“No American President in modern history has recognized the wide-ranging and harmful foreign trade barriers American exporters face more than President Trump,” said Ambassador Greer. “Under his leadership, this administration is working diligently to address these unfair and non-reciprocal practices, helping restore fairness and put hardworking American businesses and workers first in the global market.”

The findings of the 2025 NTE underscore President Trump’s America First Trade Policy and the President’s 2025 Trade Policy Agenda.

The NTE is an annual report due to the President and Congress by March 31 of each year. USTR works closely with other government agencies and U.S. embassies and solicits comments from the public through a Federal Register Notice to prepare the NTE.

The annual report is submitted in accordance with Section 181 of the Trade Act of 1974, as added by Section 303 of the Trade and Tariff Act of 1984 and amended by Section 1304 of the Omnibus Trade and Competitiveness Act of 1988, Section 311 of the Uruguay Round Trade Agreements Act, and Section 1202 of the Internet Tax Freedom Act.

To read the 2025 National Trade Estimate as it was posted by the Office of the United States Trade Representative click here.

To read the PDF as it was published by the Office of the United States Trade Representative click here.

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Vietnam, one of the world’s most dynamic economies, now faces one of its most important challenges of this century as it faces protectionist headwinds and tepid consumer economies in the U.S. and Europe.

So far, its formidable export-based economy has seemed up to the task. In 2024, overall exports rose 14.3% year-to-year to $405.5 billion. The part of that from foreign direct investment increased 12.4% to $289.2 billion.

Vietnam’s coping strategy, according to an analysis by Trade Data Monitor, has been to turn more toward its prosperous ASEAN partners and China. In 2024, Vietnam increased imports from China a whopping 30.2% to $144 billion.

After the first Trump administration imposed hefty tariffs on Chinese imports in 2018, U.S. and Europe-based consumer goods firms moved or shifted parts of their manufacturing supply chains to Vietnam. It was a boon for the formerly war-torn nation, which promptly build a network of new economic zones, deep-water ports, rail lines and roads. After the 2018 duties, Vietnam’s gross domestic product grew by around 8% a year. In 2024, it expanded by 7.1%. A modern economic export miracle.

According to U.S. trade statistics, in 2024 Vietnam had the third biggest trade surplus ($123.5 billion) with the U.S., after only China ($295.4 billion), Mexico ($171.8 billion), and followed by Ireland ($86.7 billion) and Germany ($84.8 billion).

Now as the U.S. faces protectionist sentiment and economic uncertainty, Vietnam must prepare for an adjustment, and it will be essential to diversify export markets. An analysis by TDM suggests that Vietnam possesses the capacity to find new markets for its exports and diversify fruitfully.

The Asian Connection

Vietnam is tightly networked with its Asian neighbors. Seven of the country’s top ten sources of imports are Asian: China, South Korea, the U.S., Japan, Taiwan, Thailand, Indonesia, Malaysia, Australia, and Kuwait.

In 2024, shipments from South Korea nudged up 6.5% to $55.9 billion. By comparison, purchases from the U.S. rose 9.3% to $15.1 billion. Surprisingly, Japan is still the fourth biggest supplier of goods to Vietnam, although it is slipping. In 2024, Vietnam imported $21.6 billion from Japan, down 0.2% compared to 2023. Almost all of Vietnam’s imports from Kuwait were energy-related. In 2024, Vietnam shipped in $7.3 billion, up 23.3% over 2024, from the Middle Eastern nation.

But China was not yet Vietnam’s biggest export market in 2024. That would be the U.S. Vietnam shipped $119.5 billon of goods to the U.S. in 2024, up 23.2% from 2023. China was second, buying $61.2 billion worth of goods, flat compared to 2023. Vietnam’s next biggest exports markets were South Korea, Japan, the Netherlands, Singapore, India, the UK, Germany, and Thailand.

Now Vietnam faces the specter of new import tariffs from the Trump administration. At the recent World Economic Forum in Davos, Vietnamese prime minster Pham Minh Chinh said he was looking for “solutions” to keep his economy balanced.

Why Vietnam Will Be Able to Diversify

A review of their exports shows that the country is likely in better shape than many fear. Vietnam has trade agreements with over 25 countries. In 2024, Vietnam exports over a billion dollars’ worth of goods to 36 countries.

Vietnam’s top category of exports was computers and electrical products ($72.6 billion, up 26.6%), telephones and mobile phones ( $53.9 billion, up 2.9%), machines, equipment, tools, and instruments ($52.2 billion, up 21%).

But Vietnam is still a dominant producer of more basics manufactured goods, offering it the flexibility it will need to adjust to changing export markets. In 2024, for example, Vietnam exported $22.9 billion of footwear, up 13% from 2023. The biggest destination for Vietnam’s powerful consumer goods manufacturing capacity: the U.S. Vietnam exported $8.3 billion worth of footwear to the U.S. in 2024, up 15.7% from 2023. The next biggest markets for footwear were China, the Netherlands, Belgium, and Japan.

Vietnam also shipped significant quantities of certain kinds of furniture ($3.4 billion, up 33.5%), plastics ($2.6 billion, up 21.3%), iron and steel ($9.1 billion, up 8.7%), fruits and vegetables ($7.1 billion, up 27.6%), rubber ($3.4 billion, up 18.2%), and coffee ($5.6 billion, up 32.5%). The top markets for coffee in 2024 were Switzerland, the Netherlands and Singapore.

To view the insight as it was originally published, click here.

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In response to the Donald Trump administration’s second-term tariffs, Canada, China, Mexico, and the European Union (EU)—the United States’ largest trade partners—have announced or threatened retaliatory tariffs.

How do retaliatory tariffs work?

A tariff is a tax on foreign-made goods, which makes them more expensive to import. To get a better idea of how retaliatory tariffs could affect the United States, let’s look at what happened to American soybean farmers during Trump’s first term. Soybeans are the United States’ largest agricultural export to China.

In 2017, U.S. soybean exports to China totaled $12 billion, near an all-time high. Then in 2018, the United States placed tariffs on $34 billion worth of Chinese non-agricultural goods, and China retaliated with tariffs on U.S. soybeans and other products. Soybean exports to China plummeted, with U.S. farmers suffering substantial losses.

U.S. farmers’ losses were Brazilian farmers’ gains. Brazil, the world’s leading soybean producer, increased soybean exports to China and has remained its top supplier.

U.S. soybean exports to China recovered after the two countries signed a trade deal in 2020 but have declined somewhat in recent years as China has sought to become less reliant on imported soy.

