An Overdue Course Correction
A look back at what American history really suggests for an international trade order.
By Fred Bauer, a writer from New England.
Maybe the greatest trick the neoliberal ever pulled was convincing the world that his politics were an extension of post-World War II policy. By the conventional narrative, American policymakers woke up to the folly of “protectionism” in the 1930s and embraced instead a model of global “free trade.” The seeds policymakers had planted in the postwar era at last sprouted into the World Trade Organization, which contained almost all the countries in the world. With the banner of “free trade” reaching from Beijing to Berlin to Boston, at last the eschaton of a unified global market had been immanentized. And now the big, bad populists (or nationalists—pick your demon) are threatening to upend that century-long project.
This self-glorifying account of neoliberal economics has some truth; policymakers did indeed shift toward multilateralism and global exchange after the Second World War. But it also obscures the ways in which the high neoliberal period from 2000 to 2015 might have been not the fulfillment of the “postwar international order” but instead a decisive break from it. Conversely, returning to the geopolitical foundations of the postwar policy project provides insights for where things went awry, and how to design a new post-neoliberal paradigm.
In the aftermath of World War II, geopolitics arguably drove American approaches to trade more than economic theories. Secretary of State Cordell Hull, one of the principal architects of the postwar order, saw open trade between nations as a vehicle for lessening geopolitical instability. Haunted by the failed peace of the First World War, Hull promoted a series of diplomatic and economic multilateral institutions to help rebuild the world after the wreckage of a catastrophic war.
Unsurprisingly, then, policymakers situated trade policy in the context of geopolitical competition with the Soviet Union. In the Cold War era, “free trade” was an important vehicle not for global unity or even economic efficiency but instead for solidifying an anti-Soviet bloc. In a 1955 message to Congress, President Dwight Eisenhower celebrated “trade expansion among the free nations of the world” (emphasis added). He called upon his country to “cooperate further with the free world, in the struggle against Communist domination, to the greater security and the greater prosperity of all.” Like other Cold Warriors, Ike liked trade with American allies—not the Communist bloc.
Seven years later, John F. Kennedy emphasized similar themes in his call for increased presidential powers over trade in the 1962 State of the Union. Kennedy cited not economists like David Ricardo or the invisible hand of the market but the realities of global politics in his defense of trade expansion. He said that the rise of the Common Market (the predecessor of the European Union) required new American engagement to break trade barriers and secure “across the Atlantic a trading partnership with vast resources for freedom.” The “Communist economic offensive is under way,” the president warned, so the United States had to bolster trade with its European allies. In contrast with the indifference to trade deficits among many wonks today, Kennedy trumpeted the fact that the United States was the “world’s foremost manufacturer, farmer, banker, consumer, and exporter.”
Toward the end of that address, Kennedy did gesture in the direction of some utopia of “a free community of nations, independent but interdependent, uniting north and south, east and west, in one great family of man, outgrowing and transcending the hates and fears that rend our age.” When Bill Clinton—long a fan of Kennedy—became president 30 years later, he championed a global market as a vehicle for interdependence. In signing the North American Free Trade Agreement, Clinton boasted of the chance to “remake the world,” but he also decisively broke from the geopolitical frame for trade that had guided the Cold War internationalists of the past. He proclaimed that the “contest with communism had been replaced by the exuberant uncertainty of international economic competition.”
The apogee of that competition—and a complete inversion of JFK—was fully integrating the People’s Republic of China into the global trading system. Proponents of the measure, including President Clinton himself, argued that the PRC’s entry into the World Trade Organization would expand opportunities for American exports and even nudge the communist regime toward freedom. Instead of a “free community of nations,” the United States got the China shock: the liquidation of millions of manufacturing jobs and supply chains increasingly dependent on the Chinese government. While American economists celebrated the marvels of “free trade,” policymakers in Beijing used everything from export subsidies to state-mandated “joint venture” projects in order to seize control of global supply chains. The pandemic shortages for everything from masks to microchips revealed how vulnerable American supply chains had become.
