Protectionism or absolutism: The high cost of the US trade wars and their fallout
Protectionism is nothing new on the global scene. Trade wars have long been used as an economic and political tool to protect domestic industries, retaliate against perceived unfair trade practices, and reinforce national economic security.
This measure has been seen from as early as the 17th and 18th centuries mostly by Europeans. However, the US has had its fair share of oscillation between free trade and protectionism throughout history. Officially there was the Smoot-Hawley Tariff Act (1930) otherwise known as the United States Tariff Act which worsened the Great Depression although it was geared at protecting domestic businesses and farmers. Is history repeating itself? The aim of the current US Administration is to protect jobs and businesses, but like the great depression, trade will slow and unemployment will increase.
While the current situation appears to draw parallels with the 1930s, when Keynesian measures were used to kick-start flagging economic fortunes, the world is a much different place geopolitically nearly 100 years later. Other countries have closed the gap on US economic dominance, most notably China which has emerged as a hegemon in its own right.
Whereas the US’s policies are geared towards protectionism, the end result may be an increase in isolationism, particularly owing to President Donald Trump’s “America First” orientation. The full effects of this policy stance have yet to be examined. It is imperative that the key economic and political impacts of this new trade regime are assessed with reference to supply chain disruptions, industrial dislocation in small developing states like the Caribbean which depend heavily on tourism, and the overall feasibility of maintaining prohibitive tariffs on the US’s main trading partners, as well as the global inflationary spiral which could result. While addressing unfair trade practices is necessary, absolute economic nationalism risks long-term economic fragmentation.
The early months of President Trump’s tenure have been marked by an assertive push to reshape US domestic and international policies, often signalling a departure from the traditional approaches of previous administrations.
The Administration prioritised an America First stance, seeking to reassess financial commitments to foreign aid and international organisations. The executive order on Re-evaluating and Realigning United States Foreign Aid underscored the Administration’s intention to scrutinise and possibly reduce funding to foreign assistance programmes, particularly those administered by USAID. The rationale behind this re-evaluation was framed around ensuring that US aid aligned with American interests, efficiency, and accountability. The order signalled a shift from long-standing diplomatic and humanitarian commitments toward a more transactional approach, emphasising cost-effectiveness and measurable outcomes.
The rapid policy changes had significant repercussions on US alliances and partnerships, particularly in developing countries. Countries that had historically relied on American aid for economic and social development have expressed concerns about the potential withdrawal of support. Additionally, international organisations that depended on US contributions faced uncertainty regarding their financial stability.
The re-evaluation of USAID’s role also raised questions about the US’s long-term commitment to global development and humanitarian efforts. This confluence of factors gives rise to several fiscal considerations in affected states which must now pivot to filling gaps in national budgets, but which has also presented the opportunity to reorient their development priorities to be less dependent on foreign aid.
The mercurial nature of Trump’s trade policies has also prompted unease in the financial sector with the Federal Reserve expressing concern at the seemingly orchestrated attempt to reverse the recent monetary loosening in order to tame record high inflation in the immediate post-pandemic period. Any notion of a “soft landing” for the American economy has been effectively torpedoed by Trump, despite his own exhortations to the Fed to continue on the path of lowering interest rates to stimulate domestic economic activity. The net effect of Trump’s self-defeating policy actions would be to stymie global growth in the process with the Fed seemingly resigned to revising its own growth forecasts downward, increasing recessionary fears.
The American stock market has also not been spared the wrath of Trump’s volatility with investors becoming increasingly skittish in response to the negative signals sent by his America First regime. Major indices have fallen and continue to trade lower, with only a recent respite after a month-long decline. The increase in uncertainty has been accompanied by a softening in consumer spending, flattering revenues and a general deceleration in economic activity, with labour force expansion slowing as a result of Trump’s tightened immigration policies.
Spending cuts across most federal programmes owing to Trump’s aggressive thrust through his unofficial Department of Government Efficiency (DOGE) have also heightened anxieties about his Administration’s capability to deliver robust growth in the short-term. The stagnation of business investment amidst elevated borrowing costs has only served to compound the situation.
Despite the domestic upheaval created by Trump’s unpredictability, his protectionist policies have had the opposite effect of strengthening overseas rivals, with European and Asian stocks rallying to outperform their American counterpart in response to a regalvanised support for Ukraine by boosting military and defence spending.
Trump appears willing to lose the battle if it means winning the war in the long run with his declaration that a potential recession may be worth the hassle if it means a permanent re-assertion of economic dominance in its relationship with its main trading partners. But his absolutist posture risks severe isolationism in the global sphere. Trump has shown no sign of a willingness for course correction, however, despite sentiments of buyers’ remorse and the potential loss of confidence. Among other things, Americans voted for lower prices, the possibility of which has, incidentally, become even more remote with his second coming.
While Trump’s radical policy stance has emboldened hardline conservatives at home, it risks a further erosion of confidence in the US as a global leader and especially with respect to economic affairs. Despite his aspiration for a reprisal of the Gilded Age of American politics under his presidency, where the wealthy thrived through significant economic expansion, his own scattergun approach to governance undermines any meaningful replication and will only result in making Americans, and by extension the world, poorer.
— Cristina Edwards is an international relations specialist; Keenan Falconer is an economist.
Keenan Falconer.