From 2018 to 2019, U.S. farmers suffered $26 billion in losses due to China’s retaliatory tariffs. In response, the Trump administration provided $28 billion in bailouts to farmers across the two years.

How are countries retaliating against Trump’s 2025 tariffs?

The second Trump administration has largely taken a blanket approach with tariffs, initially targeting all goods from Canada, China, and Mexico, as well as all aluminum and steel imports, and planning reciprocal tariffs on all trade partners. U.S. trade partners, meanwhile, have taken a more targeted approach aimed at specific U.S. products.

Canada

On March 4, Canada imposed tariffs on U.S. imports including agricultural goods, appliances, motorcycles, apparel, certain paper products, and footwear. In response to Trump waiving tariffs for Canadian imports covered under the U.S.-Mexico-Canada Agreement (USMCA), Canada delayed a second round of tariffs on goods ranging from agricultural and aerospace products to electric vehicles until April 2.

On March 10, the Canadian province of Ontario imposed a surcharge on electricity exported to Michigan, Minnesota, and New York, but later suspended this. However, in response to U.S. tariffs on aluminum and steel imports, Canada on March 12 announced additional tariffs on those two U.S. metals, as well as other goods.

China

China has also imposed retaliatory tariffs on the United States. The first round went into effect on February 10, affecting coal, liquefied natural gas, crude oil, agricultural machinery, large vehicles, and pickup trucks. After Trump increased tariffs on China in early March, Beijing announced a second round of tariffs starting March 10; this included 10 percent tariffs on chicken, wheat, corn, and cotton products, as well as 15 percent tariffs on a range of agricultural products, including soybeans.

In addition, China has enacted export controls on critical minerals, launched an antitrust investigation into Google, and added more than a dozen U.S. companies to their Export Control and Unreliable Entity lists. These measures will not only have the potential to disrupt U.S. supply chains but also harm the global economic competitiveness of U.S. businesses.

European Union

Likewise, the EU has stated that “unjustified” U.S. tariffs on European aluminum and steel “will not go unanswered,” and announced retaliatory tariffs on March 11. Specifically, the bloc plans to reimpose 2018 and 2020 retaliatory tariffs against the United States but also put into place new tariffs following discussions among EU member states in March.

Mexico

Mexico, meanwhile, planned on announcing retaliatory tariffs on March 9, but did not follow through after Trump exempted Mexican goods covered by the USMCA. On March 9, President Claudia Sheinbaum affirmed Mexico’s commitment to curb fentanyl trafficking and said she expects the United States to continue preventing arms trafficking into Mexican territory. If Mexico does choose to implement retaliatory tariffs—particularly after the exemption on USMCA goods expires on April 2—it is likely that they will target U.S. products such as vegetables, fruits, beer, and spirits.

Many of these retaliatory tariffs are targeting industries in parts of the country that supported Trump in the 2024 election, a move that some experts say is designed to maximize leverage. Examples include Canadian tariffs on fruit from Florida and motorcycles and coffee from Pennsylvania, and Chinese tariffs that will affect farming and manufacturing communities in the Midwest and Rust Belt. Ultimately, however, the economic cost will be felt throughout the country.

How could these retaliatory tariffs hurt the United States?

U.S. exports, specifically from the agriculture and livestock sectors, will decline in the short term as trade partners reduce their imports. U.S. producers will suffer from decreased revenue—as U.S. soybean farmers did during the 2018–19 trade war—while other countries will seek to fill the gap left by the United States. Soybean farmers have still not fully regained their market share of soybean exports to China.

Retaliatory tariffs could also result in an escalation of existing U.S. tariffs, hurting consumers as businesses pass on the costs of tariffs in the form of higher prices. The average U.S. household is already expected to face a cost increase of more than $1,200 per year as a result of existing U.S. tariffs. The imposition of retaliatory tariffs also raises other concerns, including the potential effects on the U.S. stock market and allies’ declining trust in U.S. economic leadership.

To read the article as it was published on the Council on Foreign Relations website, please click here. 

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

However, when a sovereign is faced with the dilemma of default it is a distressing one for both the lenders and borrowers, where paying back the debt requires scenarios where resolutions can be achieved with repayment goals.  The current dependence on the international community to bail out the private lenders deters countries from resolving unsustainable debts efficiently and appropriately amongst each other of their own initiative, especially since there is a lack of incentives for lenders and borrowers to do so.  The broad ramifications may be an increase in sovereign defaults and international legal issues.  The resolution is to alter macroeconomic policy in our treatment of sovereign default.  In doing so, one suggested proposal is restructuring sovereign debt by creating formal procedures, an International Monetary Fund (IMF) Country Bankruptcy Court, where lenders and borrowers through a collaborative effort will restructure the debt and the IMF will preside as the governing body through this process (restructuring of debt is not too different than debt restructuring done in the private sectors, just depends on the borrower terms and the lender’s appetite for risk).  This forthright approach was suggested by Anne O. Krueger, the First Deputy Managing Director of the IMF in November 2001.  She believed that this “formal mechanism” would have served as a “catalyst”, and provide lenders and borrowers a number of protections during the debt restructuring process.  In the following based on her proposal, I examine what leads a country to crisis or default.

Sources of Country Crisis & Economic Analysis:

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

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

The conditions are as follows.

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

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

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

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

The IMF Country Bankruptcy Court Proposal & Economic Analysis:

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

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

Sonal Patney is a corporate and investment banker and author having originated, marketed, structured, executed, and closed over 100 debt and equity financings that ranged from $5M to $4B. As of October 2022, Sonal became an author with the international publishing of her book on sustainable finance debt by Europe Books – “How Should We Think About Debt Capital Markets Today? ESG’s Effect on DCM”. As a graduate of Columbia University, and New York University, she holds an MPA with a concentration in International Economic Policy, and a BA in Political Science, respectively. Her academic research has focused on emerging market countries and trade. Additionally, she has been a pro bono SCORE LI mentor for small business’ and the recipient of a mentoring award from SCORE; a member of varying nonprofit associations and a former Board member of some. She is also a “Contributor” for The Financial Executives Networking Group Journal online on capital markets topics.

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

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

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

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

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

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

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

The third disadvantage is that dollarization is irreversible.  The lack of a flexible monetary policy may bear a high cost to the dollarized country in a situation where the issuing country is tapering its monetary policy during a boom, while the dollarized country needs a more flexible monetary policy because it is in a recession.  A country’s tolerance for economic shocks decreases due to this.  Another aspect of this disadvantage is that with dollarization being irreversible, a country losses’ its’ symbol of nationalism forever.  Although, this may not carry as much weight comparatively, it is a key factor in being a cost to the country, particularly, in view of the gold standard period (1870s, when the currency was tied to a fixed amount of gold). 

