In 500 words
In the note ‘What are tariffs for ?’, the drop in America’s economic weight, measured at Purchasing Power Parity (PPP) for international comparisons, relative to World GDP, was singled out as the most important driver of Mr. Trump’s economic policy
From a high mark above 20% of world GDP since the 1980’s and until 2000, America’s relative share today lingers around 15% (potentially trending down) and China dominates on the former U.S. perch at 20%
The American president may equate – not incorrectly – his country’s GDP weight with the durability of power on the global scene...
Mr. Trump knows he cannot turn back the clock…
Two mutually enforcing policies enshrine the Administration’s intent
- the drivers of the U.S. economy will only benefit American business, curtailing the access enjoyed by non-American entities
- negative consequences on global trade are indifferent – or (possibly) favored as they rein in growth in foreign countries
Is this posture, outrageous for proponents of trade based on comparative advantage between nations, a possibility or just ‘pie in the sky’?
Because the answer is not as clear cut as true believers on either side of the argument would like to ascertain, the world economies will have to account for this sea change
Course corrections alleviating current excesses are likely and already occurring behind the scene, but...
Return to a regime fostering global economic development and reduction of poverty by trade is (unfortunately) improbable
The cat is out of the bag
The argument goes like this
- No American politician will roll back policies which allow US companies to flourish
- Developed countries took for granted their access to the American market, with too little palatable benefit for American exports – “free-riding” write large
- Generous U.S. support to trade in emerging markets (Lesotho, Haiti…) has not been valued as anticipated (South Africa's turn to China while 'coasting' on U.S. economic support)
Each one of these central issues can be countered by steadfast free traders but that is not the point
The American trade policy has created a new reality and it is up to the word to adjust
The political consequences of the new U.S. economic paradigm
In international trade, every player holds some cards, allowing a few countries to enjoy better negotiating positions than others
The consequences of the new paradigm are profound
The clarity and the strength of political postures will frame any potential economic benefits sought in negotiation with U.S. trade officials
China has played the gambit to perfection (rare earths blockade, US soja export hold-up, etc.)
Its present and future success reflects the depth of political control over the economy and its supply chains
The European Union, somewhat absurdly given its size, has gained little traction from the integrated trade policy of the Union
Each member state holds on to key tenets of supply chains or security, of great value to U.S. interests
- Finland’s expertise in icebreakers, Dutch ASML’s embargo on sales to China or Franco-German control over Airbus manufacturing locations and so on…all remaining under control of national entities
Amply criticized, the EU Commission should be excused for its weak hand in trade negotiations, today and going forward, a dismal sign for the Union at large…
Because of embedded supply chains, aligning powerful U.S. businesses with Canadian and Mexican economies, both countries hold more cards than publicly acknowledged
The gambit being played is flexible adjustment to old NAFTA - new USMCA, a free trade agreement which is essential to their future
To be renegotiated from July 2026, Canada and Mexico are pulling out all stops to highlight the merits for the U.S. economy of the integrated North-American market, a winning argument ...
The World Trade Organization (WTO) is not about to close shop because two-thirds of the world population live in countries exposed to trade policies defined by the U.S. or by China
By offering balance in a fragmented global community, the WTO has its work cut out, not least on behalf of emerging markets, to be discussed soon