Trump’s trade war has set off economic chaos around the world. But simply going back to the “good old days” of free trade is no solution.
Donald Trump’s trade war has triggered panic in global markets, sending economic shockwaves through international supply chains. Stock markets are in free fall, growth forecasts have been sharply revised downward, and an economic recession with rising unemployment looms. This has led many to long for the more orderly times before Trump — nostalgia for the liberal globalization of the 2000s, with unimpeded global free trade and a world economy governed by predictable rules. Ian Bremmer confidently states that “globalization helped make the United States the most prosperous country in history,” and in the New York Times Thomas Friedman writes that our time has been “one of the most relatively peaceful and prosperous in history . . . because of a tightening web of globalization and trade.”
On the face of it, this reaction is understandable. And there are many reasons why Trump’s tariff war is counterproductive. Tariffs are a form of tax largely paid by consumers. They are a flat tax, which hits the poorest hardest, as they spend a larger share of their income on everyday goods that are subject to the new tariffs. If Trump follows through on his promise to use the revenue to fund tax cuts for the wealthy, this could be one of the most regressive tax reforms in US history.
But nostalgia for the free trade era is not a way forward, regardless of what one thinks of Trump and his agenda. The wave of discontent that first brought Trump to victory is intimately related to the tensions unleashed by economic globalization. The neoliberal world order, dominant since the collapse of the Soviet Union, combined free trade and financial deregulation, leading to increased inequality, deindustrialization, and job losses. It should be no surprise, then, that it was working-class voters in the hardest-hit areas of the American Midwest who tipped the 2016 election to Trump, as he promised to challenge globalization and the free trade agreements that had cost them their jobs and devastated their communities.
The path forward from the current trade war should not simply be a return to “business as usual” — that’s what got us here in the first place.
The Problems of Free Trade
When we talk about global free trade, it’s important to understand that free trade is not the natural result of market forces. On the contrary, the global trade regime is the result of active state policies shaped by the world’s most powerful players. In the nineteenth century, Britain opened markets around the world with gunboats. In China, European empires fought two bloody wars — known as the Opium Wars — to prevent the Chinese from stopping the free export of opium across its borders.
The current trade regime was shaped during the so-called Uruguay Rounds in the 1980s, culminating in the creation of the World Trade Organization (WTO) in 1995. It is a product of American unipolar dominance after the fall of the Berlin Wall. This regime has focused on lowering tariffs but also on preventing countries from implementing other forms of regulation — so-called technical trade barriers, like environmental standards or labor conditions. Trade unions in the West have warned since the 1990s about threats to domestic jobs while developing countries have warned against being denied the protective measures that today’s wealthy nations used in their own early developmental stages.
It’s this regime that, for the past forty years, has overwhelmingly benefited large corporations in the United States and the West, which could save on wages and avoid regulations by moving production to countries in the Global South. Some Asian countries have used the globalization of production chains to strengthen their own industrial sectors and achieve economic development. In the 2000s, China especially combined strong state planning with free trade rules and managed to climb up the global value chain toward more advanced, higher-value technological production.
Comparative Advantages
The theory behind the benefits of free trade goes back to nineteenth-century economist David Ricardo, whose theory of comparative advantage still dominates mainstream thinking about trade. The idea is that countries — regardless of economic development — can benefit from specializing in the things they’re relatively best at. This means that Country A, poorer and excelling only in a small handful of sectors, can still benefit from trade with the much richer Country B, even if B is more competitive in all sectors.
But the idea of win-win mostly only ever existed on paper. In practice, specialization in immediate comparative advantages meant peripheral countries were kept in a dependence on production of volatile commodities. The economist Ha-Joon Chang has demonstrated that countries that succeeded in using trade to drive economic development — such as his native South Korea — actively used state intervention to change their comparative advantages. Had South Korea followed Ricardo’s theory dogmatically, today it wouldn’t have industrial giants like Samsung and Hyundai. Instead, its economy would still be dominated by rice and fish.
But with financial globalization, any policy that challenged powerful capital interests was punished instantly by the market. This led to wage competition among workers, as companies could easily relocate to lower-wage regions. It also led to tax competition, with countries slashing taxes to attract investment. The results are clear: growing inequality worldwide, as wages lose out to capital. In rich countries, outsourcing hit the working class hardest, and in developing countries like China and India, the benefits of high growth mainly went to business owners. This race to the bottom in taxation has also strained public welfare systems globally.
The Real Stakes of Global Trade
For the Left, the key issue in the politics of trade is not the movement of goods across borders but the unrestricted mobility of capital. Since the 1980s, the liberalization of financial flows and production networks has allowed firms to relocate with ease, using the threat of exit to discipline labor and constrain democratic decision-making. This mobility has become a structural feature of the global economy, one that skews power relations decisively in favor of capital.
Trade, in this context, has served a disciplinary function. It has not merely facilitated exchange; it has reshaped the terrain of domestic politics by limiting the space in which states can act. The fear of capital flight has undermined collective bargaining, eroded tax bases, and forced states into a race to the bottom in wages, regulation, and social provision. The rhetoric of competitiveness has substituted for questions of justice, and economic policy has been narrowed to what is tolerable to markets.
What often goes unacknowledged in calls to “bring back” industry is that the social gains of mid-century industrial economies were the result of strong labor institutions, not merely industrial activity. Without high levels of unionization and political organization, the return of manufacturing is unlikely to deliver improved working-class conditions.
The real challenge is neither to restore a lost era of globalization nor to retreat behind national borders. A serious discussion on global trade on the Left must instead start with the ambition to transform the global rules so that trade no longer serves as a mechanism of coercion for capital.