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

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

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

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

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

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

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

Figure 1. Country Crisis Model

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

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

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

So, where exactly are we with dollarization today? The best answer is to strategically evaluate on a case by case basis for any given country. 

Sonal Patney is a corporate and investment banker and author having originated, marketed, structured, executed, and closed over 100 debt and equity financings that ranged from $5M to $4B. As of October 2022, Sonal became an author with the international publishing of her book on sustainable finance debt by Europe Books – “How Should We Think About Debt Capital Markets Today? ESG’s Effect on DCM”. As a graduate of Columbia University, and New York University, she holds an MPA with a concentration in International Economic Policy, and a BA in Political Science, respectively. Her academic research has focused on emerging market countries and trade. Additionally, she has been a pro bono SCORE LI mentor for small business’ and the recipient of a mentoring award from SCORE; a member of varying nonprofit associations and a former Board member of some. She is also a “Contributor” for The Financial Executives Networking Group Journal online on capital markets topics.

The post On The Relevance of Dollarization: Advantages & Disadvantages of the US Dollar appeared first on WITA.

Canada and Mexico

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

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

China

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

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

Remembering the 2018 Trade War

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

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

Will Financial Assistance for Farmers be there Again?

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

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

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

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

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

The Big Upfront Hits on Key Commodities

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

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

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

Partial Truce

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

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

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

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

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

No Substitute for Market Access

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

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

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

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

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

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

To read the full research blog, please click here. 

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

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

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

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

3) How much will the new tariffs cost?

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

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

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

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

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

6) Has the uncertainty already impacted metals markets?

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

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

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

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

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

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

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KEY TAKEAWAYS

• The White House has given the Office of the U.S. Trade Representative, along with the departments of Treasury and Commerce, until April 1 to identify countries the administration should confront with corrective trade actions.
• It would be a mistake for the Trump administration to impose across-the-board tariffs on all nations, even if some run trade surpluses with America.
• The administration should focus on the nations that employ the most extensive arrays of unfair trade practices, including behind-the-border restrictions that specifically target U.S. companies or exports.
• Based on an index composed of 11 indicators covering America’s trade balances and key barriers U.S. industries face in markets around world, the administration should focus the greatest attention on China, India, and the European Union.
• While it is highly unlikely that tariffs or other pressure can convince China to reduce its trade distortions, such measures might work vis-à-vis U.S. relations with other nations.

Introduction

The second Trump administration has taken office looking to put U.S. trade relations on a more equitable footing with the rest of the world. President Trump has railed that other nations “are taking advantage of us” and vowed to ensure that U.S. companies are treated fairly in international markets. As Secretary of State Marco Rubio recently told U.S. allies, “I know you’ve gotten used to a foreign policy in which you act in the national interest of your country, and we sort of act in the interest of the globe or global order. But we are led by a different person now.”

To enact the president’s vision, the White House has instructed the Office of the United States Trade Representative (USTR), in coordination with the departments of Commerce and Treasury, to identify “any unfair trade practices by other countries and recommend appropriate actions to remedy such practices” by April 1, 2025.

Meanwhile, the president has already trained his fire at several nations in the opening weeks of his administration—notably Canada, China, Colombia, and Mexico—but the to-do list is long, as an increasing number of countries around the world have adopted mercantilist trade practices in recent decades. Against that backdrop, the administration should focus on countries where systematically unfair, mercantilist trade policies are inflicting the most significant damage on the U.S. economy and U.S. corporations (large and small alike), and where the United States stands to gain the most by restoring balanced trade. Accordingly, the Information Technology and Innovation Foundation (ITIF) has developed the “Trade Imbalance Index” described in this report. It evaluates 48 countries (15 of which are included in the “European Union” bloc) on 11 measures to ascertain which are the biggest trade mercantilists or scofflaws and where the Trump administration should concentrate its attention as it seeks to advance a trade policy that more effectively defends U.S. interests and ensures more balanced trade relations.

This report evaluates the largest 48 countries by gross domestic product (GDP) on 11 indicators covering 4 categories. In brief, the categories and indicators are as follows:

 Trade balance in goods and information services: This category considers U.S. trade balances in goods and information services. ITIF used the raw values of the trade balances rather than the relative values (e.g., trade balance as a share of GDP) to better measure the overall harm a nation has on the United States when it runs a surplus. In other words, a nation with which the United States has a high deficit would cause more harm to the United States even if the deficit were small when compared to its GDP.

 Trade restrictions: These involve a simple mean tariff rate across all product categories, the prevalence of non-tariff trade barriers (NTBs), and the nation’s Services Trade Restrictiveness Index score.

 Taxes and regulations: These cover the extent of a country’s Digital Markets Act (DMA) regulations, extent of digital services taxes (DSTs), extent of pharmaceutical price controls, the presence of antitrust fines, and the presence of noncompetition fines on the digital economy. 

 Intellectual property (IP): This category includes the 2024 USTR Section 301 Watch List and the nation’s score on the U.S. Chamber of Commerce International IP Index.

Because we believe that America’s bilateral trade balance with a given country is not the most important factor in determining whether the Trump administration should prioritize that nation for a trade response, the trade-balance indicator accounts for only one-quarter of the total weighted score in our index. Ultimately more important than bilateral trade balances are the underlying factors affecting U.S. trade with a given country. So even if a country runs a trade deficit with the United States, there may be reason for the Trump administration to confront it if the country employs a significant number or degree of unfair trading practices.

Weighing these considerations, China, India, the European Union, Vietnam, and Argentina rank as the five worst offenders in ITIF’s index. (In this study, “European Union” refers to the 15 largest EU members, except in the trade-balance indicator where it refers to the whole bloc.)

The more negative the score, the more the Trump administration should prioritize that nation for a trade response. The 10 worst-performing nations with negative scores (from worst to best) are China, India, the European Union, Vietnam, Argentina, Thailand, Brazil, Turkey, Mexico, and Indonesia. In contrast, the nations that should be least likely to face retaliatory measures from the Trump administration include Singapore, Switzerland, Peru, the United Arab Emirates, and the Philippines.

This report begins by offering an in-depth analysis of the problematic trade and economic policies of the top three most problematic nations (or regions in the European Union case). It then analyzes how countries fared on each of the individual indicators in the report. Finally, it offers trade policy recommendations for the Trump administration and Congress to responsibly address the mercantilist practices of foreign countries.

Mercantilist Country Analysis

As noted, China, India, and the European Union score lowest in ITIF’s index and stand out as the nations where the Trump administration should focus the greatest attention on rebalancing trade and economic relations.

