Trump Reshaping World Trade Despite Nonstop Noise
THE SUPREME COURT tariff ruling was a setback only for those who aren't paying attention to the international trade reset occurring behind the scenes.
By Matthew Lynn
It’s turning into a familiar ritual. President Trump imposes fresh tariffs, often announced on social media late at night, and within seconds the decision is condemned by officials and politicians from Brussels to Paris, Beijing, Berlin, and London.
There are dramatic warnings about how trade wars benefit no one, accompanied by solemn declarations that Europe will not be bullied, and elegies for the “rules-based order.” The financial press dutifully chronicles the “chaos” and “unpredictability” of American trade policy, while CNN books another expert to explain why it cannot possibly work and the Financial Times runs yet another column about how the United States is only damaging itself.
Then, a few weeks later, buried somewhere on page 17, a different story starts to emerge: Germany has agreed to new defense procurement commitments; France is reconsidering agricultural protections; the European Union is suddenly open to renegotiating its digital services tax. Another trade relationship is quietly restructured, and on terms remarkably favorable to Washington. The opposition, it turns out, is mainly just for show. Behind the scenes a new consensus is starting to emerge. The Trump administration is quietly building a new global trading system—it’s just that nobody wants to talk about it.
European leaders routinely denounce Trump’s tariffs and “America First” rhetoric with an over-the-top passion that would get them thrown out of drama school. Yet their finance ministers are simultaneously reworking trade agreements in ways that previous American administrations spent decades failing to achieve. The disconnect between the public theater and private reality has become so vast that one might reasonably conclude the confected outrage itself serves a purpose—providing political cover for concessions that would otherwise be impossible to explain to domestic audiences.
The U.S. has spent years trying to persuade Germany to increase its military spending, to little effect. But over the last 12 months, Germany has ramped up its spending by €80 billion a year. This represents a fundamental shift in German industrial policy, one that the Obama administration campaigned for in vain, that the Bush administration couldn’t extract, and that decades of NATO summits failed to deliver. Trump got it with a few threatening tweets and warnings about auto tariffs.
A few examples help illustrate what is actually happening. The U.S. has spent years trying to persuade Germany to increase its military spending, to little effect. But over the last 12 months, Germany has ramped up its spending by €80 billion a year. Sure, there is lots of rhetoric about how it will “Buy European” and about how the money will reboot its industrial base. But in reality about 8% of the money will be spent on American kit, including F-35 fighter jets, P-8A Poseidon maritime patrol aircraft, and Tomahawk cruise missiles. It doesn’t really matter who makes the boots. It is the high-tech equipment that really counts, and much of that will be American.
It represents a fundamental shift in German industrial policy, and one that the Obama administration campaigned for in vain, that the Bush administration couldn’t extract, and that decades of NATO summits failed to deliver. Trump got it with a few threatening tweets and warnings about auto tariffs.
Or take a look at France. It has long positioned itself as the defender of European agricultural interests against the marauding Americans with their genetically modified crops and chlorinated chicken. Yet the Common Agricultural Policy, that monument to protectionism and subsidy that has distorted global food markets for generations, is suddenly open for discussion. The reason? It isn’t because France’s politicians have realized that laissez-faire economics originated in their own country. It’s because the alternative—restricted access to the American market—is simply too painful to contemplate.
As another example, the European Union’s digital services tax, a key instrument for extracting revenue from American tech giants, is finally being reconsidered. For years, European politicians treated taxing Apple, Google, and Facebook as both economically sensible and morally righteous. Apparently the firms were “not paying their fair share.” National sovereignty required it and consumers had to be protected. It was simply a coincidence that all the companies that were fined happened to be American. But now, faced with credible retaliation from Washington, the whole scheme is back on the table. The rhetoric about tax justice has been dropped, and the policy has changed.
Across the Channel, the British are now open to paying fairer prices for American pharmaceuticals. It turns out the UK’s state-funded health care system, where prescriptions are either free or bear a fixed price, can afford it after all. Over in the Pacific, Japan has agreed to import more American rice, after insisting for years that it was not to their taste, while the government in Tokyo will underwrite $500 billion of investment in the U.S. Even China, the most protected major economy in the world, has loosened restrictions. Piece by piece, the tectonic plates of trade are shifting.
