooperation. Trade with Asia specifically has and continues to provide the United States with significant economic gains. As of 2019, for instance, exports to Association of Southeast Asian Nations (ASEAN) member states alone accounted for over 500,000 jobs in the United States.

Though domestic economic growth has been the primary driver of Washington’s long-running support for free trade, the United States has also profited in other ways from its perch atop a cooperative international economic order. Adam Posen, president of the Peterson Institute for International Economics, argues that “as creator and enforcer of international economic rules,” the United States gained “maximum economic traction while minimizing the need for direct conflict” and “could even occasionally flout the rules, or tweak them in its favor.” International economic integration also allowed for specialization, faster innovation, higher returns on capital investments, economies of scale, and other efficiencies that benefited the American economy and U.S. workers.

The United States has also accrued international influence through economic cooperation. Much U.S. soft power, globally and in Asia, depends on the fact that billions around the world consume the ideas and technologies produced in major metro areas around the United States—metro areas that have evolved into the key pillars of U.S. global leadership in science and medicine, media and culture, education, civic life, and digital technology. Often, they encompass diasporas from South Asia, East Asia, and elsewhere, and depend on constant influxes of new visitors and residents—including students and workers from other states and countries—who bring new ideas and investment. International economic cooperation contributes to this mobility of capital, people, and ideas.

Globalization as it was pursued and implemented over the past several decades, however, has also had costs––some real and some imagined or overstated. Most importantly, the benefits from global trade are rarely evenly distributed and contributed to a sharp drop in U.S. manufacturing jobs over several decades as corporations shifted production to countries with cheaper labor. One National Bureau of Economic Research (NBER) estimate, for instance, finds that between 1980 and 2017—a peak period in globalization—the United States lost 7.5 million manufacturing jobs, with trade being one of several drivers. Not only did this loss of manufacturing erode the U.S. industrial base, it also disproportionately affected workers with only a high school diploma. Many were left dislocated when government-promoted retraining and assistance programs were underfunded and insufficient.

These economic costs may have had political ramifications as well. Some analyses suggest that Trump’s 2016 victory was made possible by voters on the losing end of the inexorable press for trade liberalization, who had voted for former president Barack Obama in 2012 but were won over by Trump’s promise to bring back U.S. manufacturing jobs by reducing trade with China and pulling the United States out of the ambitious Trans-Pacific Partnership (TPP)—which he ultimately did.

That said, questions persist about just how much trade liberalization alone contributed to what Sullivan called the “hollowing out” of U.S. manufacturing or to Trump’s 2016 victory. A 2021 analysis by the Center for Strategic and International Studies, for instance, shows that increasing worker productivity, not trade, accounts for the greatest share of the decline in U.S. manufacturing jobs. This is supported by research from the Ohio State University that found trade was only responsible for a third of manufacturing job losses in that state. Of this total lost to trade, only a relatively smaller percentage can be linked directly to trade with China specifically—estimates of this percentage vary but most fall between 10 and 25 percent. Moreover, there is evidence that negative effects of the “China shock” occurred largely before 2010 and did not persist afterward, suggesting that fear of continued manufacturing job losses to China and elsewhere may be misplaced.

The argument that economic costs from trade drove the societal implications many observers ascribe to cross-border commerce also lacks clear support. Even if trade effects are understood to play some role in rising political tensions within the United States, a close examination of voting trends from the 2016 election recognize cultural factors—rather than purely economic hardship—to be the key factors behind changes in partisan politics.

The economic and political costs of globalization may be somewhat more measured than expected, but unchecked economic integration can raise material national security questions. Many in Congress and the executive agencies caution that too much trade creates dependencies that would turn into vulnerabilities in a conflict. These fears are especially acute, and at least partially justified, when it comes to trade in Asia and with China specifically, given the critical imports that this trade includes, the rising risk of conflict in the region, and what many view as unfair trade practices employed by Beijing. The United States remains heavily dependent on China for some critical minerals, for example, including those necessary for advanced military systems. China’s military-civilian fusion also creates the potential for U.S. exports to China to end up supporting the development of its People’s Liberation Army. And China has shown a willingness to use economic retaliation as a tool of coercion and to manipulate its currency and markets in ways that disadvantage U.S. firms.

These challenges are all reasons that the United States may need to manage trade with China carefully, including restricting certain types of exports and protecting some domestic industries. They are not, however, a reason to entirely give up further trade integration with the rest of Asia or elsewhere. In fact, geopolitical competition makes the development of a strong trade agenda globally, and in Asia especially, more important for the United States, not less. This is true for two reasons.

First, by turning away from market access as a foreign policy tool in Asia, Washington cedes much of the trade domain to Beijing, leaving its partners with fewer economic alternative and undermining U.S. influence in Asia. Second, some additional trade integration with countries across Asia (and outside of it) could help the United States build a more diversified and resilient supply chain and trade network itself, reducing its dependence on China in key sectors. Achieving this outcome would require intentional choices about how and where to increase trade access, but it cannot be achieved when trade liberalization is not an option. Biden’s economic strategy in Asia, and the IPEF in its current form especially, is not up to the job, either at the institutional level or its basic orientation to the role of trade in U.S. foreign policy.

The Risks of Biden’s Approach to Trade in Asia

The Biden administration’s reluctance to use market access as a foreign policy tool has global ripple effects but the risks are biggest in Asia, both because of the region’s high and growing economic importance across sectors and because it is home to the most important U.S. strategic and economic competitor: China. As a result, when thinking about the future of U.S. trade policy, it makes sense to start in the Indo-Pacific.

The administration’s economic strategy in the region has included a few key pieces: “mini-deals” signed at the executive level to increase bilateral trade in specific sectors with close allies and partners; initiatives to advance regional supply chain cooperation, especially in the defense sector and for technologies like semiconductors; economic incentives to spur private business investment in the region; export controls and industrial policy to protect domestic industry and national security; and, at the center, the IPEF, which is intended to unite these different initiatives.