China

China’s ranking first in the study is no surprise. The country has persistently failed to adhere to the commitments it made to the United States, and other international trade partners, when it joined the World Trade Organization (WTO), as ITIF has documented across numerous reports. Over the past decade, the country has recorded a nearly $3.5 trillion trade surplus in manufactured goods with the United States. In 2023, China’s goods trade surplus with the United States reached $279 billion, with this amount growing to $295 billion in 2024. And that figure represented about one-third of China’s nearly $1 trillion trade surplus with the world last year as its exports swamped the globe. China’s 2022 simple mean tariff rate stood at 6.5 percent.

USTR identified China as a Priority Watch List country in 2024 for its continued infringements on U.S. IP rights. The report notes that “long-standing issues [remain] including technology transfer, trade secrets, counterfeiting, online piracy, copyright law, and patent and related policies.” The Commission on the Theft of American Intellectual Property has estimated that China’s IP theft may cost the U.S. economy as much as $600 billion annually. A 2019 CNBC Global CFO Council report found that one in five North American corporations had their IP stolen in China in 2018. In ITIF’s series of “How Innovative Is China in High-Tech Industries” reports, ITIF documented numerous cases of IP theft in sectors ranging from electric vehicles and nuclear technology to semiconductors and electronic displays. China also continues to be the world’s leading source of counterfeit and pirated goods. The country further imposes more barriers to cross-border data flows than any other nation in the world.

China’s rampant IP theft may cost the U.S. economy as much as $600 billion annually, with high-tech sectors most at risk.

China has opened specious antitrust investigations into U.S. tech companies including Google and NVIDIA and in the past imposed unjustified antitrust fines on U.S. tech companies, such as the $1 billion fine it imposed on Qualcomm in 2015. With regard to pharmaceuticals, China imposes steep drug price controls and favors Chinese firms in national drug selection.

Forced transfer of technology or IP as a condition of Chinese market access—or requirements to manufacture locally as a condition of access to Chinese markets—remains a perennial challenge. Indeed, China calls this strategy “trading technology for market.” However, now that China has sufficiently competitive high-tech firms in a variety of sectors, it is increasingly moving from a strategy of “compulsion” to one of “expulsion.”

For instance, on April 12, 2024, The Wall Street Journal reported that “China’s push to replace foreign technology is now focused on cutting American [chipmakers] out of the country’s telecommunications systems.” The move would impact a variety of U.S. semiconductor companies, including AMD and Intel. The article notes that “[Chinese] officials earlier this year directed the nation’s largest telecom carriers to phase out foreign processors that are core to their networks by 2027.” The effort is similar to one articulated in Document 79, which requires state-owned enterprises in finance, energy, and other sectors to replace foreign software in their information technology (IT) systems by 2027.

Elsewhere, the Chinese government has asked electric vehicle makers from BYD to Geely to sharply increase their purchases from local auto chipmakers, part of a campaign to reduce reliance on Western imports and boost China’s domestic semiconductor industry. China’s Ministry of Industry and Information Technology has directly instructed Chinese automakers to avoid foreign semiconductors if at all possible. Such measures leave no doubt that import substitution and achieving self-sufficiency represent an essential goal of China’s competitive strategy in a range of high-tech industries from autos to semiconductors. Such a strategy is directly antithetical to and contravenes the commitments China made to global trade partners in joining the WTO. China is indeed the world’s number one mercantilist.

India

India ranks second in this index. In 2024, India recorded a $45.7 billion trade surplus with the United States. That was atop a $43.3 billion trade surplus the year before. India’s simple mean tariff rate is 14.3 percent, while on a trade-weighted basis, India’s rate is about 12 percent compared with America’s rate of 2.2 percent. Of the countries assessed in this report, India scores fourth worst with regard to its services trade restrictiveness. India continues to maintain high customs duties on IP-intensive goods such as IT products, solar energy equipment, medical devices, pharmaceuticals, and capital goods.

In 2016, India implemented an equalization levy (EL) of 6 percent on nonresidents engaged in online advertisement and related activities with Indian customers. India’s Finance Act of 2020 expanded the EL to introduce a levy on e-commerce supply or services equal to 2 percent of gross income facilitated by a nonresident e-commerce operator. On March 12, 2024, the Indian Ministry of Corporate Affairs released a draft report of the Committee on Digital Competition Law along with a draft bill on the Digital Competition Act that “bears a striking resemblance” to the EU’s problematic Digital Markets Act. The legislation embraces an ex ante regulatory model and follows the path of overbearing competition policy taken by the EU.

U.S. companies have also been the target of significant antitrust fines levied by Indian authorities. India’s Competition Commission fined Meta $24.5 million for its data sharing practices, contending that the company abused its dominance and “coerced” WhatsApp users into accepting a 2021 privacy policy that allegedly expanded user data collection and sharing, giving it an unfair advantage over rivals. The commission also fined Google $154 million for practices related to its Android operating system. Overall, India is heavily scrutinizing American tech companies and following a European approach.

India remains on USTR’s Special 301 Priority Watch List, as “there continues to be a lack of progress on many long-standing IP concerns raised in prior Special 301 Reports. India remains one of the world’s most challenging major economies with respect to protection and enforcement of IP.” India continues to place elevated restrictions on patent subject matter eligibility that exceeds the required novelty, inventive step, and industrial applicability requirements. Under Section 3(d) of the Indian Patent Act, there exists an additional “fourth hurdle” regarding the inventive step and enhanced efficacy that limits patentability for certain types of pharmaceutical inventions and chemical compounds. India ranks 42nd out of 55 countries on the Global Innovation Policy Center’s International IP Index. Elsewhere, India’s pirating of film and audiovisual content through illicit video recording remains a major challenge.

On February 13, 2025, Indian Prime Minister Narendra Modi visited president Trump in Washington, D.C. He appeared to come prepared to offer certain tariff concessions on some products, including automobiles and electronics, to the United States. Coming out of those meetings, Indian and U.S. officials agreed to start developing “broad contours of [a] proposed trade agreement” between the two countries, which obviously has significant potential to address some of these trade irritants and significantly improve the India-U.S. trade relationship.

The European Union

The EU ranks third in this index, as it’s among the leading practitioners of discriminatory trade policies targeting U.S. enterprises, particularly those in digital industries, thanks especially to its DMA and Digital Services Act (DSA). In fact, there are over 100 digital regulations in force across the EU, enforced by at least 270 agencies. European policymakers ostensibly designed the DMA to create a fairer digital market by preventing large online platforms, which the EU calls “gatekeepers,” from abusing their market power and ensuring more competition for smaller companies and consumers in digital industries. Its sister legislation, the 2022 DSA, addresses illegal content, transparent advertising, and disinformation.

