Trump loves tariffs but expect a more complicated trade policy

For about a decade, American trade policy has been buffeted by competing impulses on how it should engage economically with the world.

The controversy is over whether the U.S. should expand trade with all countries; use it as a tool that buttresses alliances and deters or coerces adversaries; or just step back from trade and aim for self-sufficiency.

The debate goes back at least to Hillary Clinton’s 2015 decision to abandon the Trans Pacific Partnership, an agreement she had championed as Secretary of State. It is also a debate in which the divisions do not map cleanly along party lines, making predictions about policy under the new administration difficult. But it might help to identify the different factions and their interests in order to make sense of trade-related headlines rolling off the wires, like the below examples.

As is well known, President-elect Trump threatened to impose 25% tariffs on Mexico for not doing enough to control migration and narcotics shipments. It remains unclear what he will do next – he declared victory following a telephone conversation with that country’s new president, Claudia Sheinbaum, but he has not withdrawn the tariff threat. This is a stance that has caused alarm in U.S. industrial circles, particularly in the automotive sector, where supply chains depend on deep cross-border integration.

It is also at odds with the Biden administration push to “nearshore” or “friendshore” U.S. industrial supply chains — a move justified in varying degree by shorter distances, greater resiliency, and a desire to reduce America’s link with China, all goals in which Mexico is seen as playing a key role.

However, for all its talk of friendshoring, the Biden administration was not particularly friendly to its ally Japan when it cited National Security as an argument against Nippon Steel’s takeover of U.S. Steel. Trump has also taken a similar stance, but the surprising element here is that the biggest objections within Biden’s Cabinet to Nippon Steel came from the U.S. Trade Representative, Katherine Tai. However, the departments actually tasked with security issues —Treasury, State, and Pentagon — seemed to display no such concerns, suggesting that this was just an alibi grounded in domestic politics.

Along similar lines, the Wall Street Journal has reported that Vietnam, a major beneficiary of tariff-induced corporate relocation from China, might itself be subject to higher tariffs because of the increase in its trade surplus with the U.S. But Vietnam’s fortune was once considered consistent with policy objectives. A decade ago, when the U.S. was still considering the TPP — a trade area specifically designed to exclude China — many projected that the biggest single gainer would be Vietnam, another one-party Leninist state with a non-market economy, but one with an occasionally rocky relationship with its northern neighbor.

Finally, the Wall Street Journal has also reported that Washington is about to intensify its controls on exports of its most advanced chips to certain countries in Southeast Asia and the Middle East for fear that they might be trans-shipped to China, thus aiding efforts at developing AI capabilities. According to the story, countries that might find themself caught here include Saudi Arabia, the UAE, Singapore, and Malaysia, none of which are likely to be pleased, nor, presumably, are U.S. chip exporters.

What all these stories reflect is the increasingly fraught interactions across trade, national security, diplomacy, and domestic politics in the U.S. This is likely to continue, with trade policy being determined by the relative power of four competing factions, as I described first here in a piece for Foreign Policy in Focus:

Openers – those, primarily in the American business community (Wall Street, Aerospace, and Big Ag e.g.), who wish to see government power used to open markets outside the U.S. and create a level playing field that applies to both U.S. and foreign firms. They think in terms of expanding opportunities for reciprocal market access. Openers have arguably been on back-foot in Washington since Hillary Clinton’s decision in late 2015 to no longer back the TPP.

Decouplers — those who wish to see the US decouple from China, or at least de-risk its interlinked economic and security exposures to that country by diversifying supply chains into less adversarial locations by “friendshoring” or “nearshoring.” This is a push that has gained traction since the outbreak of Covid, but the TPP was originally framed in good part as a decoupling exercise.

Repatriators — those groups, primarily among organized labor, its political supporters, and certain industries, who wish to see a large-scale repatriation of economic activity into the U.S., i.e., a “re-shoring” rather than “nearshoring” or even “friendshoring. One might extend this classification to those for whom the domestic politics of the U.S. are always paramount over foreign policy.

Derailers — those who are not content with decoupling from China (or any other U.S. current or future adversary or rival), and wish instead to derail technological or other advances elsewhere that might threaten American military, technological, or financial primacy. This House Committee is one of the redoubts of the Derailers.

This descriptive scheme might clarify the recent news stories and help interpret broader developments. Actions against Mexico, Vietnam, and Japan reflect the ascendancy of the Repatriators over two other factions – the Openers, who are willing to do economic “deals” on market access; and the Decouplers who focus on China, but see expanded economic linkages with other countries as beneficial to national security.

Meanwhile, the ever-increasing scope of export-controls and their widening extraterritorial ambition suggest that the Derailers have the upper hand. And because the ability to impose sanctions through control of the dollar payment system is what makes export controls possible, attempts to create alternative mechanisms will also arouse their wrath.

This configuration also suggests potentially hard going for countries of the Global South seeking economic development through the path taken by China and some other countries in Asia. This involved integration in global manufacturing supply chains that also brought in technological and managerial knowhow. But the American factions that favored this approach — first the Openers, and then the Decouplers — have lost ground to the Repatriators.

The Derailers, meanwhile, seem set not just on combating China but also on reducing its points of economic contact with major players in the Global South. And a strategy that seeks to isolate the world’s second largest economy from its markets and suppliers will cause inevitable collateral damage in Africa, Latin America, and developing Asia.

In short, the dominant policy configuration in Washington with regard to the Global South seems to be a lot of sticks — sanctions and tariffs — and not enough carrots, like market access and technology transfer through integration in global supply chains. Meanwhile, personnel announcements suggest that the new administration will have no Openers.

Vice President J.D. Vance is clearly a Repatriator. Treasury Secretary Scott Bessent has suggested he is willing to use tariffs, sanctions, export controls, and conditional access not just to America’s markets but also its military umbrella as tools of economic compulsion against both allies and adversaries. This would make him temperamentally a Derailer, but one perhaps open to selective Decoupling subject to American conditionality.

USTR (Office of the United States Trade Representative)-designate Jamieson Greer is also clearly a China-hawk, as suggested by his recent testimony to the House China Committee, but may have a more legalistic view on other economic relationships, such as with Mexico, putting him in line with Bessent.

Is there still hope?

Maybe yes, and it could lie with Trump himself. The President-elect has himself pronounced tariffs to be “the most beautiful word in the dictionary.” On the other hand, for all of his love of tariffs as a pressure tactic, he seems less invested in the idea of a bitter ideological struggle. He also has tended to see the stock market as a report card on his performance, and Wall Street may well balk at some of the more punitive geo-economic forays. And that may just mean he can find room for lots of artful deals.