As conceived by the Biden administration, the IPEF was loosely intended to offset the U.S. decision not to join the TPP and its successor organization, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The IPEF focuses on reducing nontariff barriers to trade, especially harmonizing standards. The IPEF’s largest successes thus far have been in establishing an agreement to support supply chain integration and resilience among the thirteen other participating members and acceptance of a set of standards to advance climate goals and fight corruption.

However, the IPEF’s first set of agreements leave much to be desired. For the most part, they include only nonbinding commitments and high-level ambitions, rather than clear and actionable targets for cooperation. The IPEF’s pillars also remain weakly institutionalized, making it unclear how standards will be monitored or enforced. At this point, it remains uncertain whether the three agreements signed thus far—in the climate, tax and anti-corruption, and supply chain pillars—will advance U.S. economic integration in the region. Moreover, the trade pillar lacks a path forward after the United States pulled out of negotiations, much to the dismay of other participants. The IPEF has also failed to win the confidence of constituents across Asia. A 2024 survey of Southeast Asian states found that respondents appear to be growing more skeptical and critical of the IPEF over time, resent the high cost of achieving U.S.-promoted standards with few benefits in return, and identify China as the economic leader in the region while questioning U.S. staying power and commitment.

Beyond these institutional shortcomings, the IPEF-led approach to trade in Asia and the failure to find a real middle way in the trade domain come with three types of risk, each with potential economic and geopolitical costs. Notably, even if more pronounced in Asia, these challenges are not entirely unique to the region and exist elsewhere as well.

First, by remaining outside of all of Asia’s major trade agreements, the United States is likely to face losses in terms of GDP and domestic economic growth. In this case, much (but not all) of the U.S. economic loss is likely to translate into gains for China. As the United States has moved away from free trade, China has leaned into it. With its involvement in the ASEAN+3, ASEAN+6, bilateral trade agreements, and now the new Regional Comprehensive Economic Partnership (RCEP), China’s trade with Southeast Asia has quadrupled since 2009 (compared to a smaller but still sizeable tripling of its global trade). A study by the United Nations Conference on Trade and Development found further that the RCEP arrangement would reduce U.S. exports to Asia by over $5 billion due to trade diverting away from the United States and toward RCEP partners where tariffs are lower.

Membership in the CPTPP would have placed the United States on more equal footing and offered benefits that far exceed any RCEP-induced losses. By choosing not to join this organization, the United States misses out on billions in economic gains. A 2018 Peterson Institute report found that joining the CPTPP would have resulted in net $131 billion added to U.S. GDP by 2030, while the decision to pull out will result in a $2 billion loss. By expanding market access to Asian partners—at least in some sectors and to some partners—the United States could lay claim to some portion of this windfall. The narrow bilateral executive agreements signed under Biden move in the right direction but are too limited to offset the deficit created by the weakness of other aspects of Biden’s trade and economic strategy.

None of these observations imply that the United States should mirror China’s approach to trade in Asia or elsewhere. After all, the two countries face quite different dynamics when it comes to international trade’s inherent trade-offs. China sees in free trade agreements a way to gain access to new export markets and a solution to its large trade surpluses. The United States, in contrast, often finds itself as what economist and Carnegie Scholar Michael Pettis calls the “absorber of last resort” for its own trade partners, hence its reluctance to sign on to large multilateral trade deals. It is for this reason that a return to the more aggressive embrace of free trade seen in previous decades is not the right approach for the United States today. The Biden administration’s current strategy may go too far in the other direction, however, where a more balanced approach might capture some economic gains while still protecting relevant domestic interests.

Second, Washington’s position outside Asia’s major economic organizations undermines its efforts to increase and consolidate influence with regional allies and partners. At one level, the mechanism for this loss of influence is straightforward. Limits on market access that slow the diffusion of U.S. goods and raise prices on U.S. technology and other products limit U.S. soft power gains and constrain its geopolitical leverage at the same time.

These missed opportunities to garner greater geopolitical sway with regional allies also arise at a deeper level. For countries across Asia, the unwillingness of the United States to join the CPTPP or to offer meaningful expansion of market access through bilateral agreements signals a lack of serious commitment to the region. Many of these states are already skeptical of the durability of the U.S. focus on Asia, seeing it is as a distracted and unreliable partner. The constraints the United States has placed on the IPEF only exacerbate this perception and lead many countries in the region to look elsewhere for economic opportunities. For instance, because its framework agreements are signed at the executive level only, the IPEF lacks the longevity that would promote long-term U.S. investment. The U.S. decision to withdraw from the trade pillar negotiations did further damage to regional perceptions of U.S. credibility.

What’s more, for countries in the region, the more limited U.S. integration into the region’s trade networks and economic groupings is not just an economic concern (though many have chafed under the new U.S. protectionism and unilateralism). Because it leaves them more beholden to an increasingly aggressive Beijing, less U.S. trade engagement in Asia becomes an important security challenge as well—a manifestation of the often-cited link between economic well-being and national security. Countries in Asia seek to diversify their economic partnerships to reduce their dependence on China and would readily welcome more involvement from the United States to increase their resilience and economic options. Under Biden, however, even those who are members of the IPEF have been left disappointed as the United States has refused to extend any sort of market access. Countries across Asia have been left with little choice but to remain dependent on China as its primary trade partner.

These economic pressures can have real security consequences. Countries like Indonesia and Malaysia, for example, tread carefully in territorial disputes with China for fear of upsetting their trade relationships. Even countries for whom the threat from China appears more existential, such as Japan and Vietnam, are pragmatic in their dealings with Beijing to preserve economic ties. Recognizing the liability this economic dependence creates, even allies and partners that support U.S. efforts in Asia’s security domain in principle may be forced to stay on the sidelines of a U.S.-China conflict to protect their economic well-being. This could have serious implications for U.S. efforts to rally a coalition to contain Chinese aggression.

