By Eric Vandenbroeck and co-workers

The Case for Upending World Trade

Over the course of a year, U.S. President Donald Trump’s administration has become the most disruptive force in global trade since the 1930s. But the destruction of the post–Cold War trade order—a rules-based international trading system that sought to set economic principles for participating governments—provides a necessary opportunity to correct an overly rigid attitude toward trade.

Between the end of World War II and the early 1990s, U.S. presidents generally supported free trade and encouraged other countries to lower trade barriers with initiatives such as the 1947 General Agreement on Tariffs and Trade (GATT), which encouraged countries mostly outside the Soviet bloc to mutually reduce their tariffs. But U.S. administrations balanced this preference with pragmatism, taking a flexible approach to policy that considered distinct challenges discretely. When necessary, U.S. presidents were willing to use tools such as tariffs, sector-specific deals for politically-sensitive products such as textiles, and hard-nosed negotiations to tackle discrete trade tensions. The idea that strictly governing international trade with a set of universal rules would deliver economic and geopolitical benefits to all countries is historically abnormal.

ww3.html Moreover, comprehensive and universal trade rules make less and less sense as great-power competition accelerates and many countries, including the United States, reassess their domestic economic models. It is no accident that sharp debates have emerged within the United States about whether the rules-based system has truly benefited the American economy: dogmatism around the free trade rules that Washington established in the 1990s would crimp a president’s ability to pursue policy initiatives such as subsidizing the green energy industry, as President Joe Biden did, or taking government equity stakes in U.S. companies, as Trump has sought to do. The United States is not in a position to set durable global trade rules when its own domestic economic model is the subject of sharp internal debates. And a level playing field of mutually agreed-on rules is not what the United States should pursue when it comes to China: in a geopolitical moment defined by U.S. strategic competition with Beijing, Washington should work to tilt the playing field to its advantage over Beijing.

Trump’s trade policy is too chaotic, given his long-standing fondness for tariffs and penchant for issuing wild threats, and the excessive rates of his tariffs are undermining U.S. economic goals. But the leaders who succeed him can and should build on those elements of his disruptive approach that do, in fact, represent steps back towards the more pragmatic, less rules-focused trade policymaking that reigned during most of the United States’ history. They should expand the kinds of deals the Trump administration is striking with Japan, European countries, and other trading partners to refocus them on solving shared economic and national security challenges. They should take lessons from past presidents such as Ronald Reagan, who encouraged more “free and fair” trade by pursuing a wide variety of policies. And they should extend Trump’s effort to integrate trade and national security and innovate new policy tools while discarding the worst excesses of his tariff regime.

A container ship arriving in Birzebbuga, Malta, September 2025

 

“Free and Fair”

The notion that the primary goal of U.S. trade policy is to support a universal set of binding rules is relatively new. The first time a high-level U.S. government document identified a rules-based trading order as Washington’s overarching policy aim appears to be in 1991, when the Economic Report of the President—an annual review of the U.S. economy and the president’s priorities—stated that the “primary thrust of U.S. trade policy is to use multilateral discussions and fora . . . to promote free, rules-based trade.” Of course, presidents before the 1990s pursued international trading orders such as the GATT or the short-lived International Trade Organization, an idea that President Harry Truman backed but that the Senate failed to adopt. But these efforts mainly sought to impose some discipline on specific aspects of global trade, such as tariff rates and export-oriented subsidies. Generally, during the Cold War, U.S. trade policy was defined by pragmatism: Washington sought to solve discrete problems and ensured that the deals it entered into had flexibility. The GATT, for example, originally included a variety of exceptions to its rules that allowed countries wide latitude to manage currency issues, deal with import shocks, and implement domestic economic development programs. The dispute resolution mechanism in the GATT was also effectively non-binding, encouraging countries to work out trade disputes diplomatically rather than litigating over rules.

Reagan is perhaps the clearest recent example of a president who pursued a fundamentally pragmatic approach to trade. In 1982, he emphasized that “free and fair” global trade would serve “the cause of economic progress.” He cut tariffs when he could, signed the United States’ first modern free-trade agreement (with Israel, in 1985), and supported the launch of the Uruguay Round of multilateral negotiations, which ultimately transformed the GATT into the World Trade Organization (WTO). But he also frequently used trade tools in a more protectionist way to open foreign markets to U.S. companies and protect them from competition.

When Reagan took office in 1981, U.S. car manufacturing was under stress: the government had bailed out Chrysler in 1979, and imports from Japan were beginning to flood U.S. markets. During his first few months in office, Reagan struck a deal with Japan in which Tokyo committed to “voluntarily” limit its auto exports to the United States in return for avoiding higher tariffs on its cars. This deal was not intended to set a long-term precedent for how countries could subsidize auto manufacturing. Nor did it try to increase the relative cost of Japanese cars by pushing for higher labor standards in Japanese factories. It merely sought to buy the U.S. auto sector time to become more competitive. These export quotas eventually contributed to decisions by Honda, Toyota, and other Japanese car companies to invest in U.S. manufacturing.

