The tariff war is about power, not globalisation

There’s been much commentary on the economic implications of the Liberation Day tariffs and subsequent changes to tariff rates, but assessing these actions of President Donald Trump merely through an economic lens is short-sighted. It also overlooks fundamental shifts underway in the international order.

In the short run, tariffs of this scale and intensity—even with the flip-flops—will almost certainly result in economic stress. The next few weeks will tell us whether we will see more tariffs or less, and whether more goods will be exempt from tariffs. President Trump will hold court while countries look to negotiate concessions by offering lower tariffs on their imports from the US, as Vietnam is trying to do. Yes, the stock markets will remain volatile, supply chains will be jolted further, and uncertainty and volatility will be words most associated with the state of the world.

But the long-term implications of what the US is doing are going to be more profound. The unilateral imposition of tariffs marks a formal break with the liberal trading order that the US itself helped create. A few concessions made to some trading partners over the next few weeks will not change that.

Not the end of history; now a fresh chapter

One day, through one press conference, President Trump put in motion a structural shift in the global order—one that augurs a return to the reality that trade is about power and not economics. American action has made clear that the world trading system is now broken. That was a system America could manage and lead. Dismantling this very system means there is nothing to manage and lead.

When the Soviet Union collapsed, free markets were seen as destiny and not a policy choice. Francis Fukuyama famously referred to that moment as “the end of history”, arguing that Western-style liberal democracy and capitalism were going to be the bedrock of human civilisation. Three decades on, however, his optimism has not materialised.

One day, through one press conference, President Trump put in motion a structural shift in the global order—one that augurs a return to the reality that trade is about power and not economics.

In fact, the tariff tantrums officially mark the end of the unipolar moment in world history. They also mark the growing prominence of geoeconomics, which sees economic tools such as tariffs, sanctions and regulations as instruments of strategic power.

Leading the charge is the US, whose derision towards global institutions is resulting in a fragmented global system. Its singling out of China puts China on a pedestal and (not so) tacitly confers it the title of an equal power. We’re as far away from the end of history as we could be.

China’s ascent accelerates

As the US has indulged in childish belligerence, China has continued to demonstrate a steady commitment to free trade and long-term influence-building. As the US has oscillated between isolationism and what many consider bullying, Beijing has quietly deepened its web of global entanglements. Already, its often-criticised Belt and Road Initiative (BRI), is the most ambitious geoeconomic project of the 21st century, with almost $1.2 trillion invested in over 140 countries.

Over the past few years, in the face of the rising tide of economic nationalism globally, China has continued to push for trade to remain open, bilaterally and through trade deals like the Regional Comprehensive Economic Partnership (RCEP), which is led by ASEAN but strongly backed by China.

And now, without doing anything, China is being considered a more responsible stakeholder in the international system overnight. Through his actions, President Trump has played into China’s hands. The Chinese economy has the wherewithal to see this phase through. Even in strictly economic terms, the wide-ranging tariffs are likely to hurt the US more than they will China, particularly after the exemptions given to the imports of mobile phones and other electronics.

China and the US have jostled for greater influence for many years. Many countries, such as those in Southeast Asia, have long wondered when they would eventually need to choose one over the other. That time seems to have come, and recent American action has made the choice easier. Countries don’t know what to expect from the US any longer, while China offers stability. As the US turns inward, China’s willingness to continue underwriting infrastructure, finance development and offer ready-made digital systems is giving it more global clout. More and more developing countries will work more closely with China, giving it a great opportunity to expand its sphere of influence.

Many countries, such as those in Southeast Asia, have long wondered when they would eventually need to choose one over the other. That time seems to have come, and recent American action has made the choice easier.

All on their own

As the US and China continue to engage in a dangerous trade war, the world isn’t headed for a simple decoupling. We’re going to enter a messier period of interdependence where states will stay connected, but selectively and selfishly.

The danger is others will follow the US in thwarting the international system. President Trump has made abundantly clear that the US will look to preserve its own interests first, even if that means burning bridges with its traditional allies and friends.

The world is being shaped by different kinds of alliances and partnerships that may not even be confined to a region. The Chip 4 Alliance between the US, Japan, South Korea and Taiwan seeks to coordinate semiconductor policy; the Indo-Pacific Economic Framework pushes for digital standards and anti-corruption measures without offering market access; and the Quad is a diplomatic partnership between Australia, India, Japan and the US committed to an open and stable Indo-Pacific region. These aren’t global or even regional institutions and alliances. They are needs- and issues-based coalitions—flexible, strategic and often exclusionary.

What will come next? An unlikely strategic alliance between China and India? From capitalising on complementarities in their economies to working together to drive an agenda for the Global South, there is a lot the two countries can achieve as partners in this new landscape. Fanciful? Perhaps. But not unthinkable.

Transactional geopolitics

Trump’s erratic and punitive tariff manoeuvres are less an economic calculation than an assertion of dominance, leveraging economic clout to reestablish geopolitical power. This is soon becoming a race to the bottom.

If things go in the direction they seem to be, we’ll soon see the return of spheres of influence. But this time is different—the Cold War was characterised by neat binaries, but we’re now in a world of overlapping alignments and issue-specific alliances. This is the era of transactional geopolitics, driven by concessions, quid pro quos and threats.

The fall of the Berlin Wall marked the dawn of a unipolar liberal order; is it possible the developments of the last fortnight mark the twilight of that era?