Finally, by forgoing a more robust approach to trade in the region, the United States gives up an opportunity to participate in the writing and updating of Asia’s rules on economic exchange to include things like labor and digital trade standards or climate mitigation. These issues have an outsized effect on the Indo-Pacific region, and sensible responses to all are affected by trade integration and related questions about cross-border flows of investment, technology, and people. For example, years after an American objection to WTO Appellate Body appointments threw a wrench in the gears of the global trade organization, the WTO dispute resolution process remains paralyzed. In the face of this obstacle, other WTO members have developed work-arounds. The EU and key Pacific countries and emerging powers have strung together one interim alternative that Japan just joined, and Europe is pursuing a broader trade settlement with Asian countries extending to subsidies and related issues. By standing aside, American policymakers forfeit their influence over the resulting mechanisms and reinforce the message that the United States is not the one driving Asia’s economic or diplomatic future.

Asia’s climate crisis offers another illustrative example. Its average temperature is rising at about three times the global rate, exacerbated by rapid industrialization. Elevated sea levels threaten coastal areas, putting pressure on farmland and major cities. The mining of critical minerals found in abundance in parts of Southeast Asia—in high demand by the United States and countries around the world—is of particular concern because the processes used to extract these minerals can severely damage surrounding ecosystems. While the increasing trade volumes that result from trade liberalization are not the sole or even the most prominent driver of climate disruption, the increase in economic activity and manufacturing that accompany rising trade do absorb more natural resources and contribute to air and water pollution, making an already bad situation worse. Collective solutions will be needed to balance economic demand and these environmental challenges, but the United States can only shape resulting outcomes if it is a participant in the region’s trade and economic networks.

For policymakers in places like Singapore, Hanoi, Manila, and Jakarta, the long list of looming challenges—including but not limited to climate change—also serves as a reminder that all politics are primarily local and regional. The competition between the United States and China—however important to understand and manage—ought not eclipse the broader range of security and economic questions facing the region as a whole. Addressing these challenges will require some degree of international cooperation and a new set of rules of the road for regional economic exchange that take collective costs into account. Governing the remarkably fast-evolving technologies and the rapid growth of the digital economy will also prove to be part of that story.

To have a say in this process and a seat at this table, the United States must be more active in the region’s expansive web of trade networks. In 2022, these networks accounted for about 40 percent of global exports and imports and trillions of dollars in global commerce. The United States is a country of unique global power and sway. Its unusual history of outsized influence has left an indelible mark on the frameworks for global cooperation and integration, and it was the principal architect of the post–World War II economic order. As that order confronts the reality of forced adaptation, it is not a stretch to think that Washington can and should play a role as those frameworks are updated for the realities of Asia today and contemporary global economic and political challenges. Other countries in the region are not sitting idly by waiting for the United States to engage more seriously on these issues, however. China, South Korea, Japan, India, and others are already building their own rules and standards, sometimes together but often independently.

Achieving an Authentic Middle Way

Even if the United States and China find reliable ways to cooperate on elements of that emerging order—on matters ranging from climate change to AI safety—the two countries have differing values and strategic priorities. The resulting geopolitical competition with China makes the development of a more robust U.S. trade agenda in Asia desirable despite the risks. New military partnerships, investments in allied capabilities, deployments of advanced technologies, and multilateral exercises are necessary but not sufficient for the United States to remain a counterweight able to balance Chinese power in the region. A change in the administration’s trade policy will be required as well. Countries in Asia would benefit from a more active U.S. trade presence but a shift in trade strategy would not be charity project—it would be directly aligned with U.S. interests and could inform efforts to make better use of trade as foreign policy tool in other regions as well.

Whatever course is chosen in Asia and elsewhere will need to balance domestic adjustments (across job types and economic sectors) with the gains from a greater degree of economic cooperation. Addressing these costs will require holistic strategies and more nuanced approaches that, for example, reflect distinctions in the educational opportunities suitable for people at different points in their life, reliably reduce a measure of economic risk, and open new employment and civic opportunities. Policymakers likely already understand these requirements but are also searching for ways to make some degree of trade liberalization more politically palatable and to ensure that promised educational and economic support does not fall through as it has in the past. By better understanding the long-simmering conflicts over global cooperation, policymakers and civil society can further develop the ideas, institutions, and coalitions necessary to create a stable foundation for a more sustainable form of global integration.

Nothing about this challenge means that U.S. policymakers should walk away from once again using market access as a tool to keep American interests relevant in one of the world’s most important regions. The task at hand is to create pathways for the exchange of information, ideas, and culture, while policymakers retain at least a limited set of tools to address imbalances that arise if considerable movements of goods and capital coexist with completely inflexible migration policies. Indeed, policymakers with influence over the international system should always bear in mind the costs of coercive limitations on the movement of ideas, goods, information, and people across borders, even if such constraints are also necessary for national-level experimentation and the functioning of countries as currently configured.

In that vein, the preservation of rules that enable international trade—even as policymakers tolerate somewhat more heterodox economic policies—would benefit the United States and its allies, resulting in trade rules of narrower application to countries’ domestic policies but reliably enforced and written with an eye toward more equitable global development. This would mean, in part, pursuing many pathways to expanded economic cooperation, including some reform of the WTO and the rules governing global, multilateral trade, alongside domestically focused initiatives to compensate and offer viable retraining opportunities to those that are displaced. To this end, U.S. leaders should focus on several promising levers as first steps.

First, policymakers should take a lesson from U.S. advances in Asia’s security domain and turn to mini-laterals—groups of three to five countries focused on a narrow set of issues with shared interests as a way to achieve the gains of cooperation with less risk. Without entirely casting aside the prospect for more ambitious deals, this approach would avoid making the perfect the enemy of the good. The intent would be to work with a limited group of partners in targeted sectors—building off the administration’s mini-deal approach, but with significantly wider participation, more heft, and the consistent message that the goal is to recapture momentum on market access rather than cast aside entirely the prospects for more comprehensive deals.

