While there is no guarantee that Trump and his administration will achieve the goal he has in mind, it is important to understand the president’s perspective, what he wants his administration to achieve, and how he intends to do it. If carried out successfully, these efforts could have enormous impacts on the global trade and economic system.

Individuals, businesses, and even countries, should weigh the potential risks to their own economic and business models. But also, and perhaps more importantly, they should consider the potential opportunities that a transformed US economy and global trading system might bring.

Contrary to nearly all his predecessors, Trump believes that US interests, and in particular American workers and companies, are disadvantaged by the liberal international economic system that emerged after the collapse of the Soviet Union.

To start, it is worth briefly describing Trump’s worldview. Contrary to nearly all his predecessors, Trump believes that US interests, and in particular American workers and companies, are disadvantaged by the liberal international economic system that emerged after the collapse of the Soviet Union. He believes that the United States embraced an ideology of ‘free trade’ as an unqualified virtue and unwisely disarmed itself by removing protections against the free flow of labour, capital, technology, and goods.

According to Trump, these decisions, which both Republican and Democratic politicians championed, led to the hollowing out of the US economy and industrial strength, while transferring jobs and wealth to the citizens of other nations. While in theory he may accept the arguments of David Ricardo’s comparative advantage, in practice he believes that this theoretical ideal rarely emerges as nations game the system to their own advantage. When these abuses became too blatant to ignore, he faults his predecessors as being too wedded to their ideological biases and too naïve to understand that appeals to legalistic norms shrink in the face of sovereign power. For Trump, the persistent and deepening trade deficit that the United States carries with the rest of the world (though not with Australia), is evidence of the failure of these theories. He is deeply critical of politicians and experts who put their faith in an ideal, which, in his opinion, does not exist in reality.

Closely linked to this suspicion about ‘free trade’ is his deep scepticism of multilateral organisations and international institutions which supposedly safeguard this liberal international economic system. Again, he may accept the theory of a rules-based order maintained by objective international organisations, but in practice he believes these entities cannot enforce the rules and that nations must protect the interests of their own citizens, instead of outsourcing it to others.

Lastly, Trump views the United States as well positioned to change the global trade and economic system. As the world’s largest and wealthiest consumer market with the deepest and richest capital markets, he believes the United States has enormous leverage in renegotiating the terms of trade with its partners individually.

The themes of this worldview are not new, and Trump campaigned on them in 2016, 2020, and 2024. In each subsequent campaign and during the Biden administration, Trump’s political opponents tacked closer to his views on these issues, giving him confidence that American voters share his concerns and have provided him a political mandate to change the global trade and economic system.

Renegotiating the terms of trade

Based on these themes, Trump looks to renegotiate much of the globalisation orthodoxy. Under that system, manufacturing and other industrial activities moved from the United States to other countries with either lower labour costs or to those who could negotiate trade agreements that both benefited their citizens and provided low barrier market access to the United States. Under this version of globalisation, the United States provided two public goods: security, which brought down the cost of commerce, and a market of last resort, that countries could sell into with few barriers which enable those countries to power their own economic development and prosperity.

Trump views this as an unsustainable arrangement, that places heavy burdens on the United States, which lets allies freeride on public goods, and allows rivals to build economic, industrial, military, and technological strength at the expense of the United States.

Rather than viewing the provision of security and market access to the United States as something Americans owe to the world, Trump seeks to share the cost of security with those that share values with the United States and to make access to the US market a privilege.

Rather than viewing the provision of security and market access to the United States as something Americans owe to the world, Trump seeks to share the cost of security with those that share values with the United States and to make access to the US market a privilege. To the degree that companies and countries want to assist in furthering US prosperity and to share in the profits, their investment and manufacturing in the United States will be welcome. The availability of abundant energy, a well-educated workforce, and most importantly, wealthy consumers who will consume large quantities of products and goods, is likely to be attractive to those who want to manufacture in the United States, for the United States. For those who can provide commodities and raw materials for this industrial and manufacturing renaissance that the United States cannot provide itself, those imports to the United States will be welcome at low or no tariff rates.