That mugging by reality on China policy has placed the conventional Washington establishment at an impasse. It continues to insist on the moral and strategic necessity of American engagement abroad, but the economic and trade policies of the “Washington consensus” have sapped the ability of the United States to act as a backstop for many multilateral institutions. The “postwar international order” was predicated upon American industrial might (particularly in the defense sector), a robust middle class to act as a purchaser for global consumer goods, and enough consensus at home to ensure that the United States could be a relatively stable player on the international stage. The “creative destruction” of the neoliberal era has undermined all of those things. A gutted domestic shipbuilding industry, for instance, puts the United States at a tremendous strategic disadvantage; the PRC builds over 1,000 commercial ships annually, while the United States builds about five. A United States that cannot quickly scale up its navy will struggle to protect its own interests abroad or to guarantee the flow of global commerce.
This history casts a different light on the ongoing geopolitical realignment. In breaking from neoliberalism, a pivot toward industrial resilience could in fact reinforce the ability of the United States to uphold its international commitments stretching back to 1945 (and in some cases even earlier). If economic integration with the People’s Republic of China did not cause what its proponents promised 25 years ago, perhaps it’s time for a rebalancing.
As divided as Washington is these days, there still seems to be a soft bipartisan consensus supporting at least a partial decoupling from China. Notably, President Trump has continued his sky-high tariffs on the PRC while temporarily suspending reciprocal tariffs for much of the rest of the world, and polling suggests that even a tariff-averse public is often more favorable toward such policies against Beijing. That opens a potential window for a global trade reset, in which the United States tries to use the pressures of global commerce to push supply chains from the PRC to allies and the domestic market. Just like Cold War policymakers used trade to strengthen an anti-Soviet alliance, U.S. policymakers could try to create a global, American-led trading bloc as part of strategic competition with the PRC. This strategic competition does not have to revert to the terrifying total conflict that defined the Cold War, but it would work to ensure that the Chinese Communist Party does not have veto power over the essentials of industrial development or monopolize the technologies of the future. (Those goals would be in the interest of the United States as well as many other countries.)
This pivot should attend to the three gs: global, geographic, and gradual. The United States benefits from longstanding alliances across the globe. It is a strategic advantage to use them. Whatever the claims of autarky, current supply chains are global, so they cannot be relocated to the United States overnight, and the American economy benefits from participation in global commerce. Trading with India, Japan, the European Union, and elsewhere could help empower an American-led trade bloc.
If global trade is beneficial, policymakers also have to keep in mind the geographies of production as well as literal geography. Ensuring an industrial base for certain strategic industries—such as microchips, medical supplies, and defense materiel—is a national security imperative. It is, for instance, an obvious security vulnerability if the United States has to rely on extended supply chains for essential munitions or defense tech. Likewise, there are strategic reasons to prioritize trade within the North American continent, and it’s telling that the White House has so far exempted USMCA-compliant goods from its tariffs.
Finally, it’s important that these changes be gradual. Wildly swinging tariff rates wreak havoc on American businesses as well as the stock market. If a business suddenly faces a 145% tariff on goods from the PRC, that could be an existential crisis for it, and uncertainty about the tariff rates faced by other countries would deter that business from actively contracting with other countries. The resulting economic paralysis could actively harm American manufacturing. In part because the United States imports hundreds of billions of dollars’ worth of capital goods each year, a trade shock can also become a manufacturing one.
Like neoliberals, proponents of a geopolitical reset need to recognize that it’s not 1989 anymore. Many of the trade battles of the 1980s and 1990s focused on the idea of protecting domestic industry. By 2025, the challenge facing the United States is instead reindustrialization, and the imperatives of restoring supply chains are very different from those of protecting existing ones. Reindustrialization puts an even higher premium on regulatory and tax consistency. Building out a factory is a long-term project, and businesses will be much less likely to make that kind of investment if they think that their tax burden (a key part of their bottom line) could change overnight. Moreover, tariff rates are only a small piece of a much bigger puzzle. Improving American economic resilience is a full-spectrum effort, ranging from regulatory reforms to slashing energy costs to investments in cutting-edge technologies.
Bill Clinton’s vision of a world order defined by “international economic competition” represented a mode of global politics unmoored from the political. Cold Warriors understood that international relations cannot be reduced to economic exchange and that industrial capacity mattered. This is why presidents from Eisenhower to Kennedy to Reagan invested in the defense industrial base and basic research for science. They would have been aghast at the idea of making a communist one-party state the lynchpin of global manufacturing.
America faces a critical inflection point to correct that with a fundamental geopolitical rebalancing. It’s a major strategic opportunity, but it will take skill, discipline, and collaboration to execute—and the firing gun has sounded.