Regional mechanisms like mini-laterals are far from perfect, but they offer a degree of interconnectedness that can enhance deliberation across borders and make policy responses more appropriately nuanced. Working with just a small group of like-minded partners, the United States would have greater leverage to set and enforce high labor, climate, and other standards. Picking and choosing sectors to focus on would allow the United States to avoid areas of political sensitivity and seize on opportunities to advance other strategic objectives.

Supply chain diplomacy, for instance, can indeed result in progress, as evident in the agreements the United States has recently signed on coproduction and technology with India, Australia, and Japan.

Expanding these areas of growing cooperation into the trade domain and adding new tailored agreements with countries across Southeast Asia should be high on the list of priorities for those guiding U.S. trade policy. Although there is some value in pursuing such deals, as Peter Harrell has argued in Foreign Affairs, “in sectors where interests clearly converge,” it will be important to remember that other countries get a vote, too. They will often prefer more comprehensive agreements that will require U.S. policymakers to take on a measure of responsibility for garnering political support and designing suitable mechanisms to mitigate the impact on affected communities.

Indeed, relying on a mini-lateral approach comes with risks. While reaching agreements with a smaller number of partners can be comparatively easier than achieving the consensus needed for a large multilateral agreement, transaction costs are still involved. Too many of these small, overlapping groups can create a crowded international economic architecture, which can be costly and difficult to manage. Washington will therefore need to be judicious in selecting the partners and sectors where it invests in building new institutions for cooperative economic exchange. The tendency will be to lean toward partners like Japan and South Korea where higher levels of economic development may make agreements with high standards easier to reach. But this may have downsides, too, in that it will constrain pathways to economic integration across other parts of Asia—especially Southeast Asia, where much of the region’s growth potential is located. To guard against this, the United States should aim to diversify its partners and explicitly focus on building mini-lateral agreements with countries who are not already U.S. treaty allies.

The United States will also need to pursue trade reengagement through other channels to achieve the desired diversity in economic cooperation. One option might be to find ways to add some limited market access to a more institutionalized IPEF, tied to strict technology standards, for example, with clear mechanisms for enforcement and monitoring. Bringing close Asian partners like Japan into existing free trade agreements like the United States-Mexico-Canada Agreement (USMCA) if they are willing to adhere to its higher standards and requirements is another option. Ways to expand and leverage existing bilateral agreements, especially with nontraditional partners who are strategically important or show high potential for economic cooperation, should also be explored. The bottom line is that policymakers will need to be creative to find varied opportunities with the right balance of economic gains and domestic safeguards.

Alongside the pursuit of a modest and controlled market liberalization abroad, Washington must also carefully attend to associated domestic costs. It can do this in two ways. The first is to continue to rely on industrial policy to protect sectors of high strategic importance to the United States. As under the Biden administration thus far, this would likely include semiconductors, green technologies, and several others. That said, policymakers should develop far clearer metrics or criteria to determine which sectors require protection and subsidies to support U.S. interests. This list would likely be somewhat shorter than the set of industries that receive this type of support today. Second, policymakers will need to redouble their efforts to compensate and retrain workers who suffer due to trade’s distributional effects. This is an area where governments have fallen short in the past, and more robust commitment and better outcomes will be essential to the success of any reengagement with trade. Significant federal funding and coordination will be required and should be allocated. Moreover, programs would need to be aimed at more diverse audiences with more flexible types of assistance.

For U.S. policymakers, engaging with a more ambitious trade agenda can contribute to greater security and shared growth across Asia and in the United States. Policymakers can advance that agenda without ignoring the potential for trade-related economic displacement to affect communities in the United States—a challenge that persists even if many of our most dynamic regions grow stronger because of economic relationships with Asia. With the right carve-outs and attention to supply chain resilience as well as the situation of Asian trading partners, a more vigorous trade agenda can also fit with American national security goals and reasonable domestic needs. Congress and the executive have multiple tools to meet the moment without neglecting the role of market access in strategy and standard-setting: from savvy use of existing bilateral trade relationships to new mini-lateral groups that can expand trade across sectors, market-oriented reforms to the IPEF, and efforts to piggyback off existing free trade agreements such as the USMCA. Greater attention to workers and communities adjusting to new economic realities is also likely a sensible response. So, too, is the targeted use of industrial policy alongside carefully calibrated efforts to reform multilateral trade rules to make international trade more compatible with domestic needs. Closing off any serious near-term prospect for greater access to the American market is not.

Jennifer Kavanagh was a senior fellow in the American Statecraft Program at the Carnegie Endowment for International Peace. Mariano-Florentino (Tino) Cuéllar is the tenth president of the Carnegie Endowment for International Peace

To read the full paper published by the Carnegie Endowment for International Peace, click here.

To read the full paper, click here.

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Introduction and summary

The post Designing a New Paradigm in Global Trade appeared first on WITA.

This essay considers alternative scenarios for international trade policy for 2025 and beyond through the lens of the spectacular series of events that upended international trade beginning in 2017. These events are the direct results of Trump administration decisions, 2017-2021. During those years the Trump administration, with its emphasis upon nationalism and populism, effected a revolution in international trade policy that in many respects repudiated international trade policy as it existed from 1948 to 2016. Whereas for decades prior American administrations emphasized trade liberalization through international agreements, the role of multilateral institutions such as the World Trade Organization (WTO), and adherence to international law rules concerning trade, the Trump administration stood these policies on their heads, emphasizing protection of U.S. domestic markets, primacy of U.S. domestic trade laws over international law, and the irrelevance of international institutions such as the WTO. Trump administration trade policies had four major impacts: (1) a significant retreat from globalization; (2) paralysis of the World Trade Organization; (3) a revival of U.S. unilateralism in trade; and (4) a tariff and trade war between the U.S. and China.

Looking toward the future, given that 2024 is an important election year, I will discuss the announced trade policy intentions of the two presumed candidates for president — Democrat Joseph Biden and Republican Donald Trump. I will sketch briefly what each candidate intends to do concerning trade and the likely results for the American and global economies. I conclude that while both Trump and Biden advocate a certain degree of trade protectionism, Donald Trump intends to implement a radical protectionist vision concerning trade. Biden, on the other hand, will adopt a milder version of protectionism that emphasizes national security and enhancement of U.S. manufacturing autonomy. In addition, Donald Trump intends to pursue a hard U.S.- China economic decoupling. Joseph Biden, on the other hand, intends to pursue a milder approach to China, involving “derisking,” supply chain diversification, and “friend-shoring” of international trade and investment.

