The New Economic Geography
Who Profits in a Post-American World?
September/October 2025 Published on August 19, 2025 
Ben Jones ADAM S. POSEN is President of the Peterson Institute for International Economics.
The
post-American world economy has arrived. U.S. President Donald Trump’s
radical shift in economic approach has already begun to change norms,
behaviors, and institutions globally. Like a major earthquake, it has
given rise to new features in the landscape and rendered many existing
economic structures unusable. This event was a political choice, not an
inevitable natural disaster. But the changes that it is driving are here
to stay. No guardrails will automatically restore the previous status
quo.
To understand these changes, many analysts and politicians
focus on the degree to which supply chains and trade in manufactured
goods are shifting between the United States
and China. But that focus is too narrow. Asking whether the United
States or China will remain central to the world’s economy—or looking
primarily at trade balances—yields a dramatic underestimate of the scope
and impact of Trump’s changed approach and how comprehensively the
prior U.S. framework undergirded the economic decisions made by almost
every state, financial institution, and company worldwide.
In essence, the global public goods that the United States provided after the end of World War II—among
others, the ability to securely navigate the air and seas, the
presumption that property is safe from expropriation, rules for
international trade, and stable dollar assets in which to transact
business and store money—can be thought of, in economic terms, as forms
of insurance. The United States collected premiums from the countries
that participated in the system it led in a variety of ways, including
through its ability to set rules that made the U.S. economy the most
attractive one to investors. In return, the societies that bought into
the system were freed to expend much less effort on securing their
economies against uncertainty, enabling them to pursue the commerce that
helped them flourish.
Some pressures had been building within
this system before Trump’s ascent. But particularly in his second term,
Trump has switched the United States’ role from global insurer to
extractor of profit. Instead of the insurer securing its clients against
external threats, under the new regime, the threat against which
insurance is sold comes as much from the insurer as from the global
environment. The Trump administration
promises to spare clients from its own assaults for a higher price than
before. Trump has threatened to block access to American markets on a
broad scale; made the protections that come with military alliances
explicitly dependent on the purchase of U.S. weapons, energy, and
industrial products; required foreigners who want to operate businesses
in the United States to make side payments to his personal priorities;
and pressured Mexico, Vietnam, and other countries to drop Chinese
industrial inputs or investment by Chinese companies. These acts are on a
scale unprecedented in modern U.S. governance.
The
United States’ withdrawal of its former insurance will fundamentally
change the behavior of the country’s clients and its clients’
clients—and not in the ways that Trump hopes. China,
the country whose behavior most U.S. officials want to change, will
likely be the least affected, while the United States’ closest allies
will be the most damaged. As other U.S. partners watch these reliant
allies suffer, they will seek to self-insure instead, at great cost to
them. Assets will become harder to save and investment abroad less
appealing. As their exposure to global economic and security risks
rises, governments will find that both foreign diversification and
macroeconomic policy have become less effective tools for stabilizing
their economies.
Some argue that Trump’s new posture will simply
drive a potentially desirable realignment. In this view, although his
program requires both governments and businesses to pay more for less,
the world will ultimately accept its new normal, to the United States’
benefit. This is a delusion. In the world Trump’s program creates,
everyone will suffer—not least the United States.
GANGSTER’S PARADISE
Imagine
that you were fortunate enough to inherit a piece of land by the ocean.
It always offered great views and beach access. But you only invested
in building a grand house on the lot when a well-regulated, reliable
company came along that offered sufficient home insurance. You had to
pay a pretty penny for it, of course. But that company’s coverage also
enabled the owners of nearby lots to build, inspiring the creation of a
rewarding neighborhood with roads, water, cell towers, rising home
values—and most crucially, the guarantee that if you continued to pay
premiums insuring you against floods and hurricanes, any further
investments you made in your property would be at low risk.