These aren’t minor tweaks to existing arrangements. They are fundamental shifts in trading relationships, the kind of structural changes that represent genuine victories for American economic interests. Previous administrations, with all their diplomatic finesse and multilateral commitment, couldn’t secure them, while global institutions, with their emphasis on alliance management and consensus building, got nowhere. Trump’s blunt approach has extracted concessions that diplomatic nuance never could.
That has created an uncomfortable situation for the mainstream commentariat. How can you explain that Trump’s crude, bombastic negotiating style might be getting results when you have insisted it can’t possibly work? And how can you explain how the new tariff regime is working when you have insisted that it will backfire spectacularly? The answer, mostly, has been to not explain it at all—to simply to ignore what is actually happening and continue focusing on the rhetoric.
Europe’s Perfect Storm
The basic logic of realigning global trade has always been sound, even if the tactics and Trump’s style make diplomats wince, because the American market remains indispensable to European and Asian economies. America’s economy isn’t just large; it’s uniquely large in ways that genuinely matter. American consumers spend. They buy imported goods in vast quantities. They don’t save like the Germans or the Chinese. The U.S. market is the ultimate destination for any manufacturer who wants to achieve real scale.
European economies, meanwhile, are facing a perfect storm of challenges. Growth has been anemic for over a decade. The long-term demographic outlook is disastrous, with aging populations creating fiscal pressures that make Greek debt levels look quaint. The regulatory environment has become so stifling that European tech entrepreneurship is essentially a global non-factor. And now the EU faces Chinese competition across virtually every industrial sector, from automobiles to renewable energy to advanced manufacturing.
In this context, the idea of being excluded from American markets—or even facing significant new barriers—is simply unacceptable. German car manufacturers cannot survive on European sales alone. French agricultural exporters need American buyers. Italian luxury goods have to be in Miami and Los Angeles malls. Likewise, Vietnamese toys and Korean TVs need to be in Walmart. The leverage is all on one side, and it’s not the European or Asian one.
Trump instinctively understands what the Davos set refused to acknowledge for the last 20 years: trade imbalances on the scale of the 2010s are unsustainable. You cannot run perpetual surpluses against a trading partner while simultaneously demanding that partner provide your security guarantee, subsidize your defense, and accept restricted access to your own markets. Eventually, the situation will be reset. And when it does, the party with leverage wins.
This is not a particularly sophisticated insight. It’s basic economics and elementary logic. But it’s an insight that decades of trade policy specialists somehow failed to grasp. They convinced themselves that the existing system was stable because it was familiar, that the American willingness to run massive trade deficits while defending global security could somehow last indefinitely. They mistook a temporary arrangement for a permanent equilibrium.
Trump instinctively understands what the Davos set refused to acknowledge for the last 20 years: Trade imbalances on the scale of the 2010s are unsustainable. You cannot run perpetual surpluses against a trading partner while simultaneously demanding that partner provide your security guarantee, subsidize your defense, and accept restricted access to your own markets. Eventually, the situation will be reset. And when it does, the party with leverage wins.
The old consensus rested on several assumptions, none of which could survive serious scrutiny. First, that trade imbalances don’t really matter because they’re offset by capital flows. Tell that to the workers in Ohio and Michigan who watched their factories close. Second, that global peace requires accepting unfavorable economic terms. Tell that to the American taxpayers who fund European defense while European governments spend their money on welfare systems Americans can only dream about. Third, that only multilateral negotiations can produce legitimate trade agreements. Tell that to the countries that have been perfectly happy to negotiate bilateral deals when it suits their interests.
The reality is that the post-war trading system, for all its genuine achievements, had become seriously unbalanced. American markets were open while European and Asian markets were strategically protected. American firms faced regulatory barriers abroad; foreign firms enjoyed relatively free access to American consumers. American workers bore adjustment costs; European workers were cushioned by protection and subsidies. This wasn’t a partnership of equals. It was a relationship that worked brilliantly for European exporters and rather less well for American manufacturers.
Could it have been addressed through patient multilateral negotiation, through careful alliance management, through sophisticated diplomacy? Perhaps. But after decades of trying that approach with minimal results, one might reasonably conclude that something different was required. Trump’s approach is different, certainly. It is also producing results.