But as ITIF has written, the legislation should really have been called the “U.S. Tech Firms Act,” as the legislation intentionally singles out U.S. tech companies. For instance, the European Parliament rapporteur for the DMA, Andreas Schwab, suggested that the DMA should unquestionably target only the five biggest U.S. digital firms (Google, Amazon, Apple, Facebook, and Microsoft). Basically, the DMA and DSA have been designed to cover, almost exclusively, U.S. firms and not their European or Chinese competitors that offer similar services. A leaked draft of the proposed EU DSA was quite clear on this intent: “Asymmetric rules will ensure that smaller emerging competitors are boosted, helping competitiveness, innovation, and investment in digital services.” Indeed, the European Commission has opened non-compliance investigations against Alphabet, Apple and Meta under its DMA.

The DMA should really have been called the “U.S. Tech Firms Act,” as the legislation has almost exclusively singled out U.S. tech companies.

Certain European countries have used their legislation to impose punitive antitrust fines on U.S. companies. For instance, Apple faced a £1.5 billion ($1.9 billion) class action lawsuit in the United Kingdom for allegedly overcharging software developers through the App Store. The case claims that Apple abused its market dominance by imposing a 30 percent commission on app purchases. Further, the United Kingdom’s Competition and Markets Authority (CMA) has indicated possible investigations into Amazon’s and Microsoft’s dominance in cloud computing, following alleged concerns about anticompetitive behavior in the sector.

In 2023, the EU ran a trade surplus of $208.7 billion with the United States. The EU runs significant trade surpluses with the United States across a number of advanced-technology industries, including pharmaceuticals and medical devices, motor vehicles and parts, electrical goods, telecommunication goods, chemicals, and instruments. Europe’s large trade surplus with the United States in pharmaceuticals stems largely from the extensive drug price controls implemented by most countries on the continent and their failure to pay adequate prices for innovative medicines. Of the 27 EU nations, all but 7 (Malta, Luxemburg, Croatia, Lithuania, Belgium, Spain, and the Netherlands) run trade surpluses in goods with the United States. And the country whose officials complain the loudest of U.S. “digital dominance”—Germany—runs the largest trade surplus.

While the European Union applies a relatively low simple mean tariff rate, this obscures a variety of value-added taxes and other fees that make U.S. products more expensive in Europe. For example, the EU levies a 10 percent tariff on U.S. car imports, while the United States imposes a 2.5 percent duty. And as president Trump has observed, when Europe’s value-added taxes (VAT) are added in, U.S. car exports to Europe can be tariffed and taxed as high as 30 percent.

Indicator Analysis

Trade Balance in Goods and Information Services

The Trade Balance in Goods and Information Services indicator provides a standardized score for each nation based on its trade surplus or deficit in goods and information services with the United States in 2023, as measured by the U.S. Census Bureau’s “USA Trade” and the Organization of Economic Cooperation and Development (OECD). Countries with large trade surpluses against the United States receive a low standardized score, those with moderate surpluses receive a mid-range score, and those with trade deficits or balanced trade receive a high score.

This indicator is included in the index because significant trade imbalances are often perceived as evidence of unfair trade practices, currency manipulation, or insufficient market access for U.S. goods. ITIF uses the trade balance in goods and information services measure here (as opposed to trade balance in goods as a share of GDP measure), recognizing that the Trump administration places a significant focus on the overall harm a large trade deficit has on the United States. In other words, the administration is more concerned with a nation with a large deficit than one with a large deficit relative to its GDP. As such, under the Trump administration, countries with low scores should be more likely to face retaliatory measures such as tariffs, stricter trade policies, or efforts to renegotiate trade agreements.

China, the European Union, Mexico, and Vietnam all could become prime targets for trade restrictions or renegotiations based on their substantial surpluses. For example, China has the highest surplus at $277.5 billion. The European Union runs a surplus of $208 billion, while Mexico runs a surplus of $151 billion and Vietnam enjoys a $104 billion surplus. Meanwhile, Australia, the United Arab Emirates, and the United Kingdom maintain a more balanced trade relationship with the United States, all running a deficit that exceeds $10 billion, making them less likely to face economic pushback from the administration on account of trade balances.

Trade Restrictions

Simple Mean Tariff Rate for All Products

The Simple Mean Tariff Rate for All Products indicator provides a standardized score for each nation based on its unweighted average of simple mean tariff rates across all traded products for 2022, as measured by the World Bank’s World Development Indicators. Countries with high simple mean tariff rates receive a low standardized score, those with moderate tariffs receive a mid-range score, and those with low or near-zero tariffs receive a high score.

This indicator is included in the index because high tariff rates create significant barriers for U.S. exports, raising costs for American businesses and reducing market access. Protectionist tariff policies can stifle competition, inflate consumer prices, and disrupt global supply chains, making it harder for U.S. firms to compete internationally. Lower-scoring countries should legitimately face more trade scrutiny from the Trump administration.

Non-Tariff Trade Barriers

The Non-Tariff Trade Barrier indicator provides a standardized score for each nation based on the prevalence of NTBs, as measured by the Fraser Institute’s Economic Freedom of the World 2024 index. Countries with extensive NTBs receive a low standardized score, those with moderate restrictions receive a mid-range score, and those with minimal barriers receive a high score.

This indicator is included in the index because NTBs limit market access for U.S. firms, increase compliance costs, and reduce U.S. firms’ competitiveness in the global market. As such, under the Trump administration, countries with low scores are more likely to face countermeasures, such as tariffs, trade restrictions, or heightened regulatory scrutiny.

For example, Argentina requires importers to request nonautomatic import licenses on about 1,500 products and has reduced the validity of licenses from 180 days to 90 days. Nigeria also employs NTBs that are detrimental to importers. For instance, it requires food, drugs, and cosmetics to be inspected but does not have the capacity to perform these inspections in a timely manner. Meanwhile, Singapore and Chile employ the fewest NTBs of nations in this study and are less likely to face sanctions for this particular reason.

Services Trade Restrictiveness Index

The Services Trade Restrictiveness Index indicator provides a standardized score for each nation based on the level of restrictions in its services trade sector, as measured by OECD’s Services Trade Restrictiveness Index in 2023. Countries with highly restrictive services trade policies receive a low standardized score, those with moderate restrictions receive a mid-range score, and those with mostly open services trade policies receive a high score.