In
essence, this is the economic situation in which much of the world
operated for nearly 80 years. The United States recouped enormous
benefits by acting as the world’s dominant insurance provider after
World War II. By assuming this role, it also maintained some control
over other countries’ economic and security policies without having to
resort to harsh threats. In return, countries that participated in the
system were shielded from various forms of risk. Washington’s military
supremacy and the mechanisms of international order that it enforced
allowed national borders to remain mostly settled; most economies could
thrive without the threat of conquest. Between 1980 and 2020, incomes
converged overall both between and within the states that took part.
Economic
injustices persisted; at times, they were imposed by the United States.
But broadly, this global insurance regime was a win-win for nearly
everyone with regard to economic stability, innovation, and growth.
Violence and warfare declined overall, and poorer states were better
able to integrate their economies with higher-income markets that opened
up to trade. This security may have rested on a communal illusion about
how little military investment and action it would take to keep
geopolitics stable. But that regime persisted for decades, in part
because U.S. policymakers in both parties valued the system and in part
because enough outside actors believed in it and benefited from it.
Now
that sense of safety is gone. Imagine, again, your hypothetical
beachfront house. Some threats to your property have started to
increase: sea levels are rising, and hurricanes are becoming deadlier.
Instead of simply raising your premium, however, your insurer—which you
had long trusted and dutifully paid—suddenly begins to refuse your
claims for damage unless you pay double your official rate and slip the
insurer something extra under the table, too. Even if you do pay what is
asked, the insurer then writes to say that it is tripling the price of
your general premium for less comprehensive coverage. Alternative
insurers are not available. Meanwhile, your taxes begin to rise, and
your day-to-day public services become less reliable because of the
demands that disaster response is placing on your community.
The United States profited handsomely from being an insurance provider.
Trump
is not the only actor responsible for the breakdown of the economic
regime that prevailed for 80 years. The list of contributing factors—the
underlying threats not posed by your home insurer, in the beach house
analogy—is long. The rise of China, and the United States’ response,
played a part. So, too, did climate change, the advance of information
technology, and the U.S. electorate’s understandable loss of trust in
incumbent elites after the country’s interventions in Afghanistan and
Iraq, the 2008–9 global financial crisis, and the COVID-19 pandemic.
But
the Trump administration’s policies constitute a clear turning point.
The president’s supporters sometimes portray these as a mere repricing
of risk: the free world’s insurer is adjusting its fees and services to
fit new realities and correct a previous tendency to underprice its
offerings. This depiction is mistaken. The Trump administration has made
clear that it wants the United States to operate a completely different
kind of scheme, in which it weaponizes and maintains uncertainty in
order to extract as much as it can for as little as possible in return.
Trump
and his advisers would argue that this is simple reciprocity or fair
treatment for countries that, in their view, exploited the United States
for decades. Yet those countries never extracted anything that remotely
matched what the United States received: dirt cheap long-term loans to
the U.S. government; disproportionately massive foreign investment in
American corporations and the U.S. workforce; a near-global adherence to
U.S. technical and legal standards that advantaged U.S.-based
producers; reliance on the U.S. financial system for the vast majority
of global transactions and reserves; compliance with U.S. initiatives on
sanctions; payments for garrisoning American troops; widespread
dependence on the U.S. defense industry; and best of all, a sustained
rise in the American standard of living. Not only did the United States
profit handsomely from being an insurance provider that others valued,
but its allies also ceded many important security-related decisions to
Washington.
The great thing about providing insurance is that for
years at a time, you don’t have to do or pay anything to collect your
premiums. That is even truer for the form of economic insurance the
United States provided globally than it is for a home insurance
provider, because the very existence of the U.S. security guarantees
reduced the real-world threats to policyholders. This reduced the claims
paid out. But the Trump administration is jettisoning this profitable
and steady business model in favor of one that reinforces the opposite
cycle. Ever-fewer clients will become more at risk. Already, businesses,
governments, and investors are fundamentally changing their practices
to try to self-insure instead.
