American Epitaph for Free Trade Policy and Trump’s Tariff Surgery

The rethinking of entrenched neoliberal stereotypes has also touched upon the legacy of free trade policies pursued during the era of hyperglobalization (1992-2008), which were not stopped in time despite warnings from authorities like D. Rodrik and even from the beacon of liberal economic values, P. Krugman, who sounded the alarm as early as 2010. Yes, yes, even back then, 15 years ago, he openly called for starting a trade war with China. Krugman proposed, among other things, imposing a 25% tariff on imports of Chinese goods. One of his blog posts for The New York Times was titled: “I Am Become Death, Destroyer of Worlds”, hinting at the tough times ahead. (For clarification: this article, moved to The New York Times archive, is currently unavailable for some reason, but it was accessible when I quoted it in my 2010 article. However, its existence is confirmed by still-accessible puzzled comments from readers at the time, one of which reads: “I am very surprised. Mr. Krugman’s opinion is completely unexpected. How can you explain that in your books, you advocated something entirely different from what you’re saying now? — Nurbull Kazakhstan, Almaty, March 29, 2010).

Had American politicians responded correctly to such proposals made in the wake of the 2008 financial crisis, perhaps today D. Trump wouldn’t have had to astonish the world with his “metaphysical” import tariffs. But back then, Krugman’s warning was dismissed as bravado and the posturing of an aesthete liberal, which is why today’s once-unthinkable 25% tariffs are seen as a mild resolution compared to the endless escalation of Trump’s tariffs, which frequently exceed the 100% mark.

However, the stubborn belief in free trade and market self-regulation led the architects of American economic policy to a dismal outcome, which President Trump seeks to resolve through surgical intervention—this disease cannot be cured by other means. Let’s clarify the diagnosis.

According to the 2021 report by the U.S. International Trade Commission (USITC—an official government organization advocating for international trade) Economic Impact of Trade Agreements Implemented under Trade Authorities Procedures. United States International Trade Commission. Report June 2021. Publication Number: 5199. P.15. (i.e., during the height of J. Biden’s presidency, who, unlike Trump, did not threaten the world with the sharp surgical knives of import tariffs), the cumulative impact of all U.S. free trade agreements from 1984 to 2017 resulted in the following outcomes in the peak year of 2017:

• Exports increased by just $37.4 billion (1.6%), while imports surged by $95.2 billion (3.4%).
• Real GDP grew by only $88.8 billion (0.5%).
• Real incomes rose by just $98.3 billion (0.6%).
• Employment in export sectors increased by 485,000 jobs (0.3%).

These are still considered the so-called positive effects of free trade. Moreover, these modest achievements of trade agreements come with additional nuances:

• The limited GDP growth was primarily driven by multinational corporations, not small and medium-sized businesses.
• Income growth disproportionately favored high earners rather than the working majority.
• The slight increase in export-oriented employment was negligible compared to job losses in import-competing industries.

Specifically, between 1999 and 2011, competition from Chinese imports led to the loss of 2 to 2.4 million jobs in the U.S. Washington bet on abstract economic theory, creating 485,000 export-related jobs while millions of domestic jobs were lost, leaving entire communities without livelihoods.

Dry statistics fail to capture the complex socioeconomic consequences of job losses, from the general decline in work ethic to rising addiction rates and other antisocial effects. The National Bureau of Economic Research cautiously notes in a recent report: “We now know that trade shocks hit harder than expected in manufacturing-specialized regions. Local labor markets in industries facing sharp competition from Chinese imports in the 1990s and 2000s experienced a differential decline in manufacturing employment that was not offset by proportional growth in non-manufacturing employment during the trade shock period.” An article on the impact of free trade on inequality in the U.S. and Europe states: “Recent evidence shows that these shocks led to increased crime, worsening health outcomes, and the breakdown of traditional family structures” David Dorn, and Peter Levell. Trade and inequality in Europe and the US. Oxford Open Economics, 2024, 3, i1042–i1068 doi.org/10.1....