This indicator is included in the index because restrictive services trade policies can hinder U.S. companies operating in sectors such as finance, telecommunications, and digital services. High restrictions increase costs, limit market access, and reduce competitiveness for American firms. Moreover, they also reduce supply and increase the cost of services for U.S. consumers.

For example, Indonesia is particularly restrictive partly due to its restrictions in legal services, accounting services, and telecommunications. Meanwhile, Thailand is quite restrictive in services trade because reforms that liberalize services trade have slowed in recent years. In contrast, Japan, the United Kingdom, Chile, and Australia have the most open services trade policies and are less likely to face pushback from the administration for this reason. Japan notably has a stable regulatory environment for services and has moderately liberalized its logistics and insurance sectors.

Taxes and Regulations

Digital Markets Act

The Digital Markets Act indicator provides a standardized score for each nation based on the presence or absence of a DMA or a similar regulatory framework in a nation. Countries that have implemented a DMA or comparable legislation receive a low standardized score, those now developing such regulations receive a mid-range score, and those without such laws receive a high score.

This indicator is included in the index because digital market regulations, such as the DMA, impose restrictions on large technology firms, many of which are U.S.-based. These regulations can limit firms’ revenues, restrict business practices, and increase compliance costs, potentially reducing profitability and innovation. The Trump administration should scrutinize countries that field anticompetitive DMA laws.

This is because these nations either have a DMA or similar law themselves or are subject to one as part of a regional entity (e.g., their EU membership.) For instance, Thailand has adopted the Platform Economy Act, legislation that represents a combination of the DMA and the DSA. Similarly, the United Kingdom has the Digital Markets, Competition, and Consumer Act of 2024, a DMA-like legislation that imposes restrictions on digital firms. Twenty nations with a standardized score of 0.7 are the least likely to face retaliation based on this measure, as they have not adopted a DMA-like law. These nations include, among others, Singapore, South Africa, Taiwan, the United Arab Emirates, and Vietnam. 

Digital Services Tax

The Digital Services Tax indicator provides a standardized score to each nation based on whether it imposes a DST on firms’ revenues using data from the Digital Services Taxes DST—Global Tracker and Digital Policy Alert’s Digital Services Taxes Tracker. Countries that have fully implemented a DST receive a low standardized score, while those without such a tax receive a high score. This indicator is included in the index because DSTs can increase operational costs, reduce profitability, and harm U.S. technology companies’ competitiveness.

The United Kingdom is likely to face repercussions due to its 2 percent tax on marketplaces, social media platforms, and search engines that exceed an annual global sale of £500 million ($635 million) and an in-country sales threshold of £25 million ($31.8 million). Canada imposes a 3 percent tax on digital service companies with more than CA$20 million of revenue from Canadian sources. Similarly, India imposes a 6 percent tax on advertising and a 2 percent tax on goods and digital services. Finally, 18 nations are unlikely to face penalties by the Trump administration for this reason, as they do not impose DSTs. These nations include Australia, Japan, Mexico, South Korea, and Switzerland.

Presence of Digital Economy Fines on U.S. Companies

The Presence of Digital Economy Fines on U.S. Companies indicator provides a standardized score that reflects whether U.S. firms have been subjected to digital economy-related fines by foreign governments, as tracked by the Digital Policy Alert’s Activity Tracker. Countries that have imposed a fine on U.S. companies receive the lowest scores, while those with no such penalties receive higher scores. ITIF includes this indicator because it highlights regulatory environments that may disproportionately target U.S. firms, harming their competitiveness in the global economy.

These nations include Australia, several European Union nations, India, South Korea, and the United Kingdom. For instance, Argentina’s Agency for Access to Public Information fined Google 180,000 Argentine pesos for refusing to give an individual access to her personal data. Meanwhile, the Reserve Bank of India fined Amazon Pay 30.6 million Indian rupees for failing to comply with “Master Directions on Prepaid Payment Instruments” and the “Master Direction – Know Your Customer Direction” provisions. In contrast, 23 nations, including Canada, Japan, Mexico, Switzerland, Taiwan, Thailand, and Vietnam are unlikely to face retaliatory measures. 

Extent of Pharmaceutical Price Controls

The Extent of Pharmaceutical Price Controls indicator provides a standardized score for each nation based on its ranking in ITIF’s report “Contributors and Detractors: Ranking Countries’ Impact on Global Innovation” and other outside sources. Nations with a low standardized score exhibit a high degree of pharmaceutical price controls, those with a mid-range score have a moderate level of controls, and those with a high score impose minimal price controls.

This indicator is included in the index because stringent pharmaceutical price controls reduce revenue for U.S. pharmaceutical companies, limiting their ability to invest in research and development (R&D). This, in turn, can hinder the development of next-generation drugs, potentially impacting public health in the United States. Indeed, as ITIF explained, “Pharmaceutical firms view current drug price regulations as likely to continue, reducing their potential profits while disincentivizing their investment in R&D.” As a result, countries with low scores may be more likely to face retaliatory measures under the Trump administration.

 Just like in Europe, Japan’s extensive drug price controls have decimated the country’s biopharmaceutical industry, as Japan’s share of global value added in the pharmaceutical industry declined by 70 percent, from 18.5 to 5.5 percent, from 1995 to 2018. Moreover, an ITIF report finds that, after adjusting for GDP per capita, prescription drug prices in the United Kingdom are 53 percent of those in the United States. In other words, for every $100 spent on prescription drugs in the United States, the United Kingdom spent only $53. Meanwhile, Taiwan, Switzerland, Singapore, and six other nations are least likely to face trade scrutiny for this reason, as their pharmaceutical price controls are relatively minimal. 

Antitrust Fines

The Antitrust Fines indicator provides a standardized score for each nation based on the presence of antitrust fines imposed on corporations. Countries with no antitrust fines receive a high standardized score while those that have imposed fines receive a low one.

This indicator is included in the index because aggressive antitrust enforcement can create regulatory uncertainty, increase compliance costs, and disproportionately impact large U.S.-based firms, impeding U.S. firms’ competitiveness. High antitrust fines can be viewed as a tool of protectionism, targeting successful foreign companies while shielding domestic competitors.

China stands out as one of the worst offenders on this indicator, marred by its unfounded fining of Qualcomm for $975 million in 2015 and its subsequent baseless announcements of antitrust investigations against Google and NVIDIA. Elsewhere, Australia has fined Google over what it deems misrepresentation of consumer data collection. The maximum fine per violation is now the greater of $50 million or 30 percent of a company’s Australian turnover during the infringement period. In January 2025, Apple faced a £1.5 billion ($1.9 billion) class action lawsuit in the United Kingdom for allegedly overcharging software developers through the App Store. Meanwhile, the Mexican competition authority has fined the Mexican unit of Walmart, Walmex, for alleged anticompetitive practices. It has also fined HP in the past for not obtaining appropriate consent for a merger with Plantronics.