FIGHT OR FLIGHT
In truth,
Trump’s approach will do the greatest damage to the economies that are
most closely tied to the U.S. economy and took the previous rules of the
game most for granted: Canada, Japan, Mexico, South Korea, and the
United Kingdom. Take Japan: it had bet on the United States long term,
investing substantially in U.S.-located production for over 45 years and
transferring its technological and managerial innovations along the
way. It has placed a larger share of its people’s savings in U.S.
Treasuries for longer than any other economy. Japan agreed to serve as
the United States’ floating aircraft carrier on the frontline with
China, and it garrisons U.S. troops in Okinawa despite growing domestic
opposition. Japan supported the first Trump administration in the G-7
and the G-20, followed the Biden administration in adopting parallel
sanctions against Russia after Russia’s invasion of Ukraine, and, since
2013, has increased its military spending substantially in line with
U.S. policy priorities.
Until this year, what Japan got in return
was reliable platinum-tier coverage. Japanese investors and businesses
were able to take it for granted that they could sell products
competitively in the U.S. market, get their savings in and out of U.S.
Treasury bonds and other dollar-denominated assets as needed, and safely
invest in production in the United States. Japan’s economic strategy
heading into Trump’s second term was based on the assumption that this
coverage would continue, if at a higher price: in 2023 and 2024,
Japanese companies announced investment plans that emphasized their
readiness to put even more capital into U.S. industries, including
uncompetitive ones such as steel, and forgo some market share in China
to coordinate with the United States.
The trade deal announced in mid-July between the United States and Japan
has increased the price tag for Japan well beyond that and diminished
Japan’s coverage. The 15 percent tariffs imposed on the country are ten
times what they had been and affect autos and auto parts, steel, and
other major Japanese industries. Japan committed to creating a fund that
invests an additional 14 percent of the country’s GDP into the United
States—its monies spent at Trump’s personal discretion—that will cede a
share of any profits to the United States. This constitutes a huge
downgrade in Japanese savers’ expected returns and control compared with
their prior private-sector investments, which were not subjected to
such arbitrary U.S. government oversight. Explicit provisions requiring
Japan to buy U.S. aircraft, rice, and other agricultural products, as
well as support Alaskan natural gas extraction, expose the country to
new risks. Even if Japan delivers on the agreement, it will remain
vulnerable to Trump’s potential decisions to unilaterally raise its
premium and reduce its coverage even further. Meanwhile, Washington’s
recent accommodations to China on the semiconductor trade further
diminish the benefits for Japan of pursuing an alliance-based economic
path.
U.S. allies will not accept a “rebalancing” imposed on them.
The
Trump administration expected that its key allies would simply pay any
price for U.S. protection. So far, Japan, Mexico, the Philippines, and
the United Kingdom have followed an approach closest to the one that the
Trump administration anticipated. In the near term, these countries
have decided that their fates must lie with the United States, whatever
the cost. But Trump underestimated the degree to which allies’ closeness
to the United States would lead them to register Washington’s new
stance as a shocking betrayal. The popularity of the United States has
declined sharply: in the Pew Research Center’s spring 2025 survey on
attitudes toward the United States, the proportion of Japanese citizens
who viewed the country favorably had slid by 15 percentage points from a
year earlier; the country’s favorability rating had plummeted by 20
points among Canadians and 32 points among Mexicans. This large and
negative shift reflects the sense of disappointment that only those
truly invested in a relationship can feel.
National security
concerns, existing ties, and—in the case of Canada and
Mexico—geographical proximity will limit the degree to which the United
States’ closest allies can undo their economic dependence. Yet they have
more room to do so than advocates of Trump’s economic approach
appreciate. Canada has resisted Trump’s attempts to unilaterally revise
the 2020 U.S.-Mexico-Canada trade agreement and impose asymmetrically
high tariffs on Canadian goods. Prime Minister Mark Carney and all of
Canada’s provincial premiers announced in July that, to reduce the
country’s dependence on the United States, they had agreed to limit
their concessions to Trump’s escalating demands and actively pursue
increased internal integration. Carney also vowed to expand trade with
the EU and other entities.