And how beautifully the free trade romance began when the U.S. approved China’s WTO accession in 2001. President Bill Clinton declared at the time: “China is the world’s largest new market. Our administration has secured an agreement that will open China’s markets to American products made on American soil—from corn to chemicals to computers… But we will export more than just our goods. Through this agreement, we will also export one of our most cherished values—economic freedom. China’s WTO entry and trade normalization will strengthen those fighting for the environment, labor standards, human rights, and the rule of law.”

Without assessing the success of America’s “freedom exports” to China—brilliantly confirmed by the ongoing economic war between the two nations—let’s look at the cold statistics of bilateral trade flows (Figure 1).

Figure 1. U.S.-China Export and Import Dynamics, $ billion, 1990-2024.

Source: prosperousamerica.org/trad...

Of course, America simply flooded China with its corn and chemicals to the tune of $170 billion. A grand success, if one ignores the explosive growth of Chinese exports to the U.S., especially after 2001. As a result, the U.S. trade deficit with China reached $319 billion in 2024, while the overall deficit with all countries exceeded $1.3 trillion.

If only the problem were limited to China! The big dragon has nurtured several smaller Asian dragons, and this entire pack has been devouring the poor American economy. In recent years, another major issue for the U.S. has been the growing trade deficit with Vietnam (Fig. 2).

Figure 2. U.S.-Vietnam Export and Import Dynamics, $ billion, 1990-2024.

Source: prosperousamerica.org/trade-a...

In that same 2001, the U.S. signed a Bilateral Trade Agreement with Vietnam, granting it Most Favored Nation (MFN) status and paving the way for its WTO accession. The little dragon’s successes are evident. From a tiny, unnoticed hatchling, it has grown into a sizable predator on American feed, draining $120-140 billion annually from the U.S.

And then there’s the whole NAFTA saga. America’s neighboring countries, thanks to this agreement, “extracted” over 1 million jobs from the U.S. between 1993 and 2004. According to the Economic Policy Institute, export growth to Mexico and Canada created about 941,000 U.S. jobs during this period. However, the faster-growing imports displaced domestic production, which had supported 1.96 million jobs, resulting in a net loss of 1.02 million jobs in just over a decade. For example, in 1993, America had a trade surplus with Mexico, but by 2013, it faced a $50 billion deficit. By 2023, Mexico even surpassed China in exports to the U.S. (Figure 3).

Figure 3. U.S. Imports from Countries with Shipments Exceeding $100 Billion, 2022-23.

Source: industryweek.com/the...

So, for 40 years, globalists fed America the illusion that opening foreign markets would bring universal prosperity. But this promise collapsed under the weight of reality: millions of jobs were lost, factories shuttered, wages cut, and small businesses ruined.

The Biden administration fully understood this problem and even issued an anti-globalist manifesto in the form of a keynote speech by Jake Sullivan, the President’s National Security Advisor, in April 2023. Sullivan proclaimed nothing less than a complete rejection of the Washington Consensus and called for a new doctrine for the Western world. Outlining four fundamental challenges facing America—a hollowed-out industrial base due to blind faith in markets; adaptation to a new environment defined by geopolitical competition; the accelerating climate crisis and the need for an energy transition; and growing inequality under the old free trade system—he centered his speech on the grand idea of a new industrial strategy and a new role for the state in economic management.

But Bidenomics chose relatively soft treatments—pills, massages, and physical therapy—trying to stimulate American industrial production through subsidies and government investments (link in Russian). True, even “old man Biden” attempted to wield the surgical knife of tariffs toward the end of his reelection campaign, imposing 100% tariffs on Chinese electric vehicles and some other minor goods. But he’s no match for the seasoned professional of the “Texas Chainsaw Massacre” from Mar-a-Lago. D. Trump (link in Russian) did not hide his treatment methods during his first term, and his second term began with spectacular excisions of dead tissue and “parasites” embedded in the American economy. What else can be done? Tough times demand tough decisions! There’s no curing the American economy without surgical methods—groans and blood included!