The responsibility for implementing these changes will fall primarily on five individuals, known colloquially as, the ‘trade team.’ Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, nominee for US Trade Representative Jamieson Greer, Director of the National Economic Council Kevin Hassett, and Senior Counselor for Trade and Manufacturing Peter Navarro.

An America First Trade Policy

The most far-reaching document that Trump signed on his first day in office was a presidential memorandum titled, America First Trade Policy. Addressed to his key cabinet officials, but available for the world to read, Trump’s trade policy lays out a roadmap for overhauling the way the United States conducts commerce with the world.

The policy directs the ‘trade team’ to undertake at least 21 investigations (with five specifically focused on the People’s Republic of China) into existing trade relationships, compliance with trade agreements, and any harms inflicted on the United States. These investigations, some of which include periods for public comment, unlock statutory authorities granted to the president or specific cabinet members. For example, if after an investigation by the Office of the US Trade Representative, it is determined that a foreign country is violating a trade agreement or placing unjustifiable burdens on US commerce, US Code 19, Section 2411, grants the trade representative broad authority to suspend the benefits of a trade agreement, impose duties, or restrict imports.

For those who want to understand the logic of what the United States is seeking to achieve during the second Trump administration, understanding Trump’s worldview, watching the actions of his ‘trade team,’ and following the roadmap of the America First Trade Policy will answer many questions.

The administration appears to be constructing a deliberate set of tools that it can rapidly employ to either achieve a specific policy goal, as demonstrated below, or to change the fundamental commercial calculus for businesses to manufacture products in the United States.

Under the section for economic security matters, the Trump administration has already implemented one portion of this policy. It directed the Secretary of Commerce and Secretary of Homeland Security to assess unlawful migration and fentanyl flows from Canada, Mexico, and the People’s Republic of China and recommend appropriate trade and national security measures. On 1 February, Trump signed three separate executive orders directing the imposition of tariffs on those three countries due to unlawful migration and fentanyl flows. Within 72 hours, the leaders of Canada and Mexico agreed to implement measures to address those two issues. Meanwhile China’s leader apparently refused to communicate with Trump and he ordered the imposition of an additional 10% tariff on all Chinese imports to the United States, as well as a suspension of duty-free de minimis treatment for Chinese imports under US$800.

While this trade policy offers a roadmap for where the Trump administration is going and preview of the tools it will use to get there, this process will inevitably unfold over months and years. For those who want to understand the logic of what the United States is seeking to achieve during the second Trump administration, understanding Trump’s worldview, watching the actions of his ‘trade team,’ and following the roadmap of the America First Trade Policy will answer many questions.

To read the full commentary as it was published on the United States Studies Centre website, click here.

The post It Is All About Trade appeared first on WITA.

One of the defining transformations of the 20th century was globalization. Since the end of World War II, countries and cultures have become more interconnected than ever before, through free trade agreements, technology, multi-national corporations, and the creation of structures such as the IMF and the World Trade Organization. Trade economists liked to think that the benefits of globalization—economic growth, more consumer choice, lower prices—had made it unassailable. But cracks in the international order have started to appear. 

In 2016, the surprise result of the Brexit referendum was seen as a repudiation by the U.K. general public of the decades-long European integration process. In 2018, the Trump administration, seizing on the loss of U.S. manufacturing jobs from offshoring and concerns about unfair industrial practices, instituted a range of tariffs on goods exported from China. President Biden has maintained the tariffs, even though they have led to higher prices and a decrease in the real income of American households. To this day, anti-globalization is a common theme in political campaign rhetoric. This rhetoric, while usually not supported by facts, has been incredibly persuasive, leading a large share of the American electorate to support measures that further limit free trade. 

