United States and the new world trade disorder

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Historians agree that it was the leadership of the United States that pulled the world out of the destruction that had resulted from the heavy fighting in Europe and East Asia during the Second World War. Washington not only poured capital into the war-destroyed countries of Europe as well as Japan, but also took the lead in creating global institutions that gave voice to all participants. That was then but it is not the case now.

Patricia Cohen of The New York Times in a story titled, "US primacy under threat in trade war", worried "that the global economic system that the United States has steered for more than three-quarters of a century was animated by a powerful guiding vision: that trade and finance would be based on cooperation and consent rather than coercion. That system, for all its faults, entrenched the United States as the world's richest nation and its sole financial superpower. The role of law and the stability and trust that this approach generated helped make the dollar the world's go-to currency..."

In a detailed announced made on April 2, President Trump issued an executive order on promised tariffs on foreign imports. Even before the announcement, the promise that these would be imposed had roiled the markets and dampened consumer confidence. Auto tariffs that went into effect on April 3, added 25 percent tax on imports of cars and car parts.

The president had already imposed tariffs on Chinese goods. But China was not the only country that was hit. He announced 'reciprocal tariffs' on major trading partners, including those in Asia and Europe. Trump's advisers, promoting the idea of broad tariffs, said that trade wars are necessary to correct decades of economic injustice and that paying a bit more by consumers should be a matter of national pride.

"We may have, short term, a little pain," Trump said before announcing his wide-ranging trade plan, applying a universal baseline tariff of 10 per cent to countries around the world, plus levies ranging from 1 per cent to 40 per cent on dozens of trading partners. Treasury Secretary Scott Bessent described the impact more bluntly. For affected countries including "access to cheap goods is not the essence of the American dream", he said in a speech at the Economic Club of New York.

He said that the American dream was about having good jobs not buying cheap goods from China. However, economists differed in their assessment of the moves by President Trump. Eswar Prasad, a professor of trade policy at Cornell University, said, "The era of increasingly free and extensive international trade, built upon a rule-based system that the U.S. was instrumental in shaping, has drawn to an abrupt end. Rather than fixing that many U.S. trading partners took advantage for their own benefit, Trump has chosen to blow up the system governing international trade."

The value of tariffs for all the goods imported by the United States in 2024 was $78 billion. On Wednesday, May 3, President Trump slapped sweeping tariffs including a 10 per cent tax on nearly every import to the United States. With the new tariffs the figure would skyrocket to more than $1 trillion. With this move, gone was the appeal to a larger purpose, mutual agreements or shared values.

Markets across the world reacted negatively to the tariff moves by the United States. In Trump's global order, the strongest nations determine the rules and enforce them through intimidation and bare-knuckled power. "This is a completely different vision," said Greg Grandin, a historian at Yale, "one in which the first principle is that nations don't have shared interests; they have inherent conflicts of interest."

World Markets lost their nerve and plunged following the actions taken by Trump on what he called "Liberation Day" for the US economy. Markets loathe uncertainty and the tariff seemed to deliver just that.

The Dow Jones Industrial, a basket of stocks representing 30 big, well-known companies, hit an all-time high of just over 45,000 in December 2024. It was around 38,000 when the markets closed on April 5 – which came on the heels of the worst quarter since spring of 2022. There was a drop of $6 trillion in the value of the stock market which Trump's Treasury Secretary Scott Bessent called a short-term adjustment, comparing the current moment to the early days of Ronald Regan's presidency. He also rejected warnings from economists and skeptical fellow Republicans, arguing that the "tariffs were one-time price adjustment and not a source of lasting inflation."

Trump who had risen to the top of the political world after using deal-making in real estate transactions to increase his personal wealth expected that the countries hurt by his tariffs would come rushing to the White House to reduce their obstacles to trade with the United States.

In their TV appearances on Sunday-morning news programmes on April 6, 2025, cabinet members claimed that dozens of countries were trying to reach the president to negotiate.

The deals Trump was likely to make would leave it financially strong and dominant in the global system. Jamieson Greer, Trump's chief negotiator, described the nation's $1.2 trillion trade deficit as an emergency that required urgent efforts to reshape the US economy. He brushed aside lawmakers' complaints about potential costs to consumers, telling the Senate Finance committee, "The president is fixed in his purpose." But that was not the case. On April 9, Trump put a 90-day holiday on the tariff decision. Excited markets went up by 10 per cent.

However, prominent Democrats were of the view that the imposition of tariffs would be, according to Senator Adam Schiff, a Democrat from California, "the most enduring image of the Trump presidency. The president on the golf cart while people's retirement is on flames."

Financial analysts from global banks, including Barclays, Bank of America, Deutsche Bank and the Royal Bank of America, have all said the United States stands a higher chance of entering into a recession if the tariffs are not pulled back. JP Morgan economists see a 60 per cent chance of a recession happening in 2025.

American dominance of the global financial system has enabled Washington to shape the world's economy around its own security concerns. Developments leading to September 11, 2001 revealed how terrorists were using the global financial system to send money across borders. With Trumps moves, the United States was in a position to tighten controls and check the free flow of funds across financial borders.