Other close U.S. allies such as
Australia and South Korea will probably decide that in the near term,
they have no choice but to throw in their lot with the United States.
Over time, however, allies may well tire of the declining benefits that
appeasement yields and reorient their investments. Like Canada, they
will try to expand their ties with China, the EU, and the Association of
Southeast Asian Nations (ASEAN). But this reorientation will yield a
worse outcome for all these economies. They relied economically on the
United States for good reason; if substitute markets, investments, and
products were just as valuable, they would have chosen those in the
first place. In the absence of fairly priced U.S. insurance, the value
proposition changes.
LEFT BEHIND
The seismic Trump shock
has hit other major economic land masses, too. ASEAN and the EU were
always less fully aligned with the United States on economic and
security policy than the five most integrated allies were. The two blocs
are diverse, with a variety of commercial specializations, advantages,
and political orientations within their memberships. Yet they and their
member states—particularly Germany, France, the Netherlands, Singapore,
Sweden, and Vietnam—have also based their economic behavior on the
insurance the United States previously provided. As a result, they came
to play leading roles in U.S. supply chains and technology investment.
Their governments and citizens poured money into the U.S. economy
through foreign direct investment, purchases of Treasury bonds, and
participation in the U.S. stock market. They agreed to join U.S.
sanctions and export-control regimes, albeit less consistently, and
directly supported the U.S. military.
Trump has now subjected
these countries to massive tariffs and tariff threats as well as
bilateral requests for specific accommodations and side payments, such
as demands that they purchase more U.S. natural gas or transfer
industrial production to the United States. These economic players have
more choice in how much effort they want to devote toward maintaining
ties with the United States. And they are shifting their behavior more
rapidly, strengthening economic linkages with one another and with
China. ASEAN and the EU both had greater commercial ties to China than
to the United States to begin with; that gap is widening, not only
because the Chinese economy is growing but also because the United
States is limiting its exports to and imports from China and its
investment there. Over the past decade, the share of Chinese inputs into
European and Southeast Asian industrial supply chains rose steeply as
the United States’ share fell.
It is not sustainable for the EU,
and certainly not for ASEAN, to economically isolate China, and the
gains from doing business with China will only increase as the United
States leaves the scene. Commerce with China does not substitute for the
insurance that the United States previously provided. But as the Trump
regime makes the United States less competitive as a site for production
and limits access to the U.S. market (shrinking that market’s growth
potential), an expansion of trade and investment with China can provide
these blocs with a partial offset. As sizable economic entities in their
own right, Asian and European countries have a far greater ability to
pursue a different path, even though they will be spending more to
self-insure than they used to. For instance, orders for Eurofighter jets
as an alternative to U.S. combat aircraft have surged among NATO
members such as Spain and Turkey. And the Indonesian government, in the
spring of 2025, struck new economic deals with China, including an
approximately $3 billion “twin” industrial park project that will link
Central Java with Fujian Province. The project is expected to create
thousands of jobs in Indonesia at a moment when nothing of that kind is
on offer from the United States. Indonesia’s central bank and the
People’s Bank of China have also agreed to promote trade in local
currencies, and the two countries have vowed to strengthen their
maritime cooperation; both deals surprised U.S. policymakers.
A display of stock market indices, São Paulo, Brazil, July 2025 Alexandre Meneghini / Reuters Additionally
(and crucially), Trump’s economic policy is reinforcing and
accelerating the separation of two clear tiers of emerging markets in
terms of their resilience to macroeconomic shocks. During the 1998–99
and 2008–9 financial crises, even the largest emerging economies—Brazil,
India, Indonesia, and Turkey—suffered badly. But they have become
substantially more resilient, thanks to domestic reforms as well as new
export and investment opportunities offered by richer countries
(including China). During the COVID-19 pandemic and the U.S. Federal
Reserve’s subsequent enormous interest-rate increase, their economies
did not suffer much financial damage. The largest emerging markets
remained able to adjust their fiscal and monetary policies with some
autonomy.