To his credit, Biden and his team have stabilized U.S.-China relations. Biden’s November 2023 summit with Chinese President Xi Jinping, along with diplomacy of Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo succeeded in restoring a degree of order to the U.S.-China relationship that was so chaotic during the Trump administration. China and the United States represent about 40 percent of the world economy; stability of this relationship is an essential component of global prosperity. The Biden administration has managed the U.S.-China relationship, essaying to prevent disagreements from spiraling into conflicts. 

Is the Past Prologue?

On January 20, 2025, someone will take the oath of office to serve as President for the next four years. A rematch seems to loom between Joseph Biden and Donald Trump. More than the names of the candidates will be on the ballot. Voters will choose the future role of the United States in the world. Voters will also choose the economy they will live with for the next four years and beyond. In terms of the subject matter of this symposium, we can pose the following key questions: (1) What will be U.S. economic policy toward China in the new administration? Will there be an attempted decoupling? (2) What will be the attitude toward tariffs and protectionism? (3) What will be the attitude toward new trade agreements? (4) Will the new president respect international law and institutions?

What will be the impact of international trade policies on the broader economy? The Federal Reserve seems to have engineered a “soft landing” for the U.S. economy. GDP rose 2.5 percent in 2023, and the unemployment rate is a low 3.7. percent. In 2023 inflation moderated to 3.4 percent. Which man, Trump or Biden, is more likely to maintain a good economy?

In this part I will address these and similar questions in the context of comparing the likely international economic policies of the Trump and Biden administrations. I will also describe a “third way” different from both.

Donald Trump’s “Maganomics”

Donald Trump on the campaign trail today still preaches the populist idea that tariffs benefit domestic industries and produce jobs and produce billions in revenue for the federal government. Trump has never been deterred by the opinions of economists who say that tariffs are taxes on American consumers and producers. Trump, the self-described “tariff man,” plans to double down on tariffs if he wins a second term as president.

First, he intends to impose a new “universal baseline tariff” of 10 percent on all imports into the United States.

Second, he is considering two possible options with regard to new tariffs on China. One option is to revoke China’s “most favored nation” status for trade with the United States. This would immediately result in huge tariffs on all Chinese products. If this option is problematic — it is against the rules of the WTO — Trump intends to simply impose across the board tariffs of 60 percent on all Chinese products. The magnitude of these proposed tariffs on Chinese products appears to mean that Trump will seriously aim to decouple the U.S. and Chinese economies.

These proposals, if implemented, would spark a global trade war, not only with China but with virtually all U.S. trading partners. They would also cause inflation and unemployment. A report commissioned by the U.S.-China Business Council predicts more than 700,000 job losses and a cost of over $1.6 trillion to the U.S. economy.

Third, Trump intends to propose a new round of tax cuts for small business and the middle- class worker. He proposes to cut the corporate tax rate from 21 percent to 15 percent.

Critics point out that this tax cut, like Trump’s first term Tax Cut and Jobs Act, is unfunded. Republicans are fond of such unfunded tax cuts that add to the national debt, which now stands at over $34 trillion. During his term as president, Trump added $8 trillion to the U.S. budget deficit. In 2023, U.S. interest payments on the national debt totaled $659 billion. The U.S. debt is growing faster than the economy. Many believe this rise in the debt is unsustainable.

Summing up Trump’s economics it can only be said that they are totally wrongheaded and borderline lunacy.

Joseph Biden’s “Bidenomics”

The Biden administration’s trade policy prioritizes labor and the American worker over consumerism. Biden’s 2021 Report to Congress states that American workers should be at the forefront of trade policy. Trade must be conducted to benefit regular American communities and workers. Trade policy must recognize that people are not just consumers, they are workers and wage-earners. Trade policy must protect American jobs not just low prices for consumers.

A threshold decision for the Biden administration was whether to repeal the Trump tariffs. At the time inflation was high. Numerous commentators advised Biden to rescind the Trump tariffs, arguing this action would lower U.S. inflation by 1 to 2 percent. Biden rejected this advice; he chose to defend the Trump tariffs in court litigation. Biden’s defense was successful. Biden did, however, allow importers to seek exclusions on grounds such as lack of domestic supply.

The Biden administration also vigorously defended the section 301 tariffs on China and ultimately prevailed in court. The Biden administration has not sought to lift these tariffs either unilaterally or in conjunction with an agreement with China.

The central element of Bidenomics, one that is new and untried, is an industrial policy that shapes the international economic order to achieve economic goals that benefit particular industries and communities. Four new laws are essential to this process: (1) American Rescue Plan Act ($1.9 trillion); (2) Infrastructure and Jobs Act ($1.2 trillion); (3) Inflation Reduction Act ($369 billion); and the (4) Chips and Science Act ($52 billion). Industrial policy is any governmental effort to boost priority industries or to create structural economic change. The United States formerly looked down on industrial policy and criticized states that adopted it. No more — if you cannot beat the competition, you join it.

Biden’s industrial policy involves three elements. First, massive subsidies are available doled out by bureaucrats or made directly to consumers in the form of tax credits. Second, the subsidy must be spent in America under Executive Order 14005, the Buy American mandate. Third, Executive Order 14017 comes into play mandate special attention to the supply chain to ensure there will be no disruptions or delays. “Make it in America is no longer just a slogan,” said President Biden, “it is a reality in my administration.”

