In 2008, Nobel Prize-winning economist Paul Krugman wrote in The New York Times: “Our grandfathers lived in a world of largely self-sufficient, inward-looking national economies—but our great-great-grandfathers lived, as we do, in a world of large-scale international trade and investment, a world destroyed by nationalism.” This observation raises an important question: could current U.S. trade policy be triggering a new global response, reminiscent of earlier eras of economic integration?
A new trade strategy under Trump’s second term
After 100 days into Donald Trump’s second presidency, it is timely to examine early shifts in U.S. trade policy. During his first term, Trump was known for his scepticism toward free trade. In 2017, while preparing a speech, he reportedly scribbled “TRADE IS BAD” in the margins — a sentiment dating back to his 1980s media appearances, where he criticised what he viewed as exploitative trade relationships.
On April 2nd — referred to by some media outlets as “Liberation Day” — the administration implemented a new tariff strategy aimed at addressing trade deficits. According to a simplified formula reported by the BBC, the U.S. calculates the goods trade deficit with a country, divides it by the total imports from that country, and then halves the result to determine a tariff percentage. For example, with a $295 billion deficit and $440 billion in imports from China, the resulting tariff was set at 34%. However, this approach has drawn scrutiny. For example, tariffs have been levied on countries like the UK, where the U.S. does not have a significant trade deficit, prompting questions about the consistency and intent behind the formula.
Economic assumptions and trade deficit misconceptions
Within certain political circles, trade deficits are seen as inherently harmful. However, economists generally distinguish trade deficits from budget deficits. The U.S. has run a trade deficit since 1975 while maintaining strong economic growth and consumer demand. Trade in goods (current account) is typically offset by capital inflows, including investments in U.S. assets.
Much of the Trump administration’s trade strategy focuses on supporting the U.S. manufacturing sector. Manufacturing jobs have declined steadily since the 1980s, a trend influenced more by automation and structural economic shifts than by trade alone. While manufacturing employment has declined, overall productivity has increased. As the economy has shifted toward services, job growth has continued in other sectors. Meanwhile, cheaper imports have generally contributed to lower consumer prices.
Market reaction and public sentiment
The damage of these tariffs have been seen clearly on the stock market. The S&P 500 has lost $3.66 trillion in market value since Trump was inaugurated, with drops occurring most heavily on Liberation day. Now it is important to note that 77 million Americans voted for Trump in this election, only Biden in 2020 has had a greater popular vote in American electoral history. The key voting issue for Republican voters was the economy, more specifically, inflation. If we look at how Gallup has assessed the popularity of Trump’s first 100 days, it is fair to say that the impacts of his protectionism have lost him some overall support. He is the first post WWII president to have lost over half the public support in 100 days, this comes after the Federal Reserve has indicated price rises will occur due to the cost of tariffs being passed onto the price of goods which are bought by US consumers.
International reactions: shift toward regionalism
The U.S. tariffs have triggered responses abroad. In Canada, new tariffs on aluminum, steel, and automotive parts have strained bilateral relations. Prime Minister Mark Carney has since made state visits to European nations, focusing on deepening trade ties and strengthening multilateral relationships. In China, high tariffs (up to 145%) have affected industrial output, reportedly lowering it to levels not seen since late 2023. In response, President Xi Jinping launched diplomatic efforts in Southeast Asia, signing cooperation agreements in Vietnam, Cambodia, and Malaysia. These agreements aim to diversify supply chains and enhance regional partnerships in areas such as agriculture, infrastructure, and technology. In the UK, recent developments with the European Union include plans to sign a “New Strategic Partnership” on May 19th, emphasising “Free and Open Trade.” This suggests renewed interest in multilateral cooperation amid shifting global trade dynamics.
While the long-term impact of the Trump administration’s trade policies remains uncertain, early indicators suggest that these measures have prompted renewed global interest in economic cooperation. Whether this results in a broader resurgence of globalisation or a rise in regional trade blocs, it is clear that international actors are adjusting their strategies in response to U.S. protectionism. Ultimately, the current moment may serve not as a retreat from globalisation, but as a catalyst for its evolution in a more regionally diversified form.