Dozens of lower- and middle-income economies, by
contrast, accumulated debt at a devastating pace. Since 2000, the
decline in real income in these countries has more than offset the gains
they had made in the previous decade. Trump’s new approach has further
closed off their economic opportunities, and the way he has encouraged
the larger emerging markets, particularly India, to adopt their own
homeland-first policies only deepens poorer economies’ isolation.
Capital
seeks opportunity, but also security. The U.S. withdrawal of economic
insurance, and Trump’s hard turn against foreign aid and development,
will reinforce investors’ preference for relatively stable locales.
Thus, the poorest countries in Central America, Central and South Asia,
and Africa are likely to become stuck in the economic lowlands with
little means of exit while the larger, geopolitically significant
emerging markets will, relatively speaking, become more attractive. Some
of the poorest countries will make deals—for instance, by providing the
United States with preferred access to their resources or serving as
destinations for U.S. deportees. That response, however, cannot yield
the kind of sustainable growth that many emerging economies enjoyed
under the old U.S. insurance regime.
SOLID AND LIQUID
Perhaps
the most important change the United States has made to its insurance
scheme, however, is to reduce the dollar’s liquidity—which diminishes
the safety of the portfolios of savers worldwide. U.S. assets that were
previously viewed as low-to-no-risk can no longer be considered entirely
safe. This will have far-reaching ramifications for the global
availability and flow of capital.
During Trump’s 2024 election
campaign and since he took office, top officials in his administration
have repeatedly threatened to trap investors in U.S. Treasuries by, for
example, forcing countries and institutions to swap their current
holdings for longer-term or perpetual debt, punishing governments that
promote the use of currencies other than the dollar, and taxing foreign
investors at higher rates than domestic ones. Trump administration
officials have not yet followed through. But these threats, combined
with repeated attacks on the Federal Reserve’s independence and promises
to depreciate the dollar, are steadily undermining the perceived
stability of the dollar and Treasury bonds.
The underlying problem
is that the world has more savings than it has safe places to stow
them. Cash-rich surplus economies—places such as China, Germany, and
Saudi Arabia, as well as smaller but striking examples such as Norway,
Singapore, and the United Arab Emirates—cannot keep all their savings at
home for three reasons. First, their savers would lack diversification
if a country-specific shock hits their economy. Second, forcing huge
amounts of savings into these mostly small markets would distort asset
prices, leading to bubbles, financial instability, and abrupt shifts in
employment patterns. And third, such countries do not issue enough
public debt, at least not enough that foreigners want to hold. This is
why, for decades, the uniquely deep, broad, and apparently safe U.S.
Treasuries market—and dollar-denominated assets in general—have absorbed
the lion’s share of the world’s excess savings.
U.S. assets that were once viewed as low-to-no-risk are no longer safe.
Among
the many benefits that Treasury bonds and other U.S. public markets
offered to global investors, the most attractive was ample liquidity.
Investors could convert assets they had in these markets into cash with
few or no delays or costs. The valuation of their investments remained
stable, and unlike in smaller markets, even a very large transaction
would not swing prices. Investors did not have to worry that their
counterparties would not accept their form of payment. With the
exception of known criminals and entities targeted by sanctions,
everyone in the world could rely on both the stability and flexibility
of dollar-denominated investments—which in turn lowered the risk that
businesses would face cash-flow crunches or miss opportunities.
The
dollar’s dominance, which went well beyond what the United States’ GDP
or share of global trade would have justified, constituted another
win-win type of insurance. The United States collected premiums in the
form of lower interest on its debt and steadier exchange rates. American
and foreign asset holders both benefited. Even when a financial or
geopolitical shock originated in the United States, investors assumed
that the U.S. economy would remain safer than others. When U.S. markets
directly triggered a worldwide recession in 2008, interest rates and the
dollar fell and then rose together as capital from abroad flowed into
the U.S. market.
