Headlines on the Trump tariffs report the stock market slides, the political backlash at home and abroad, and the chances they trigger recession. These are all news, but all miss the full systemic impact the tariffs could have. Some do note that Trump is overturning globalization. They carry a tone of shock, which they shouldn’t, given Donald Trump’s known proclivities. A degree of surprise might be expected, though, in perhaps a grave realization that yes, a whole set of norms and expectations, however hollow they and their institutions had become, has just died.
These norms and expectations had been characterized, roughly, as an historically open global trading system. Much of the language around this “system” has been imprecise, at times overstated. For example, “free trade’ has been denounced and advocated, sometimes couched as “liberalized” trade. The world has never seen free trade, and likely never will. International trade has always been contingent on privileges granted by governments to exporters or importers, often subject to mercantilist thinking. Many privileges and restrictions had traditionally been directly tied to geopolitics; monarchs exchanged gifts for millenia, and states pushed or curtailed trade to display amity or displeasure.
After 1945, the allies realized that economic stress fed much of the resentment that mobilized German belligerence, among other things. The Bretton Woods system was meant as a prophylactic, to keep economic instability from stirring the impulses that lead to war. The International Monetary Fund would mitigate currency flow imbalances, and a General Agreement on Tariffs and Trade would regulate trade barriers, and damp any political effects.
Trade, though, is an odd duck. As one figure in the field has said to this blogger, it’s about “the low politics.” For all the principles invoked, the rubber meets the road in micro deals and sectoral pacts. A tariff reduction for company X, a multilateral “multi-fiber agreement,” a subsidy program for industry Y, etc, were always subjects of horse-trading. The idea of GATT was to reduce, over time, the often obscure and arcane dealings over tariffs and regulations that could turn any cross border transaction into a political matter. Rules would offer a rational, reliable environment to reduce red tape, stabilize business flows, and unbind economic growth.
The Bretton Woods institutions also went hand in hand with a role taken implicitly by the US, to run trade deficits to help fuel development and recovery of other economies, many devastated by war. The role supported our Containment of the Soviets, garnering a strategic benefit at the cost of continuing trade deficits and outflows of gold providing. It did erode our holdings of gold, the international reserve currency. Thus in 1971, Nixon decoupled the dollar from gold, lifting a squeeze on American reserves.
The US import-engine role continued, with the dollar itself as global reserve currency. The continued role at least partly explains the loss of manufacturing jobs in the US, as other nations could offer cheap labor as their comparative advantage. There were other factors behind the outflow. Leftist critic Michael Harrington cited US industry’s decision to forego capital investment, for example. Economist Robert Reich pointed to better use of American capacities, doing the higher-value, technically sophisticated work, which, among others, the micro-chip industry embraced. But successive rounds of tariff and trade barrier reductions did at least facilitate the trend. To the extent NAFTA coincided with the formalization of the GATT secretariat as the World Trade Organization, those appear as stimulants to our job migration. Probably as consequential, perhaps more so, the Clinton Administration granted “Permanent Normal Trading Relations” status to China.
All that said, the idea of a rules-based trading system, including the proposed Trans-Pacific Partnership and the TransAtlantic Trade and Investment Partnership of the 2000s, continued to receive substantive and political attention. Until April 2. Now, at one blow, even lip service is gone, in the US and abroad as other nations counter the Trump tariffs. It may well be that that old “order,” of US consumption and US backed institutions, was past its time. It may be that a few smart moves could have revitalized it in some form. But it is now a dead letter. And yes, this marks the end of an era. But no one should be surprised at its demise.
From the rise of China to the despair of American workers and well beyond, fairly or not, perceptions of rich and poor, north and south, American and foreign, overwhelm the rationales behind that order. There will be no revival of the now-defunct global trading system, nor of any “Liberal World Order.” In those expectations and institutions, cravenness, fecklessness, self-indulgence and vanity have long reduced “principles” to rhetorical masks over low politics.
The question is what we want in its place. In the short term, it’s likely that Donald Trump wants to have lots of deals to negotiate and win against lots of adversaries, to claim heroic work and the mantle of historical status. Denounce him and his impulses, perhaps fairly, but low politics masked by patriotic rhetoric isn’t his invention. And he or others may yet offer substantive moves to fill out “America first” impulses. Other actual policy structures or consensus of business practices may emerge. But, once the fallout of the new tariffs is digested, the question will present itself. What do we want from international economic relations and how will we manage our lives, our businesses, and our policies to make America what we want It to be?
This blog, of course, offers a certain underlying ethos for whatever we might try.
Common Conviction 