The Chips and Science Act addresses a long-term decline in U.S. semiconductor chip manufacturing. Of the world’s five largest chip manufacturers, only one, GlobalFoundries, is based in the United States. In February 2024, the U.S. Department of Commerce announced a $1.5 billion grant to GlobalFoundries to build a computer chip manufacturing plant in New York state. Additional grants include $35 million to BAE Systems, a defense contractor, and $162 million to Microchip Technology, a Colorado company. The Biden administration argues that subsidies are the only way to create a viable computer chip manufacturing industry in the United States. This may be the case, but the subsidies potentially contravene the prohibitions contained in the WTO Subsidies and Countervailing Measures Agreement, and the “buy American” program may violate the WTO Government Procurement Agreement.

In past administrations negotiating free trade agreements that open foreign markets to American exporters was a high priority. The Biden administration, however, is an exception to this rule. Early in his administration President Biden stated, “I am not going to enter any new trade agreement until we have made major investments here at home and in our workers.” Biden has not sought to enter into any free trade agreements and apparently does not intend to do so if he wins a second term as president. He has not sought to revive unfinished negotiations with the European Union or theUnited Kingdom. He has not expressed interest in joining the Progressive and Comprehensive Trans-Pacific Partnership free trade agreement, which is in force for eleven nations.

As a substitute initiative the Biden administration formed what is called the Indo-Pacific Economic Framework for Prosperity. This is a “framework” not a free trade agreement. It is a voluntary document that does not contain any legal obligations but simply pledges cooperation. As Catherine Rampell describes it, “the only thing that can be reliably counted on is a growing aversion to anything branded as free trade.”

The words “free trade agreement” have become toxic on Capitol Hill and in the Biden administration.

The Biden administration eschews the inflammatory rhetoric of the Trump administration but has not sought to repair the damage to the multilateral trading system or to solve the thorny problems left over from Donald Trump.

The Biden administration’s trade policy, like Trump’s, is a huge break from decades of past trade policy. Biden rejects free trade negotiation to open foreign markets in favor of handing out lavish subsidies to favored industries. Critics decry the free spending and the emphasis on government creation of a manufacturing boom that will never materialize. They point out that manufacturing employment has been in steady decline for decades as automation makes it possible to produce more goods with ever fewer workers. Manufacturing accounts for just 8.3 percent of total employment, down from 8.6 percent when Biden took office.

A Third Way

Two prominent critics of Bidenomics, not to mention Trumpian Maganomics, are former Secretary of the Treasury Lawrence Summers and former USTR Robert Zoellick. These men constitute a “third way” in trade policy, different from Biden and more attuned to traditional trade policy of past decades. Summers has said, “I am profoundly concerned by the doctrine of manufacturing-centered nationalism that is increasingly put forth as a general principle to guide policy.” Summers decries much of the Biden administration’s industrial policy and the protectionism behind Biden’s emphasis on “buy American.”

Summers believes that excessive reliance on “buy American” exacerbates economic problems by driving up prices and fueling labor shortages. Summers argues that it sounds smart to use tariffs or buy American to protect the 60,000 workers in the U.S. steel industry. But when you raise the price of steel, the 6 million workers who use steel as an input all suffer as do consumers of steel. He reminds us that the workers who produce steel are only 1 percent of the workers who need and use steel as an input in the goods they make. Saving a few jobs for workers who make steel may not be the answer to economic malaise.

At a talk in 2023 at the Peterson Institute for International Economics, Summers made the following interesting points: (1) trade with China benefits the United States, which achieves job growth and consumer advantages; (2) government economic intervention aimed at bringing about a renaissance in U.S. manufacturing jobs is unrealistic and potentially counterproductive; and (3) the U.S. government should not try to maximize job creation over maximizing availability of low-cost goods to consumers.

Robert Zoellick makes four cogent criticisms of Bidenomics. First, team Biden ignores all fiscal discipline, embracing modern monetary theory that consigns fiscal constraints to the past. On the contrary, the U.S. budget deficit is worrisome and will have to be addressed. Second, “Biden’s team pursues trade and antitrust policies while questioning the importance of prices, costs, and efficiencies. Increased prices for consumers matter little to the administration compared with such goals as blocking foreign competition, doing away with fossil fuels, and experimenting with new regulations.” Third, team Biden distrusts the private sector of the economy, putting too much faith in statist solutions. Fourth, Biden now eschews American leadership in international trade. Instead, “Katherine Tai, Biden’s USTR, embraces Trumpian isolationism. She denies the power of deals to open markets and to accomplish other administrative objectives.

In short, Zoellick says, “Biden theorists imagine a national economy that Washington designs without foreign involvement.” There seems to be no memory that the post-war trade agreements signed between the 1940s to the 1990s produced unprecedented economic growth both for the United States and its trading partners.

Summers’ and Zoellick’s criticisms point toward a third way of handling the important subject of trade and investment policy. Why not return to multilateralism, which has stood the United States and its allies in such good stead for so many decades? This is not to advocate the multilateralism of the past. Why not adopt a multilateral approach suitable to deal with the problems of today. This multilateralism has three elements.

First, the United States should return to negotiating free trade agreements that open foreign markets to U.S. exporters. The U.S. traditionally was the largest exporting country. China became the world’s largest exporter only in 2009. The United States should again achieve this title; the way forward is the negotiation of free trade agreements.

Three free trade agreements should be high on the agenda of the next administration:

(1) The United States should join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); this free trade agreement was negotiated by the United States and is in force for eleven friendly Asian-Pacific countries. President Trump withdrew his support for this agreement in 2017, part of his mistaken “Maganomics” protectionism. This was a grievous error. The provisions of the CPTPP were created in Washington and are in the American interest.

(2) The United States should restart and complete negotiation of the Transatlantic Trade and Investment Partnership (T-TIP) with the European Union and the UK. This negotiation was scuttled by Trump. It can easily be revived.

(3) The United States should come to a free trade agreement with eleven (or more) Western Hemisphere nations. The Biden administration has launched talks with these nations but only to discuss what is called an “American Partnership for Economic Prosperity.” This is a toothless political agreement to be “nice,” but would not open any foreign markets or carry economic obligations. Nothing less than a full free trade agreement should be the administration’s goal.

(4) The United States should reengage with African nations through the African Continental Free Trade Agreement.