The mock outrage will continue. European politicians will continue denouncing American unilateralism. The editorial pages will continue lamenting the death of the liberal international order. Think tanks will produce papers explaining why Trump’s approach damages American interests. None of this changes the underlying truth: European and Asian governments are restructuring trade relationships on American terms.
Paradoxically, the huge gap between rhetoric and reality serves everyone’s purposes. European leaders can claim they’re standing firm while actually making concessions. American critics can denounce Trump’s style while benefiting from his results. The media can write about chaos and dysfunction while the actual substance of trade policy shifts in ways that previous administrations could only dream about.
The irony is that Trump’s supposedly “chaotic” approach may be producing a more balanced and ultimately more durable global trading system than the old consensus ever delivered. Trade relationships that are obviously unbalanced won’t last. They create political pressures that eventually explode. It is better to address those imbalances directly, even if the process is uncomfortable, than to pretend they don’t exist.
Acknowledging the American Worker
There’s another element here that the criticism tends to gloss over: Trump’s trade policy actually considers American workers as stakeholders whose interests matter. This is apparently controversial in some quarters. The dominant view in trade policy circles for decades was that trade agreements should maximize aggregate economic efficiency, and if that meant certain communities or regions bore severe adjustment costs, well, that was simply the price of progress.
This view was always morally questionable. It has also proved politically unsustainable. You cannot build lasting support for open trade if the benefits flow primarily to the coasts and to multinational corporations while entire regions face economic devastation. The backlash against globalization didn’t emerge from nowhere. It emerged from the entirely reasonable observation that the system wasn’t working for a large segment of the electorate.
Trump’s approach, crude as it may be, at least acknowledges this reality. When he threatens tariffs on German cars, he’s not just negotiating on behalf of General Motors. He’s negotiating on behalf of workers in Michigan who have watched their communities hollow out as manufacturing moved overseas. When he pushes back against European agricultural protections, he’s representing farmers in Iowa and Nebraska who face barriers that their European counterparts don’t. This isn’t protectionism for its own sake. It’s an attempt to create more reciprocal relationships.
The old trade policy establishment seems genuinely puzzled that this approach has political support. But there’s nothing about it that should be hard to understand. Workers whose livelihoods have been sacrificed on the altar of free trade are not stupid. They understand perfectly well that they’ve been getting a raw deal. When a politician finally acknowledges that, and takes action to address it, their support is entirely rational.
Will this approach solve all of America’s economic challenges by itself? Of course not. Trade policy alone cannot reverse decades of deindustrialization or address all the competitive challenges facing American manufacturing. But it can help level the playing field. It can push back against the mercantilist policies that have characterized much of European and Asian trade for decades. It can make clear that access to American markets is valuable and comes with expectations of reciprocity.
The alternative is to continue with a system that everyone knows is unbalanced but that nobody is willing to change.
Trump’s trade revolution, if we can call it that, represents a fundamental reevaluation of American trade policy. It starts from the premise that trade relationships should be mutually beneficial, not just efficient in some abstract sense, that American workers are stakeholders whose interests deserve consideration, that leverage matters and should be used, and that the existing system needs reform.
Sure, it makes the foreign policy establishment deeply uncomfortable. It represents a challenge to decades of conventional wisdom. But in twenty or thirty years when historians write about this period, they’ll have an interesting question to answer: Did Trump’s approach to trade policy work?
The answer will depend less on rhetoric and diplomatic drama than on the actual structure of trade relationships that emerge. If European markets are more open to American goods, if trade imbalances have narrowed, if American workers have better opportunities in competitive industries, then the approach will surely be judged successful, regardless of how uncomfortable the process was.
This doesn’t mean we should all become converts to Trump’s approach to diplomacy. His language is often ill-judged, his tone too aggressive, he is maddeningly inconsistent, and he has a tendency to personalize policy disputes. But criticism of style shouldn’t blind us to questions of substance. And on substance, Trump’s trade policy is achieving results that eluded his predecessors.
The old consensus is dead, killed by its own internal contradictions and unsustainable imbalances. What’s replacing it may be messier and less ideologically pure. But it may also be more balanced, more durable, and more aligned with the interests of American workers who were largely forgotten in the old system. We can all argue about whether that is progress. But it is definitely not chaos, nor is it necessarily a bad thing—just don’t expect anyone in Brussels, Paris, or Tokyo to say so.
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