Ineffective Trump: The world has found an alternative to US tariffs

According to American economist Michael Pettis, the global trade system had been in a deep crisis long before the administration of US President Donald Trump introduced new import tariffs.

In his column for Foreign Affairs, Pettis argues that instead of unilateral protectionist measures, there is a more effective alternative — the development of a new international agreement, conceptually similar to ideas proposed in the mid-20th century by British economist John Maynard Keynes.

On April 2, Trump signed an order introducing so-called “reciprocal” import tariffs, which immediately intensified trade tensions between the US and other countries, especially China. As a result, the US import tariff rate on Chinese goods soared to a record 145%, while American exporters to China faced tariffs of 125%.

According to experts, such high levels of tariff protection virtually paralyze trade between the world’s two largest economies. However, Pettis is convinced that the problems of global trade have much deeper roots and are not limited to Trump’s recent decisions.

Even before the escalation of the trade war triggered by the April orders, the global trade system, in Pettis’ view, was seriously dysfunctional and in need of radical overhaul.

The introduction of bilateral tariffs, the economist believes, cannot eliminate systemic imbalances. According to him, the effectiveness of US trade policy can only be improved in two ways: either by eliminating the savings deficit in partner countries or by refusing to continuously compensate for this imbalance. In other words, the issue is not just balancing trade flows between individual nations, but making global adjustments to savings and investment policy.

As a way out of the deadlock, Pettis proposes returning to the idea of creating a fundamentally new trade union. Its members would be required to maintain parity between exports and imports, rejecting the practice of using trade surpluses as a tool of economic pressure. Pettis directly refers to the concept formulated by Keynes in 1944 at the Bretton Woods Conference.

According to the British economist’s plan, agreed international trade rules would not only stabilize global economic relations but also stimulate wage growth, thereby ensuring sustainable development for all participants in the system.

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John Maynard Keynes 1st Baron Keynes (5 June 1883 – 21 April 1946), was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in mathematics, he built on and greatly refined earlier work on the causes of business cycles. One of the most influential economists of the 20th century, he produced writings that are the basis for the school of thought known as Keynesian economics, and its various offshoots. His ideas, reformulated as New Keynesianism, are fundamental to mainstream macroeconomics. He is known as the "father of macroeconomics".