The purpose of entering into free trade agreements is not only to open foreign markets, but also to compete with China, which is very active all over the world promoting its Belt and Road initiative and other goals. By entering into these free trade agreements, the United States can help craft a global standard of conduct in trade and investment that China must observe. Without new trade agreements China is free to pursue its “divide and conquer” strategy to negate American influence around the world. New trade agreements would also confirm and reanimate America’s relations with its allies, who are anxious to create a counterweight to China.

As a second element of a “third way” in trade, the United States should reengage with the WTO and again play a leadership role in that organization. Since 2017 a leadership vacuum has existed at the WTO. Now is an excellent time to reassert American leadership. There is still a need for clear multilateral rules in trade. American leadership of the WTO could help shape the rules to our liking. It is not enough to merely criticize the rules and the role of the Appellate Body. The U.S. should also actively promote new rules more to our liking.

Third, the United States should establish a wide-ranging dialogue with high-level Chinese counterparts to provide transparency and to justify American actions in the ongoing economic competition with China. While decoupling is not and should not be the American goal, strategic decoupling may be warranted. The United States is taking numerous actions regarding China unilaterally. But that is not enough; there should be a bilateral forum to discuss American and Chinese actions in real time as they are happening. Establishing such a forum could help each side to understand this strategic decoupling process and to make corrections where warranted. The Trump administration abandoned economic dialogue with China shortly after taking office in 2017 in favor of a one-sided, “lay down the law,” monologue with its Chinese counterparts. This was a mistake. Larry Summers has described how bilateral talks with China have been fruitful to change Chinese behavior with respect to currency valuation and other matters.

Conclusions

In November 2024, voters will choose between Trump and Biden to be president of the United States. This essay has compared the different international trade policies of each man. While Trump’s policy views are sheer lunacy, embracing full-throated protectionism, Biden’s trade policy views are troubling. Biden also leans toward protectionism to some degree.

It is surprising that Biden on trade resembles his Republican predecessor more than the presidents of both parties who preceded him in the White House. Biden errs in turning his back on past trade liberalization pursued by successive presidents before Trump. The next administration should adopt a “third way” set of policies on international trade, emphasizing (1) negotiation of wide-ranging new free trade agreements; (2) reengagement with the WTO; and (3) robust bilateral forums to discuss trade matters with China.

Thomas J. Schoenbaum is presently the Harold S. Shefelman Professor of Law at the University of Washington in Seattle. He received his Juris Doctor degree from the University of Michigan and his PhD degree from Gonville and Caius College, University of Cambridge (UK). He is also Research Professor of Law at George Washington University in Washington DC. He is a practicing lawyer, admitted in several U.S. states and before the Bar of the Supreme Court of the United States.

To read the executive summary as it is posted on the website of the Institute for European Policymaking at Bocconi University, click here.

To read the full policy brief published by Institute for European Policymaking at Bocconi University, click here.

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The United States was a first mover in advancing trade rules for the digital economy. The most recent Trade Promotion Authority legislation, reflecting a strong bipartisan consensus, states: “The principal negotiating objectives of the United States with respect to digital trade in goods and services, as well as cross-border data flows, are . . . to ensure that governments refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data[.]” 

Just four years ago at the start of the JSI talks, the United States put forth a communication detailing just how important data flows are and emphasized why it is critical that the JSI tackle the challenge of negotiating rules to facilitate data flows. The text tabled by the United States in the JSI also mirrored the data flows text in United States-Mexico-Canada Agreement (USMCA) and the text in the U.S.-Japan Digital Trade Agreement. The United States is now bound by those rules, not only vis-a-vis Canada, Mexico, and Japan, but also vis-a-vis over a dozen Free Trade Agreement (FTA) partners who enjoy Most-Favored Nation (MFN) rights from those prior agreements.

But these policies go back further and rules to enable cross-border data flows have been a part of modern U.S. trade policy. 

1. The 2012 U.S.-Korea FTA contains an electronic commerce chapter with commitments on data flows. Article 15.8 states: “Recognizing the importance of the free flow of information in facilitating trade, and acknowledging the importance of protecting personal information, the Parties shall endeavor to refrain from imposing or maintaining unnecessary barriers to electronic information flows across borders.”  
2. Article 15.5 of the 2004 U.S.-Chile Agreement states: Parties recognize the importance of “working to maintain cross-border flows of information as an essential element for a vibrant electronic commerce environment[.]” 
3. Article 14.5 of the 2006 CAFTA-DR (Dominican Republic-Central America FTA) states: Parties affirm the importance of “working to maintain cross-border flows of information as an essential element in fostering a vibrant environment for electronic commerce[.]” 
4. And, with respect to financial services, a U.S. obligation, available to all WTO members, was memorialized in the General Agreements on Trade in Services (GATS) Financial Services Understanding in 1994. Article 8 states: “No Member shall take measures that prevent transfers of information or the processing of financial information, including transfers of data by electronic means, or that, subject to importation rules consistent with international agreements, prevent transfers of equipment, where such transfers of information, processing of financial information or transfers of equipment are necessary for the conduct of the ordinary business of a financial service supplier.”

Principles underlying these rules have been prevalent throughout U.S. law and policy, but it’s also part of the Biden Administration’s agenda. 

The U.S. Commerce Department has spent decades negotiating agreements with trading partners on data transfer mechanisms. Under Secretary Raimondo, these efforts have continued and expanded. In 2022, Commerce announced the establishment of the Global Cross-Border Data Privacy Forum. The preamble of the Declaration states: “Believing that cross-border data flows increase living standards, create jobs, connect people in meaningful ways, facilitate vital research and development in support of public health, foster innovation and entrepreneurship, and allow for greater international engagement”. Commerce also successfully negotiated a new agreement with the European Union on transatlantic data transfers. Later this month, the United States will also host the APEC Leaders Summit, a venue where the United States and aligned trading partners have long championed the APEC Cross-border Privacy Rules System that facilitates data flows among member economies. 