Now the dollar appears to be behaving the way
that most currencies do, which is to move in the opposite direction to
interest rates. Until April of this year, the dollar closely tracked the
day-to-day movements of the U.S. ten-year Treasury interest rate. Ever
since the administration’s April 2 tariff announcements, the correlation
between U.S. interest rates and the dollar has reversed, indicating
that something other than day-to-day economic news is driving the dollar
down.
Multiple
times this year, the Trump administration has announced a surprise
policy change that provoked economic volatility: on April 2, the
“Liberation Day” tariffs; in May, the “One Big Beautiful Bill” spending
package; and, over the course of June, several threats to impose
additional tariffs, as well as the U.S. bombing of Iran. In response to
each of these events, the dollar fell while U.S. long-term interest
rates rose, indicating a capital outflow in response to turmoil.
Similarly,
throughout modern history, tariff impositions have led to currency
appreciations, including during Trump’s first term. This year, however,
the dollar has depreciated as the president has imposed tariffs. This
major break with the historical pattern suggests that global concerns
about the instability of U.S. policy have begun to outweigh the usual
flight to safety that pushes up the dollar.
The Trump
administration’s hostile and unpredictable approach toward U.S.-led
military alliances has further eroded support for the dollar.
Washington’s new stance heightens the risk that it will sanction even
allied foreign investors. And as the American-led alliances have less
power to reassure, other governments are boosting their defense
spending, which increases the relative attractiveness of their
currencies. EU bond markets, for instance, are becoming bigger and
deeper as debt-financed defense spending surges in northern and eastern
Europe. The euro offers more benefit to Ukraine, the Balkan States, and
some Middle Eastern and North African countries that aim to reduce their
vulnerability to U.S. whims by seeking euro-denominated arms, trade,
investment, loans, and development aid.
DEBT COLLECTORS
European
and other markets, however, cannot fully replicate the advantages that
dollar-denominated assets formerly conferred. The world’s investors,
including American ones, will simply have fewer safe places to put their
savings as U.S. assets become less liquid. This increased insecurity
will drive up long-term average interest rates on U.S. government debt
just when a lot more debt is being issued. All borrowers, private and
sovereign, that participate in the U.S. financial system will feel the
pinch of that interest-rate rise because all loans are priced off
Treasury rates in some sense.
Some savers, particularly Chinese
ones, may seek to move assets out of U.S. markets. But that flight will
put deflationary pressure on their home economies as their overall
returns shrink and excess savings become bottled up in markets that
already had a more limited set of investment opportunities. Meanwhile,
the value of alternative assets—nondollar currencies, commodities
traditionally treated as stores of value such as gold and timber, and
newer cryptocurrency products—will surge. Because these assets are less
liquid, these upswings will almost certainly lead to periodic financial
crashes and greatly complicate the challenges governments face in using
monetary policy to stabilize economies. This will be a loss for the
world with no net gain for the U.S. economy.
Just as persistent
droughts motivate people to zealously guard access to their water
supplies, a lack of liquidity in global markets encourages governments
to ensure that their debt is funded at home rather than leaving it up to
the market. These measures typically take the form of what is called
financial repression: forcing financial institutions (and ultimately,
households) to hold more public debt than they otherwise would, through
some combination of regulations, capital outflow controls, and the
forced allocation of newly issued debt. Financial repression tends to
lower returns for savers and drives up their vulnerability to de facto
expropriation.
Ultimately, the diminished availability of
financing makes it harder for privately owned businesses as well as
governments to ride out temporary downturns before exhausting their
funding. They will have to accumulate reserves to cover dollar
obligations (such as outstanding or interbank loans) in case of
financial distress. If countries have to self-insure, both governments
and businesses will become more risk-averse and have less available to
invest, especially abroad, reinforcing the fragmentation of the world’s
economy.
LOSE-LOSE
Without the insurance that the United
States provided, new links between economies and pathways for investment
will emerge. But they will be costlier to build and maintain, less
broadly accessible, and less dependable. Countries will undoubtedly seek
to self-insure, but those efforts will inherently be more costly and
less effective than when risk was pooled under a single insurer.