Reagan’s approach to semiconductors was similarly specific and pragmatic. By the mid-1980s, the United States was facing a flood of semiconductor imports, also from Japan. In 1985, in response to a petition by the U.S. semiconductor industry, the Reagan administration launched an investigation into Japanese semiconductors under Section 301 of the 1974 U.S. Trade Act, which empowers the executive branch to retaliate against unfair trade practices, including by imposing tariffs. In 1986, the U.S. and Japanese governments struck a deal: Japan would reduce its exports and agree to allow U.S. semiconductor firms greater access to the Japanese market. When Reagan thought that the Japanese were not upholding their side of the bargain, he imposed a tariff of 100 percent on many Japanese semiconductor imports. Reagan’s aim, again, was not to innovate broad rules for the global semiconductor industry but rather to ensure the continued viability of a specific U.S. commercial sector.

Reagan’s strategy toward the dollar was likely his most economically important trade policy. In September 1985, concerns about the dollar’s high value—which disadvantaged U.S. exports—prompted Treasury Secretary Donald Regan and his counterparts in France, Japan, West Germany, and the United Kingdom to agree to work collectively to reduce the relative value of the dollar, including by intervening in exchange markets, in return for a promise by the United States not to impose crippling tariffs. This so-called Plaza Accord wasn’t an effort to set permanent rules for currency values but a pragmatic deal to increase the dollar’s relative value in order to rebalance trade. And it was effective: over the course of the following two years, the dollar’s value relative to the currencies of the other Plaza Accord countries declined by 40 percent, and by the late 1980s, the United States’ trade deficit had fallen, too.

Reagan’s way of approaching trade challenges discretely and with flexibility reflected the approach to trade taken by earlier U.S. administrations. After World War II, for instance, the United States—as well as many other countries—managed trade in textiles, a politically sensitive sector key to both developing and developed economies, not by setting broad rules but by crafting specific textile-sector agreements that used tariffs and quotas. (These agreements were sunsetted over the course of the decade following the WTO’s establishment in 1994.) Even President Jimmy Carter, who is generally remembered as a free trade advocate, actually took a number of actions to protect footwear manufacturers and other American industries from foreign competition.

 

A Historical Abnormality

In the early 1990s, however, Washington shifted toward a more explicitly rules-based paradigm. This change in approach reflected a particular historical moment. In the wake of the Soviet Union’s collapse, U.S. economists and politicians alike came to a consensus: most believed that privatization, deregulation, free markets, limits on subsidies, and strong intellectual property rights were the best economic policies. In previous decades, these ideas had been contested both domestically and abroad. In the 1970s, U.S. leaders and economists had argued about whether to continue pursuing Keynesian policies or embrace the free market ideas of thinkers such as Milton Friedman, and state-owned enterprises were still common in Europe. But by the late 1980s, as U.S. leaders and officials in key allied countries came to share a view of “correct” economics—what came to be called “neoliberalism” or the “Washington consensus”—U.S. policymakers could for the first time think of setting rules for a truly global trade order.

The United States’ unipolar moment also gave American policymakers an unrivaled capability to convince foreign governments to agree to a system of rules. In the late 1980s and early 1990s, it was uncertain whether Washington had enough leverage to drive the Uruguay Round negotiations to a close. But the fall of the Berlin Wall, the U.S. victory in the 1991 Iraq war, and the United States’ strong economic growth after 1992 confirmed American hegemony. Under President Bill Clinton, Washington succeeded in convincing countries around the world to sign on to the WTO, which included a far more extensive set of rules than the GATT did. And the United States used multilateral institutions such as the International Monetary Fund and the World Bank to encourage countries worldwide to adopt neoliberal policies at home.

Presidents George W. Bush and Barack Obama tried to build on Clinton’s approach by expanding the scope of trade agreements to develop new global rules to address a host of perceived challenges. Obama, for example, touted the Trans-Pacific Partnership by arguing that it would establish new, global rules across a wide range of issues, including investment, e-commerce, state-owned enterprises, and intellectual property rights, all backed by an independent mechanism for adjudicating disputes.

 

Paradim Shift

Trump has clearly broken with this paradigm. He does not seek to create new principles governing how countries can set tariffs. He does not try to set joint safety standards or cooperative rules to govern industries such as drugs or social media. Instead, he simply obliges countries such as Argentina and Guatemala to accept U.S. cars and pharmaceuticals and uses tariff threats to strong-arm Europe into dropping regulations on U.S. tech firms.

