What Are The Geopolitical Effects of Tariffs, and How To Proceed?

As countries send delegations to the White House in efforts to lower President Trump’s punishing tariffs, what will be the geopolitical effects of America’s new mercantilism? And how will foreign leaders change their methods of handling relations with a protectionist U.S?

Mr. Trump’s belief that the international scene needs the Untied States more than America needs the global community is correct for the time being. According to the WTO’s World Integrated Trade Solution database, the U.S. is among the world’s largest exporters and is the world’s largest importer.

Yet, as rising powers’ economies grow (China, India, Indonesia, etc.), it is possible that Washington may yield less influence in the years to come.

Policymakers in Washington should give thought to the longer-term consequences of tariffs after Mr. Trump is out of office.

At present, countries are taking measures to adjust to Mr. Trump’s “America First” policies by diversifying trade destinations, forming intra-regional trade blocs, rerouting supply chains and adopting fiscal stimulus measures and retaliatory tariffs.

Over the next 3.5 years of Mr. Trump’s second term, countries will do what they can to please the United States and negotiate agreements which limit the costs that Washington’s tariffs are exacting on their economies. Odds are that these revamped trade deals will bring some benefits of increased U.S. market access overseas and stepped-up foreign investment on American soil. These achievements should be welcomed.

Yet, post Trump 2.0 will likely present a different picture. America’s good will and the soft power that it has enjoyed overseas will likely be squandered by Trump’s tariffs. This will result in less cooperation with Washington on the world stage in policy areas ranging from commerce to security to diplomatic engagement.

It may also dissuade countries from continuing to park their money in America, calling into doubt the U.S. as a destination for international investment.

While the damage done by tariffs to America’s brand will not be permanent, the resulting animosity in world capitals will foster increased distrust and hurt ties with the U.S.

Worsening matters, nation states are likely to begin avoiding working with the U.S. in select areas for fear of risking Washington’s ire and capricious policies.

If Mr. Trump’s tariffs endure, a likely effect will be diminished U.S. clout in international business and collaboration. As most of America’s top trade partners already engage in commerce more with Beijing than with Washington, many of these nation states will turn towards China – – not Washington – – for opportunities to innovate and grow their economies.

Going forward, countries will pursue trade with China through new structures as well as existing agreements such as the Comprehensive and Progressive Tarns-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership, the European Union, the African Continental Free Trade Area and Mercosur.

This can be seen by recent decisions by the European Union, individual EU-member countries, Japan and South Korea to enter into new trade and investment discussions with China. Countries are putting in place trade agreements and rules that promote openness and trade in the absence of U.S. involvement.

In short, America is losing out on opportunities.

Beijing’s stepped-up engagements of American partners and its portrayal of itself as the protector of global free trade will likely have spillover benefits for the Chinese Communist Party. Traditional U.S. allies eager for economic opportunities will be forced to cut deals with China in exchange for acquiescence to China’s long-held demands over Taiwan, the South China Sea, human rights and support for Moscow, Pyongyang and Tehran.

During a time when China’s leadership faces deep unhappiness at home due to its struggling economy, a dearth of jobs for young workers, repression of entrepreneurs and attacks upon the tech sector, Mr. Trump’s tariffs offer Chinese President Xi Jinping a lifeline and propaganda coup – – that of a foreign adversary who wants to keep China down and stymie its rise.

These unforced blunders are forcing American partners to enter into security agreements that exclude the U.S. They also lessen Washington’s influence during a critical period of the U.S.-China rivalry as Xi and Russia’s Putin seek to upend the global order that Washington created after World War II.

Put simply, tariffs are needlessly harming the U.S. economy, damaging America’s brand and hampering the Trump administration’s ability to respond to autocracy in Eurasia by dividing Washington from its friends.

To avoid the stagnation and stunted innovation that can come with walling off America’s economy’s from much of the world, Mr. Trump and his successors will need to be more thoughtful with the implementation of tariffs than what has taken place since Liberation Day of April 2.

Careful international trade agreements will need to be struck which require foreign companies to employ and train Americans, allowing for the free flow of overseas ideas and know-how.

Broadly speaking, President Trump should be supported in his efforts to help America’s middle class. All should ardently hope for his success in aiding those who fell behind in recent decades and who have suffered from America’s worsening income inequality.

Finding ways for American workers to prosper while providing trade partners access to the lucrative U.S. market will be key to the success of the U.S. in the years ahead.

Yet, Mr. Trump needs to put in place the right approach. While tariffs in select national security-related areas are called for, an over-reliance on duties and protectionism is not the answer.

Rather, investment by government and private industry in manufacturing innovation will be needed for the shared success of the American workforce and for increasing U.S. competitiveness.

In particular, the U.S. will have to allocate sustained resources towards finding ways to produce needed items faster, cheaper and better. Such critical goods include advanced semiconductor chips, automobiles, munitions, weapons systems, PPE, essential pharmaceuticals and the technologies of tomorrow.

Government will need to do its part by supporting entrepreneurial friendly policies, providing tax credits and shunning over-regulation.

Improved capabilities in manufacturing will be a critical step in securing U.S. leadership in the years ahead. To do so, American schools and businesses will need to invest in human capital such as STEM education (science, technology, engineering, math) and training in next-generation industries.

While adjustments to Washington’s industrial policy are needed for economic growth and to help America’s working-class, tariffs and economic warfare against the world will lead to diminished U.S. wealth and influence. This faulty plan will harm both American households at home and Washington’s ability to project power abroad.

An intentional, multiyear strategy to increase U.S. competitiveness through education and manufacturing innovation – – while maintaining an open society – – will be more conducive to American prosperity and security.