Since taking office, President Trump has issued tariff increases on imports to over 90 countries. While some of these increases have never materialized, some have resulted in new trade agreements. Most recently, the White House announced “breakthrough trade deals” with El Salvador, Argentina, Ecuador, and Guatemala.
In two separate events, experts at Harvard Kennedy School weighed in on the Trump administration’s international trade strategy and what it means to the U.S. economy.
In a JFK Jr. Forum, hosted by the Institute of Politics, Oren Cass, founder and chief economist at American Compass, a conservative economics think tank, explained the “grand strategy of reciprocity,” his term for this administration’s policy approach.
In another recent panel discussion hosted by the Mossavar-Rahmani Center for Business and Government, Robert Z. Lawrence, Albert L. Williams Professor of International Trade and Investment, and Ambassador Katherine Tai, former United States Trade Representative and a current IOP fellow, discussed how the new global trade system is shaping up.
The excerpts from the guest speakers below offer insights from each event on strategy, tariffs, and trade, and how China fits into the economic future of American commerce.
Oren Cass: A new economic strategy
Since the end of the Cold War era, the U.S. has adopted this idea of a grand economic strategy that has gone by many names, but most recently “benevolent hegemony,” a term coined by Bill Crystal and Robert Kagan. The idea was that the U.S. was in a position to be a global hegemon and we should take advantage of that and exercise that role in a benevolent way.
This meant that the United States gained enormous benefits from being the sole superpower, with uncontested military superiority and economic dominance, and we should preserve a free trade system. We should spend what we needed to on defense, even if others weren’t really spending as much as they said they were going to.
Over the past 25 years, it has become entirely unsustainable on both sides. We are no longer a hegemony and as a result don’t really get the benefits from it that we expected. And conversely, the costs have been much higher than we expected or can bear.
The idea of a grand strategy of reciprocity is based on three pillars: balanced trade, burden-sharing and “China out.”
We certainly benefit enormously from engagement in the world, but it seems to me that we benefit when our relationships are reciprocal, and we benefit from trade. Certainly, trade can be a wonderful thing if the trade is balanced, if we are trading with other countries that are committed to both buying and selling and therefore give us the opportunity to buy and sell.
And likewise on the defense front, we should certainly want to have a strong coalition of countries committed to mutual security, but we don’t want it to be one where everybody else is depending on us. We want it to be one where everybody is a net contributor to the collective defense. And what that means is that, in different regions, other countries take primary responsibility. So, in the Pacific, Japan, Korea, Australia are the countries that should first and foremost be responsible for deterring China.
There is nothing stopping us from saying we would like to have a large economic and security bloc, but it needs to be on reciprocal terms. It needs to be balanced trade; it needs to be defense commitments.
The third element is what I would just call “China out”: China cannot be a part of this and it will not work if the U.S. wants to decouple from China, but the partners don’t. There’s going to have to be a handholding on how we deal with China and with other countries that ultimately choose to align in that direction.
If you look at China as a country that we are not going to reach an agreement with, we are not going to find a way to balance trade, then that’s a situation where we do want to have a long-term higher tariff that forces these economies towards decoupling. It doesn’t say trade has to be zero but does say that it is a disfavored place to source from. I think that combination is the right approach.
The best way to bring trade into balance is not just with some tariff; it’s a commitment from both sides that you want to have more balanced trade. But I would say the uncertainty isn’t ideal. I have a colleague at American Compass who always makes this point well. He says, “Look, we have a lot of sympathy for businesses that are dealing with this uncertainty. On the other hand, the signal from the uncertainty is quite clear: you will be better off investing and building in America.”
Katherine Tai: The role of tariffs in trade
Does the American economy and life in America feel different today than it did during the Biden administration? If you ask any of our trading partners, the answer would be yes; it feels different. I think if you ask most Americans, the answer would be yes also.
We were trying to do trade differently in the Biden administration in large part because we were coming on the heels of the first Trump administration and that administration had really changed everything when it came to trade. But Trump’s views didn’t come from nowhere. They came from our own experience with trade.
What’s interesting is that, for President Trump himself, the neoliberal trade order did quite well for his businesses. But he was tapped into the experience that Americans had during that neoliberal era from the 1980s and 1990s, where they felt abandoned by policymakers in Washington and around the world.
There’s an argument that the Trump administration is not that protectionist.