This antipathy toward a global trading order undoubtedly arises from Trump’s personality. As a businessman and then as a politician, he has long relished breaking rules. But his instinct that a more pragmatic, less rules-based approach meets the current moment is sensible.

In truth, neither of the factors that led to the rise of the rules-based trade order exists anymore. American economists and policymakers are no longer united on which economic policies are best. The domestic discourse is roiled by heated debates about the role of the state in the economy and the extent to which the government should rein in corporate power. Disagreements simmer over how to regulate digital technology platforms, the ways in which intellectual property laws should change given the rise of artificial intelligence, and how aggressively antitrust officials should bring cases against alleged monopolistic practices.

Even if the United States could set trade rules worldwide, many of the major challenges in today’s global economy—such as the structural imbalances created by China’s enormous trade surpluses—are not ones that detailed rules are likely to solve. The problem of structural imbalance is acute: in November, China’s trade surplus hit $1 trillion for the first time. That same month, Goldman Sachs estimated that the scale of China’s trade imbalance may begin to dramatically reduce overall growth in industrialized economies such as Germany and Japan, as the damage to manufacturing from Chinese exports outweighs the economic advantages that low-cost goods formerly provided consumers.

U.S. and allied policymakers tried for years to convince China to play by the WTO’s rules. Not only did those efforts fail, but the United States and its allies now also face a situation in which even if China abided by the rules, other economies would need to violate them to compete. Washington simply cannot diversify its critical mineral supply chain without deploying significant subsidies, tariffs, and other industrial policy tools. The United States also needs to avoid total dependence on China for critical technologies and manufactured goods for national security reasons. The same is true with respect to the products the United States sells to China. To protect U.S. national security, Washington would need to restrict sales of the country’s best technology, such as leading-edge computer chips, to Beijing, whether or not both capitals could somehow agree on rules to manage the chip trade.

 

Pragmatism Over Ideology

Policymakers in Washington and allied capitals must return to a more flexible approach to trade. Some of Trump’s policies are not pragmatic, especially his tariffs. If trade officials were formerly too dogmatic about free trade, Trump is the opposite—excessively and ideologically attached to tariffs. It makes little sense to maintain the highest tariff rates the United States has imposed since the 1940s on products the country does not make, price-sensitive consumer goods such as clothing, and industrial inputs for which tariffs would shrink manufacturing.

Elements of Trump’s second-term trade deals, however, show the benefits of a more pragmatic approach—and the Trump administration should expand on them. Press coverage of Trump’s trade policy has tended to dwell on tariffs, but the deals he has made contain many other provisions beneficial to the United States and U.S. firms. Agreements the administration struck with Cambodia and Malaysia, for instance, commit the two countries to cooperating with the United States on certain tariffs, export controls, sanctions, and screening investments for risks to U.S. national security. But they do so in a pragmatic rather than a rules-based way. Washington’s agreement with Kuala Lumpur, for instance, stipulates that if the United States adopts certain tariffs or other restrictive measures on China, it can ask that Malaysia “adopt or maintain a measure with equivalent restrictive effect,” affording flexibility in implementation. Other trade agreements Trump is seeking with countries such as Argentina and the United Kingdom are likely to include similar provisions. These types of provisions provide an important foundation for any future U.S. president to build on in deals with other countries around the world.

The United States should also pursue deals that secure U.S. interests in key sectors such as critical minerals. Trump has already included critical minerals provisions in several trade deals, including with Argentina and Indonesia. Given that the critical minerals supply chain spans many countries, he should expand such bilateral provisions into sectorial trade deals with multiple relevant jurisdictions.

manufacturing, and data centers.

China’s trade surplus can be more effectively countered by approaching the issue specifically and directly. Trump’s tariffs on China have already protected U.S. industry: Chinese exports to the United States fell significantly in 2025, even as they rose to record levels in Asian and European countries that remained more bound to trade rules. Convincing Japan, European countries, and other industrialized U.S. allies to simply impose their own limits on trade with China is far more likely to achieve the desired result, reducing China’s surplus, than would those countries trying to negotiate a set of “new rules” to govern their trade with Beijing.

Addressing trade imbalances and other twenty-first-century problems, such as climate change, will demand agility from Trump and the presidents who succeed him. These leaders will have to wield a mix of tariffs, capital restrictions, threats, and interventions in currency markets. If Washington policymakers and U.S. trade partners recoil from the aspects of Trump’s trade policy that reflect a well-considered and historically American pragmatism just because Trump pursued them—and insist on a return to a principle-bound trading order that cannot secure global prosperity—they will miss a valuable opportunity.

 

 

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