The recent tariff episode shook global economic confidence in a way that’s only been seen in the aftermath of major catastrophes, despite relief coming in the short-term. Has the damage been done to America’s trade hegemony?
“We must be clear-eyed about the dangers that are building up in the world. Global institutions are getting weaker; international norms are eroding,” warned the Singaporean Prime Minister Lawrence Wong shortly after America’s latest barrage of tariffs against much of the world, including uninhabited islands. “More and more countries will act based on narrow self-interest, and use force or pressure to get their way. This is the harsh reality of our world today,” the Singaporean leader warned, underscoring the tectonic implications of the U.S. President Donald Trump’s universal tariffs in a desperate bid to reverse America’s manufacturing decline.
For the past half-a-century, Singaporean leaders have enjoyed outsized influence in global affairs due to their keen understanding of great power competition as well as their distinct perspective as a ‘small power’ with massive financial influence and tremendous economic dynamism. Since Prime Minister Lee Kuan Yew, the de facto founding father of modern Singapore, the city-state’s leaders have also served as a highly esteemed source of counsel to world leaders, particularly in Beijing and Washington. Extremely well-read and fluent in both Mandarin and English, Singaporean leaders have enjoyed unparalleled insights about the domestic politics in both superpower nations like no other foreign leaders.
In many ways, Singapore has been not only a leader in Southeast Asia, but also a thoughtful and eloquent spokesman for much of the Indo-Pacific region. But the city-state is not the only U.S. partner deeply troubled by Trump’s aggressive protectionism. America’s allies in Europe are even more troubled, especially given the dismal state of transatlantic ties and festering disputes over the Ukraine conflict in recent months. “The last we saw this happening, we sleepwalked towards global recession [and conflict],” a top European Union diplomat said during a recent panel discussion I attended in an influential think tank in Brussels. “The problem with tariffs is that once you impose them, it takes decades to roll them back,” he added, anticipating Trump’s “Liberation Day” mayhem and the long-term perils unleashed by America’s universal tariff policy.
In fairness, some key U.S. allies such as the Philippines tried to downplay the tariffs likely in an attempt to preserve the best possible relationship with the mercurial second Trump administration. Spooked by global backlash, and a potential meltdown in bond and stock markets at home, Trump abruptly suspended new tariffs on much of the world for 90 days, with only China remaining as his target. But the damage was done. It’s quite telling that two key U.S. allies of Japan and South Korea even teamed up with China to jointly resist Trump’s barrage of tariffs. From Asia to Europe, however, a whole host of U.S. allies and partners are bracing for more troubled, uncertain and even hostile relations with the supposed ‘leader of the free world.’ Not only is Trump’s economic ideology forty years out of date, but in the 4 years he was out of power, the world became far more multipolar. From China to Europe and India, major and rising economic powers will strike back, further exposing the limits of U.S. power and accelerating the transition to a post-American world order.
False Dawn
Trump’s return to power was largely due to the appeal of his ‘anti-system’ posturing and policies. Aside from the characteristic populist antics, he provided, in the eyes of millions of Americans, a potential path towards national rejuvenation. After all, Trump, as in populists around the world, has often raised correct questions about the status quo, most notably the steady decline in American manufacturing base – and the ensuing displacement of countless low-skilled workers across industrial heartlands.
The numbers are staggering. Between 2002 and 2022, the American economy shed more than 45,000 manufacturing firms. Up to 2010, the U.S. was the world’s number 1 manufacturing power, but total output fell by as much as 2.4 trillion behind China just over a decade later. A toxic cocktail of offshoring, financialization, and almost total absence of robust industrial policy severely undermined America’s manufacturing prowess.
As in other populists, Trump’s appeal is largely due to his unvarnished questioning of a broken status quo, yet his preferred policy tools are highly questionable – and carry dangerous unintended consequences. There is little evidence in economic literature that tariffs are an effective tool for manufacturing revival. Given the immense costs of reshoring, and the eroded competitiveness of American labor markets, major investors will likely hold tight and wait out Trump’s latest policy mania.
There will likely be few performative new trade deals, especially given the importance of American markets to export-oriented economies in Asia and Europe. But restructuring the U.S. economy in favor of manufacturing may require nothing less than a global economic reordering, something that would require time, meticulous planning and policy discipline.
The Coming Showdown
No longer troubled by the exigencies of re-election, the U.S. president seems determined to operationalize his outdated ‘trade ideology’ at all cost – wiping off $10 trillion off U.S. stock markets in three days and potentially costing the world $700 billion in foregone Gross Domestic Product economic output. The bond markets were also in turmoil, as investors reconsidered their views on the U.S. treasure bills as ‘safe havens’. There will, however, be serious consequences on multiple levels.
To begin with, the Republicans could face a major electoral backlash in the midterm elections next year if Trump’s policies trigger serious economic disruption and directly affect key constituencies over an extended period, with some observers even warning of the possibility of a new global recession coupled with an inflationary spiral.
There will also be international pushback, too. Not only is Trump’s economic ideology arguably four years out of date, but in the 4 years he was out of power, the world became far more multipolar. While China has strengthened its economic fundamentals, and the likes of India and Indonesia have risen through the economic ranks, Europe has preserved its financial heft and internal coherence. In short, the U.S. is not the only center of the universe. This explains the growing popularity of the term ‘polycrisis’, which underscores the perilously fragile and interconnected nature of contemporary global system.
The U.S. continues to boast the world’s largest economy, market, and military, but it’s no longer as dominant as before. Not to mention, Trump is also not the only nationalist-populist bent on making his country ‘great again’. From Budapest and Ankara to New Delhi, Jakarta and Beijing, a whole host of nationalist leaders have come to power. In response to Trump’s unprovoked tariffs, China has responded with its own gigantic retaliatory tariffs while Europe is exploring the ‘bazooka option’ of targeting America’s tech titans and Trump’s core support base. Other major economic powers, inspired by Canada’s example, could follow suit, especially if the U.S. persists on its current approach.
To be fair, the U.S. president has not been impervious to external pressure. But Trump’s repeated tariff policy reversals are less a reflection of his thoughtfulness than the limits of American power in an increasingly multipolar world, where other nations are willing and capable of fighting back. But it also reflects his lack of understanding of the true essence of power. As the great Italian thinker Antonio Gramsci once argued, ‘hegemony’ – sustained and entrenched power – is a product of force as well as consent. By relying on hard-edged tactics, and driven by the short-term need for scoring political points, the U.S. president could inadvertently undermine the country’s ‘soft power’ in ways that could seriously erode his country’s global leadership for the rest of the century. At the very least, Trump’s isolationist policies are alienating key allies across the world, with European and Asian states openly pursuing greater strategic autonomy. It’s quite telling that even the Philippines’ ambassador to Washington, who also served in similar capacity during Trump’s first term, recently warned: “We have to all be ready…It may be some other president in the future. But at the end of the day, each country now has to be ready to be able to beef up its defence, beef up its economic security.”