Navigating the world’s economy was never a smooth road. But after the
earthquake of Trump’s economic regime change, the terrain has become
much rougher.
In the end, money spent on insurance is money that
cannot be spent on other things. Governments, institutions, and
companies will have to pay simply to hedge against bad outcomes instead
of funding good ones. Opportunities for investment and consumer choices
will narrow. Growth in productivity (and therefore growth in real
incomes) will slow as commercial competition, innovation, and global
cooperation to create new infrastructure contract. Many of the poorest
emerging markets will lose coverage against threats altogether—at the
very moment when the risks they face are sharply increasing.
This
means a worse world for almost everyone. Amid this change, however,
China’s immediate economic environment will be the least altered despite
Trump’s previous claims that he would design his economic policies to
target Beijing most aggressively. China is relatively well positioned to
attempt to self-insure after a U.S. withdrawal. More than any other
major economy, it had already begun to reduce its reliance on the United
States for exports, imports, investment, and technology. Whether China
will be able to capture new external opportunities in the United States’
retreat will depend on whether it can overcome other countries’
skepticism about its reliability as an insurer. Will it merely seek to
run the same kind of protection racket as the United States—or a worse
one?
It is a tragic and destructive irony that, in the name of
national security, the United States is now injuring the allies that
have contributed the most to its economic well-being while leaving China
far less disadvantaged. That is why Trump officials’ belief that these
close allies will simply accept the “rebalancing” imposed on them is
profoundly mistaken. These governments will be pragmatic, but that
pragmatism will take a very different form than the Trump administration
desires. For decades, they gave Washington the benefit of the doubt.
Now they are losing their illusions and will offer less to the United
States, not more.
Trump’s actions will alter China’s immediate economic environment the least.
There
will be opportunities in this new landscape. But they will involve the
U.S. economy less and less. The most promising possibility is that
European and Asian countries, excluding China, will join to create a new
space of relative stability. The EU and the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership, an alliance
composed of mostly Indo-Pacific states, are already exploring new forms
of cooperation. In June, the president of the European Commission,
Ursula von der Leyen, described these negotiations as an effort at
“redesigning” the World Trade Organization to “show the world that free
trade with a large number of countries is possible on a rules-based
foundation.” These economies could also do more to guarantee mutual
investment rights, create binding mechanisms for settling trade
disputes, and pool their liquidity to respond to financial shocks. They
could seek to maintain the function and influence of the International
Monetary Fund, the World Bank, and the World Trade Organization,
protecting these institutions from paralysis as China or the United
States seek to veto necessary initiatives.
If they want to sustain
some fraction of the global economy’s prior openness and stability,
however, these countries will have to build blocs with a selective
membership rather than pursue a strictly multilateral approach. This
would be a poor substitute for the system over which the United States
had presided. But it would be much better than simply accepting the
economy that the Trump administration is now creating.
As for the
United States itself, no matter how many bilateral trade deals it
brokers, no matter how many economies appear—at first—to align with
Washington at a high cost, the country will find itself increasingly
bypassed in commerce and technology and less able to influence other
countries’ investment and security decisions. The U.S. supply chains
that the Trump administration claims to want to secure will become less
reliable—inherently costlier, less diversified in their sourcing, and
subject to more risk from U.S.-specific shocks. Leaving behind much of
the developing world will not only increase migrant flows and trigger
public health crises; it will prevent the United States from tapping
potential market opportunities. The Trump administration’s moves to
drive away foreign investment will erode U.S. living standards and the
U.S. military’s capacity. European, Asian, and even Brazilian and
Turkish brands will likely gain market share at American companies’
expense, while technical standards for products such as automobiles and
financial services technologies will increasingly diverge from U.S.
norms. Many of these phenomena will be self-reinforcing, making them
hard to reverse even after Trump leaves the White House.
As the
song goes, you don’t know what you’ve got till it’s gone. The Trump
administration has paved paradise and put up a casino, with what will
soon be an empty parking lot.