Davin Chor, an international trade economist at Tuck and a globalization chair at Dartmouth, was curious if evidence-based information derived from research, communicated in a concise way, could shift people’s preferences for trade protection. To answer this question, Chor and colleagues Laura Alfaro of Harvard Business School and Maggie Chen of George Washington University, conducted a series of survey experiments on a representative sample of the U.S. population from 2018 through 2022. As they explain in their new working paper—“Can Evidence-Based Information Shift Preferences Towards Trade Policy?”—what they found was both expected and surprising.

In the surveys they conducted, which were administered by the survey company Qualtrics, they presented four randomized information treatments providing a concise summary of evidence established by economic researchers on the gains and losses from trade.

These treatments are described as follows:

1. Trade Hurts Jobs: The rise in imports from China hurt the labor market outcomes of manufacturing workers in the U.S.
2. Trade Helps Jobs: The growth of imports of goods from China led the U.S. to specialize more in its service sectors.
3. Trade Helps Prices: The rise in imports from China led to lower prices for durable and non-durable goods.
4. Tariffs Hurt Prices: The tariffs imposed in 2018 raised the prices of tariff-related goods and lowered U.S. real income.

After presenting these treatments, the surveys asked a series of questions to solicit the respondents’ preferences about a range of trade policy tools, such as import tariffs, free trade agreements, and a minimum wage.

Unsurprisingly, when respondents were given the “Trade Hurts Jobs” narrative, they were significantly more likely to react by preferring more limits on imports, compared to a control group who received no information narrative. Since limiting imports has been associated with the Republican party’s recent trade policy platforms, the authors summarize the size of the effect of this information treatment as making respondents “one-third more Republican.”

Things got more interesting when respondents instead received information expressing the benefits of trade. When presented with the “Trade Helps Jobs” narrative, there was a rise in the respondents’ overall preferences for trade restrictions. “Even more strikingly,” they write, “exposing participants to either the ‘Trade Helps Prices’ or the ‘Tariff Hurts Prices’ information induces a strong protectionist response: learning that imports from China have contributed to lower prices, or that the recent tariffs on these imports have hurt U.S. consumers, still raises respondents’ propensity to favor more limits on imports.” The researchers gleaned from these responses that people don’t react symmetrically to information that highlights the gains rather than the losses from trade. In other words, learning about the benefits of trade makes some people dislike free trade even more. “That caught us off guard,” Chor says.

After ruling out some basic explanations for this asymmetry, such as respondents’ misunderstanding the information, they began drilling deeper into the correlation between the trade policy preferences and the respondents’ political affiliations (based on the party they voted for in the last presidential election). They found some traction there. “If you told a Republican supporter that trade has hurt jobs, it accentuates their preferences,” Chor explains. “But if you tell them that trade has had some benefits, that also amplifies their protectionist tendencies. So it’s almost like they double down on their pre-held beliefs.” The researchers found this to be true for Democrat supporters as well, but with their preferences for trade restrictions instead easing up, consistent with there being less opposition to free trade in the Democratic party’s recent trade policy positions. When told that trade has benefits, the information dampens their preferences for protection. But when told that trade has done some damage, it also moves them in a less protectionist direction.

To better understand the mindset of the respondents who preferred more limits on trade, the researchers asked them directly about their pre-held beliefs in this area. Their top concerns were imports from countries like China and the loss of American jobs. The researchers believe these two concerns weighed heavily on the respondents’ survey responses and may illuminate a deeper truth about human nature: it’s very difficult to alter someone’s preexisting beliefs. In this case, appealing to mere facts wasn’t enough.

“If you want to try to persuade people with evidence that there are benefits to trade,” Chor says, “you’re probably not going to do it unless you figure out how to address their pre-held concerns, whether these might stem from their political identity, or their prior concerns about American jobs or about trade with China. In fact, you could end up intensifying their beliefs.”

To read the full article, please click here.

The post Can Facts Reverse the Backlash to Globalization? appeared first on WITA.