The shift away from the post-Cold War trade system started well before Trump. As early as 2009, the Obama administration recognized that the Doha Round framework was unworkable with China's economic model and began warning Beijing that the 'benign international environment' it relied on was at risk.
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The post-1980s neoliberal consensus of small government and free trade is being replaced by a mercantilist approach. Governments, particularly the U.S., now actively intervene to protect domestic industries and secure geopolitical strength, treating trade as a zero-sum game. This represents a fundamental economic shift for investors.
The tariff war was not primarily about revenue but a strategic move to create an "artificial negotiating point." By imposing tariffs, the U.S. could then offer reductions in exchange for European countries committing to American technology and supply chains over China's growing, low-cost alternatives.
Contrary to its goals, the U.S. trade war has resulted in self-isolation. Data shows the U.S. is the only country buying less from China, while U.S. allies and developing nations have increased their trade, leading to a record $1 trillion surplus for China. This highlights a strategic miscalculation in U.S. foreign trade policy.
Twenty years ago, globalization and open markets (geopolitical tailwinds) created new opportunities for businesses. Today, rising nationalism, trade barriers, and security concerns act as headwinds, creating obstacles and increasing the complexity of international operations.
A clear sign of the breakdown in global trade consensus was the collapse of a major environmental goods agreement. The entire deal, involving 250 products, failed because China and the EU could not agree on whether to include bicycles, demonstrating the system's inability to resolve even minor disputes.
Unlike previous administrations that used trade policy for domestic economic goals, Trump's approach is distinguished by his willingness to wield tariffs as a broad geopolitical weapon against allies and adversaries alike, from Canada to India.
The credit's requirements for North American manufacturing and sourcing from trade partners were designed to counter China's dominance in the EV supply chain. Its elimination undermines this strategic goal, leaving tariffs as the primary, less effective tool.
The latest U.S. National Security Strategy drops confrontational rhetoric about China as an ideological threat, instead framing the relationship around economic rivalry and rebalancing. This shift prioritizes tangible deals over promoting American values globally, marking a departure from Reagan-era foreign policy.
While the U.S. oscillates between trade policies with each new administration, China executes consistent long-term plans, like shifting to high-quality exports. This decisiveness has enabled China to find new global markets and achieve a record trade surplus, effectively outmaneuvering U.S. tactics.
The latest US-China trade talks signal a shift from unilateral US pressure to a negotiation between equals. China is now effectively using its control over critical exports, like rare earth minerals, as a bargaining chip to compel the U.S. to pause its own restrictions on items like semiconductors.