Meanwhile, 20 nations score well at 0.8, signaling a more business-friendly approach. These nations include Canada, Brazil, and Japan in addition to the countries listed below. The EU, known for its stringent competition policies and major fines on U.S. tech giants, stands in the middle range with a score of -0.4. 

Intellectual Property

USTR Special 301 Watch List

The 2024 USTR Special 301 Watch List indicator provides a standardized score for each nation based on its inclusion in USTR’s Special 301 Report, which catalogs the nations that most extensively infringe on the interests of U.S. IP rightsholders. Countries on USTR’s Priority Watch List (i.e., the most intensive IP-infringing countries) receive the lowest score, those on the Watch List receive a mid-range score, and those not listed in the Special 301 report received the highest score. ITIF includes this indicator because the Special 301 Report assesses the adequacy and effectiveness of U.S. trading partners’ protection and enforcement of IP rights. Nations with lower scores generally exhibit weaker IP protections and are therefore more susceptible to facing retaliatory measures from the Trump administration, as inadequate IP policies or enforcement increases the risk of U.S. IP theft.

China represents a particularly likely target, as it is the world’s most significant perpetrator of IP theft. Moreover, the nation has not addressed U.S. concerns over forced technology transfers despite committing to the removal of those policies. Meanwhile, India would also be a prime target for Trump administration scrutiny because of its presence on the priority watch list. The nations with a score of 0.6, including Norway, Israel, Taiwan, and the United Kingdom, would be least likely to face retaliatory measures for this reason, as they were not listed on the 2024 Special 301 watch list. 

International IP Index

The International IP Index indicator provides a standardized score for each nation based on the strength of its IP rights framework, as measured by the U.S. Chamber of Commerce Global Innovation Policy Center’s International IP Index 2024, Twelfth Edition. Countries with strong IP protections received a high standardized score, those with moderate protections received a mid-range score, and those with weak or inadequate protections received a low score.

This indicator is included in the index because robust IP protections benefit U.S. companies—particularly in pharmaceuticals, technology, and entertainment—by safeguarding patents, copyrights, trademarks, trade secrets, and other forms of IP. Weak IP protections can increase counterfeiting, piracy, and unfair competition, harming U.S. businesses. Under the Trump administration, countries with low scores may be more likely to face countermeasures such as trade sanctions, tariffs, or pressure to strengthen their IP environments.

Indeed, according to the International IP Index, Pakistan ranks as the fifth-worst nation in terms of patent rights and second worst for copyright protections. Meanwhile, Egypt was the sixth-worst nation for copyright-related rights and trademark-related rights. In contrast, the United Kingdom, Japan, and the European Union have the strongest IP protections and are unlikely to face pushback from the administration for this reason. Indeed, the United Kingdom ranked in the top 10 nations with the best patent rights, copyright-related rights, and trademark-related rights.

Policy Recommendations

President Trump is certainly correct that, for too long, too many nations have been taking advantage of unbalanced trade relationships with the United States. In too many cases, the United States has extended lower tariffs, imposed fewer NTBs, or offered a more protective environment for IP rights than has a partner trade nation. The United States has also tolerated wildly unbalanced trade flows with nations such as China for far too long. Reciprocal and equitable trade relationships with partner nations are certainly a compelling vision, and the Trump administration is certainly justified in exploring policy measures to make that a reality.

That said, tariffs are not the unalloyed good the Trump administration appears to believe they are. The Trump administration should certainly not be implementing a universal tariff on all nations. Likewise, blanket, global sectoral- or technology-based tariffs—such as the tariffs “in the neighborhood of 25 percent” on imported vehicles, pharmaceuticals, and semiconductors that president Trump proposed on February 18, 2025—are unjustified and would inflict tremendous harm on the U.S. (and global) economy. Tariffs on intermediate products, such as the 25 percent tariffs president Trump has proposed on steel and aluminum products, are also certain to be counterproductive and deleterious to the U.S. economy.

In the opening days of his administration, Trump threatened 25 percent tariffs on Canada and Mexico (and 10 percent on China) to create negotiating leverage to draw stronger action from those nations to dramatically reduce the flow of illegal immigration and fentanyl into the United States. On March 4, 2025, president Trump proceeded with implementation of those 25 percent tariffs on Canada and Mexico (at the 10 percent level for Canadian energy imports) and 20 percent for China. The president has similarly threatened tariffs on EU nations to win concessions from them regarding several of the unfair trade practices documented in this report. It’s one thing for the Trump administration to threaten tariffs as a negotiating tool, but when partner nations respond by meeting the Trump administration’s demands—as, for instance, Canada and Mexico clearly have with their steps to enhance border enforcement and interdict drugs—then the Trump administration should take tariffs, or the threat thereof, off the table. This is certainly the case with Canada and Mexico, where the Trump administration’s proposed tariffs would also place the United States in clear contravention of its U.S.-Canada-Mexico (USMCA) free-trade agreement (FTA) commitments.

Reciprocal tariff relations among nations make the most sense when those tariffs are at zero.

China stands in a different category from virtually all the other countries assessed in this report. That’s true first because China pursues fundamentally mercantilist trade and economic practices—what ITIF has identified as “power trade”—in a manner distinct from most of the other largely market-based, if occasionally protectionist, countries in this report. Second, for this reason, China is unlikely to modify its fundamentally mercantilist approach in response to Trump administration pressure, whereas other countries may respond by dropping or modifying some of their unfair trade practices in response to such pressure. And while tariffs on China may well be justified due to its litany of unfair trade practices ranging from currency manipulation to massive industrial subsidization to rampant IP theft, tariffs alone will be insufficient to address the China challenge. Rather, as ITIF has written, America must pursue a holistic strategy to turbocharge its own innovation-based economic growth while marshalling an allied coalition that pressures China to stop rigging markets and start competing on fair terms. Effectively dealing with the China challenge will require a much more sophisticated set of tools than tariffs alone.