Protectionism is about trying to advance your own interests, pushing back on trade. The Trump administration puts down lots of tariffs. That feels very protectionist. They talk about America first. That also feels very protectionist. You act harshly to everybody else so that you can be richer and stronger. Again, that feels protectionist.
But we shouldn’t be fully distracted by the tariffs. The tariffs are doing something else too, and I want to make sure that people are following the breadcrumbs to get the big picture of what the Trump administration is doing.
One of the justifications the Trump administration advances for the tariffs is that they’re leverage for negotiating better deals with our trading partners. I think that’s really very interesting. I’ve been a negotiator. Leverage is great in negotiation, but leverage isn’t valuable for its own sake. The question is, what are you going to use that leverage for? Are you going to use it for good? Are you going to use it to build the interests of the collective, for the common good, or are you going to use that leverage for other purposes?
If you look at what the Trump administration is securing with the leverage of increased tariffs, in exchange for moderating those increased tariffs, a lot of these agreements include a forced labor import ban commitment. That is something that is in the workers’ lane, raising lots of questions about how you implement it.
What the Trump administration seems to be extracting from trading partners are promises not to regulate or get in the way of American businesses, and some of the biggest American businesses already have more power and money than most other countries.
The best thing about the second Trump administration is that at least now most people I know have woken up to the fact that everything has changed. And we all have to look forward and help each other figure out how to navigate our way to a better world.
With respect to China, the fact is that no matter how geopolitics change, there will always be a United States and there will always be a China. That needs to guide all of the choices we make around how we manage to coexist in the best possible way for our respective people, our workers, our businesses, our middle classes, and how we can do that in the best possible way for the rest of the world too.
Robert Lawrence: A rules-based trading system to meet current challenges
The stylized view of economists who are extremists who say complete free trade on the one hand or complete protectionism with tariffs on the other is phony. It’s not realistic. We negotiated traditional trade agreements, and particularly in the World Trade Organization (WTO), we retain tariffs on sensitive sectors. That was politically necessary.
I believe the central problem is that we have already established a trading system that was enthusiastically supported by countries in the rest of the world. It was inadequate for our needs, but there was immense scope to build on what had already been agreed upon. My view is that we needed to build on what we had already established, a rules-based system that we could now mold in order to meet the challenges that are currently facing us.
For example, I commend the administration for having taken on the task of adapting to climate change. However, I don’t think it was necessary for them to do it in a way, for instance, that clearly violates the WTO subsidies code, because throughout the Inflation Reduction Act, there are special benefits given to the use of domestic products in favor of imports. And we know this is a prohibited subsidy.
Opening up the market would have been even better for climate change. If you think about it, we should have promoted the greening of America using the available products from all over the world, particularly from outside China. In conjunction with friendshoring (the act of manufacturing and sourcing from countries that are geopolitical allies, such as members of the same trade bloc or military alliance), we could have done far better.
Let’s take solar panels as just one example. Solar panels, if you look seriously at them, are not a strategic threat. What we did in America was raise the price of solar panels. To their credit, the Biden administration allowed some of these panels to come in from Southeast Asian countries without tariffs. However, by and large, the price of those panels was twice or three times what they were in the rest of the world. So, we slowed down the greening of America by adopting an illegal protectionist approach. I would have loved to have seen an open approach where there were no strategic threats to us.
I would commend the administration on taking the supply chain seriously. There are areas which have to be designated as significant for national security purposes. And there, we had become too dependent on China. I see a role there for protection in trying to deal with cordoning off truly sensitive tech and dual-use sectors.
It happens that they omitted an adequate program, as we found out, for rare earth minerals. We knew about the need to take such a measure when Japan was targeted by China more than a decade ago, but apparently, we remain vulnerable. There I fault the administration for not having taken care of what is the most obvious vulnerability.
While leverage has been exerted by the Trump administration quite effectively over the countries who need American defense protection, when it comes to China, it’s absolutely failed.
We need to avoid single country dependency. And in there I would favor some transitory protection until we improve diversification. I think we should be building capacity with our allies rather than trying to onshore everything to the United States. I think from an allied standpoint, we seem to be talking on both sides of our mouths.
I also believe though that there are immense areas where we can have a green light approach with China. There is no question that a lot of Chinese products have come through indirectly, but I believe that there’s a lot of trade we should be having with China.
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Photography: Banner photo: Adobe Stock; other photos: Martha Stewart.