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Love him or hate him, Treasury Secretary Scott Bessent’s efforts to rationalize Donald Trump’s erratic tariff policies have become a source of amusement worldwide. As Bessent and other administration officials scramble to secure numerous trade deals amidst volatile financial markets, the notion of a grand strategy behind it all seems almost comical.
It’s evident that Trump’s approach is deeply flawed; his objectives remain unclear. Yet, even a more competent administration would face challenges. The US’s ability to reshape the global trade system, once unrivaled, has waned in comparison to China over the years. While the US was once considered the “indispensable nation” in trade and technology, that title is now questionable.
Following the post-World War II Marshall Plan, the US fostered a predominantly Atlantic-oriented economic network in Western Europe. This initiative not only provided financial aid but also advanced technology and market access.
However, these advantages have diminished over time. US foreign aid budgets have dwindled relative to China’s, and efforts to promote efficiency in government aid programs have stalled. Despite Joe Biden’s push to limit China’s access to advanced technology, the US lags behind in key areas like green technology due to inadequate investment and misguided policies.
According to the Rhodium Group, China now leads the global market in exports of solar cells, lithium-ion batteries, and semi-finished electric vehicles. In contrast, the US has implemented subsidies and tariffs to boost its own production of batteries, electric vehicles, and solar panels for domestic consumption. However, protectionist measures like the recent steep tariffs on solar cells from Southeast Asia may hinder the US from becoming a competitive exporter in these sectors.
Similarly, the EU is integrating advanced Chinese electric vehicle technology into its market, while the US, with its focus on gas-guzzling vehicles, struggles to compete in the EV market. Despite having a strong domestic market, the US faces challenges in offering cutting-edge technology to secure trade deals.
Traditionally, the US has used market access as a bargaining chip to influence trade agreements. However, recent developments, including the US’s withdrawal from the Trans-Pacific Partnership and the Biden administration’s mixed signals in the Indo-Pacific region, have diminished America’s leverage in global trade.
Trump’s approach of using tariffs as a threat to extract concessions lacks a diplomatic carrot, raising doubts about the sustainability of his tactics. As the US grapples with a diminishing role in global trade, the repercussions of Trump’s trade policies are becoming increasingly apparent.
alan.beattie@ft.com