President Trump’s preoccupation with tariffs would be a fine thing if it were focused on eliminating them as broadly as possible, not on introducing new ones on trade partners across the world. Yet, his instinct for reciprocal trade relations is correct. For that reason, the Trump administration should make it a major initiative to expand the Information Technology Agreement (ITA), a plurilateral WTO agreement that commits member nations to eliminate tariffs on trade across hundreds of information and communications technology products. Similarly, the 1994 Agreement on Trade in Pharmaceutical Products—more commonly referred to as the “zero-for-zero initiative”—commits Canada, the European Union and its 28 member states, Japan, Norway, Switzerland, the United States, and Macao (China) to reciprocal tariff elimination for pharmaceutical products and for chemical intermediates used in the production of pharmaceuticals. As noted, if the Trump administration had real ambition here, it would roll up the ITA, the Pharmaceutical Goods Agreement, and the proposed Environmental Goods Agreement into an Innovation Technology Agreement that pursued zero tariffs on goods and their component inputs across all high-tech industries for participating nations. Indeed, reciprocal tariff relations among nations make the most sense when those tariffs are at zero.

The Trump administration should also ensure that other nations pay their fair share for innovative medicines. As H.E. Frech et al. have suggested, for example, “US officials could raise these issues at international negotiations and advocate for higher prices than presently set in high-income ROW countries. A multi-country agreement in this direction would represent a serious effort to support improved world health.” In the absence of that, the United States should file a WTO case based on the complaint that price controls on the pharmaceutical sector violate IP rights because they enable international arbitrage through parallel trading.

The U.S. Constitution empowers Congress to set import tariffs, although Congress has largely delegated that power to the executive branch. Still, Congress retains an essential voice in guiding U.S. tariff and trade policy. The Trump administration is invoking the International Emergency Economic Powers Act (IEEPA) as the basis for many of the tariffs it has proposed, including those on Canada and Mexico. But Congress intended IEEPA, originally enacted in 1977, to be used only in times of genuine national emergency—such as an actual war with the Soviet Union—and certainly not as a basis for tariffs on FTA partners or as a catchall justification for blanket tariffs of the type the Trump administration has proposed.

As such, Congress should pass the Stopping Tariffs on Allies and Bolstering Legislative Exercise of Trade Policy Act (STABLE), proposed by Tim Kaine (D-VA) and Senators Chris Coons (D-DE), which would institute a requirement of congressional approval before a president could impose new tariffs on U.S. allies and FTA partners.

Congress could undertake some additional productive legislation. Congress should charge USTR with working with willing allied partners to develop a full “China Bill of Particulars” report. As this report documents, China is the world’s most significant trade scofflaw. Accordingly, the United States needs to spearhead development of a collaborative report with allies that comprehensively documents the extent of Chinese mercantilist unfair trade and domestic economic and technology policies. Many of these have been noted, albeit in a piecemeal manner. Although it should also be noted that all foreign-nation exporters into the EU would pay a similar VAT.

Congress should amend, and the administration should use, Section 301 of the Trade Act of 1974 to target digital trade issues. Congress should amend a key U.S. trade defense tool—the Trade Act of 1974—to respond to the digital barriers central to modern trade. The law should detail the responsible agency and process (i.e., the actions, such as licensing, certification, or legal judgment) whereby the administration can impose specific retaliatory measures on a foreign service provider. The administration also should use Section 301 of the Trade Act to initiate an investigation of Europe’s DMA, which has been used to target and penalize U.S. tech firms. Section 301 can be used to enact tariffs, taxes, or restrictions on EU digital service companies doing business in the United States.

Congress should amend the Internal Revenue Code to allow authorities to impose mirror taxes on countries imposing Digital Service Taxes on U.S. firms. Section 891 of the Internal Revenue Code allows the president to retaliate against foreign discriminatory or extraterritorial taxes by taxing foreign citizens and firms. Congress could adapt this code by mandating a tax on the global revenues of large firms based in countries imposing DSTs, such as Italy and France, as a retaliatory measure against the discriminatory taxes placed on American tech firms. These mirror taxes could be legislated to expire upon either of two events: agreed international rules that subject tech giants to taxation in countries reached by their platforms or, in the case of an individual country, repeal of its own DST tax.

Congress should require U.S. aid to be contingent on countries not engaging in digital protectionism. Since the end of WWII, U.S. foreign aid programs have ignored foreign mercantilist practices that harm U.S. techno-economic interests, and that is no longer acceptable. Congress, with its oversight of various federal aid programs, should investigate and require that these agencies limit funding to countries engaging in digital mercantilism or IP theft. Specifically, development aid through the InterAmerican Development Bank or the World Bank should be contingent on nations limiting digital protectionism wherever possible.

Conclusion

The Trump administration has made it clear to global trade partners that sustained unfair trade practices deleteriously impacting U.S. enterprises and industries will no longer be tolerated. The increasing global proliferation of mercantilist practices certainly provides the Trump administration with a “target-rich” environment of trade scofflaws. But the administration should focus the most attention on countries where U.S. industries face the worst trade distortions and imbalances, and where action can most significantly advance U.S. economic interests. As such, this report shines a light on the countries—China, India, and the European Union—that the Trump administration should first prioritize in rebalancing U.S. trade and economic interests.

Appendix 1: Methodology

The country index scores were calculated by taking the raw score of each of the 11 indicators for the top 48 nations with the highest GDP. The raw scores originated from various sources, including the Chamber of Commerce, the U.S. Census Bureau, and the World Bank.  The mean and standard deviations were then calculated using each indicator’s raw score before the raw scores of each nation were standardized to find a z-score. The z-scores indicate the number of standard deviations an indicator’s raw score is compared with its mean value. The z-scores for each indicator were then weighted. Finally, the weighted z-scores were summed together to obtain an overall score for each nation.

The 15 European Union nations in the top 48 nations with the highest GDP were combined into a collective country variable of European Union. The European Union variable was calculated by taking the share of GDP each nation contributed to the overall European Union’s GDP and then weighing the indicator score for each nation by those weights. Finally, the weighted indicator scores for these nations were summed together. As noted, Russia was excluded from the report on the amount of trivial two-way trade (just $3.5 billion in 2024) occurring between Russia and the United States in the wake of the Russia-Ukraine war.

ITIF weighed each indicator’s standardized scores to reflect their importance. The USTR 301 Watch List and International IP Index indicators had a weight of 0.75. The extent of pharmaceutical price controls, DMA law, DST, NTBs, Services Trade Restrictiveness Index, simple mean tariff rates for all products, antitrust fines, and digital economy fines on U.S.-based companies (noncompetition) indicators had a weight of 1. The 2023 trade balance of goods and information services had a weight of 3.5. 

To read the report as it was published on the Information Technology & Innovation Foundation’s website, click here.

To access the full PDF as it was published, click here.

The post The Trade Imbalance Index: Where the Trump Administration Should Take Action to Address Trade Distortions appeared first on WITA.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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