Enhancing data flows is a part of U.S. foreign policy under the Biden Administration. The U.S.-led Declaration on the Future of the Internet commits signatories to “[p]romote our work to realize the benefits of data free flows with trust based on our shared values as like-minded, democratic, open and outward looking partners.” And just days after the United States announced its JSI decision at a meeting in Geneva, the United States then joined G7 members in a statement emphasizing importance of facilitating digital trade and data flows: 

“We recognize that unjustified data localization measures have a negative impact on crossborder data flows, by increasing data management costs for businesses, particularly Micro, Small and Medium-Sized Enterprises (MSMEs) and heightening cybersecurity risks. We remain committed to tackling unjustified data localization measures that lack transparency and are arbitrarily imposed, which should be distinguished from measures implemented to achieve legitimate regulatory goals.”

In short, USTR’s announcement last Wednesday should have those in the inter-agency process puzzled, in addition to sparking stakeholder concerns. It is also alarming that USTR’s move appears to be driven by domestic interests in pursuing competition-related legislation in the United States. However, the effects of rules promoting data flows on abuse of monopoly power have no obvious relevance or articulated rationale, other than to constrain the export potential of a handful of companies, while denying benefits to a much broader set of stakeholders who are arguably the more important beneficiaries. Research continues to show the benefits of data flows and access to new markets are particularly beneficial for start ups and SMEs. Further, digital trade provisions not only catalyze the exchange of digital products and goods between markets, but also serve as a multiplier effect for other sectors. The OECD has found that reducing barriers to cross-border data flows is essential to increasing non-digital services exports and goods exports from industries such as agriculture and food.

In the retreat of U.S. leadership at the international level, one is left to ask who steps in. Many were quick to point to China following the announcement, including many voices in Congress criticizing USTR’s decision. 

But this abdication of leadership involves more than just competition between the United States and China. This issue is about deciding the preferred governance model going forward for the digital economy. At a time when many countries are pursuing digital sovereignty and industrial-focused policy with respect to new technologies, the United States is sending a clear signal that it is at least amenable to these approaches–pointing to a more fragmented and unstable framework for trade likely to undermine global prosperity. 

It’s telling how others are reacting to the abrupt change to U.S. policy. India has long been critical of negotiating digital rules at the WTO. While it represents one of the fastest growing digital markets, it is also one of the most restrictive, protectionist, and closed markets for foreign exporters. Stakeholders in India have taken note of the reversal, seeing it as a “validation” of a digital isolationist approach. Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), opined: “The new US stand on digital trade validates India’s approach on the subject. India had long ago foreseen potential challenges with unregulated digital trade and thus refrained from participating in the WTO e-commerce negotiations.”

It remains to be seen how others in the WTO process will respond, noting that many of these countries are actively pursuing their own regional and multilateral trade agreements with similar digital trade provisions outside the JSI such as Singapore’s Digital Economic Partnership Agreement and the EU’s pursuit of new bilateral trade agreements and initiatives like the recently-concluded EU-Japan data flow agreement. While the various approaches may differ in level of ambition, ultimately countries negotiating digital rules among themselves stand to benefit their economies and their suppliers, as the United States watches from its self-imposed exile.

So where does this leave the WTO process? 

It is encouraging that progress has been made on other elements of the JSI agreement. Last week co-conveners announced consensus text on the following areas: online consumer protection; electronic signatures and authentication; unsolicited commercial electronic messages (spam); open government data; electronic contracts; transparency; paperless trading; cybersecurity; open internet access; electronic transaction frameworks; electronic invoicing; and “single windows.”  

However, the dereliction of U.S. leadership with key trading partners to pursue an ambitious agreement with key outcomes on critical components of digital trade dampens the significance and effectiveness of global rules.

To read the full article, click here.

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Video 1: U.S. Trade Representative Katherine Tai testifies before the Senate Finance Committee about US trade policy.

To watch the full hearing, please click here.

Video 2: U.S. Trade Representative Katherine Tai testifies before the House Committee on Ways and Means about US trade policy.

To watch the full hearing, please click here.

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This strategy reframes the region’s importance to U.S. national security interests. In November 2021, Secretary of State Antony Blinken affirmed that “Africa will shape the future— and not just the future of the African people but of the world.” Accordingly, this strategy articulates a new vision for how and with whom we engage, while identifying additional areas of focus. It welcomes and affirms African agency, and seeks to include and elevate African voices in the most consequential global conversations. It calls for developing a deeper bench of partners and more flexible regional architecture to respond to urgent challenges and catalyze economic growth and opportunities. It recognizes the region’s youth as an engine of entrepreneurship and innovation, and it emphasizes the enduring and historical ties between the American and African peoples. And it recasts traditional U.S. policy priorities—democracy and governance, peace and security, trade and investment, and development—as pathways to bolster the region’s ability to solve global problems alongside the United States. This strategy outlines four objectives to advance U.S. priorities in concert with regional partners in sub-Saharan Africa during the next five years. The United States will leverage all of our diplomatic, development, and defense capabilities, as well as strengthen our trade and commercial ties, focus on digital ecosystems, and rebalance toward urban hubs, to support these objectives:

1. Foster Openness and Open Societies
2. Deliver Democratic and Security Dividends
3. Advance Pandemic Recovery and Economic Opportunity
4. Support Conservation, Climate Adaptation, and a Just Energy
Transition

This strategy represents a new approach, emphasizing and elevating the issues that will further embed Africa’s position in shaping our shared future. It resolves to press for the necessary resources and prize innovation in our efforts to strengthen vital partnerships. The United States will both address immediate crises and threats, and seek to connect short-term efforts with the longer-term imperative of bolstering Africa’s capabilities to solve global problems. The strategy’s strength lies in its determination to graduate from policies that inadvertently treat subSaharan Africa as a world apart and have struggled to keep pace with the profound transformations across the continent and the world. This strategy calls for change because continuity is insufficient to meet the task ahead.

To read the original report by the White House, please click here.

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To read the full report by the Rhodium Group, please click here.

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