Transcription
I want to start with something that happened in a room in Geneva in the spring of 2018. I was sitting across from a senior Chinese trade official, a man who had spent decades navigating the labyrinthine architecture of the World Trade Organization, who had watched the United States and China build the most consequential bilateral trade relationship in human history, and who had over the course of his career become genuinely convinced that the system was indestructible, not perfect, not fair, but indestructible. And he said something to me that I have never forgotten.
He said, "No American president will ever seriously challenge this structure. They will complain, they will posture, they will threaten, but in the end the gravity of the system always pulls them back." He was not being arrogant, he was being empirical. He had watched it happen over and over again, and for decades he was right. And then Donald Trump did the impossible.
I know that phrase gets thrown around a lot in political commentary. People love to describe things as impossible until they happen, and then they retroactively explain why they were inevitable. But I want to be very precise here, because precision matters when we are talking about one of the most significant structural shifts in global economics since the Bretton Woods conference. What Trump did, and I am speaking specifically about the tariff regime he has now imposed on China and the broader reshaping of American trade policy, is not just a political story. It is not just an economic story. It is a story about what happens when one man decides to take on an entire architecture of assumptions that the world's most powerful institutions had declared permanent.
Let me give you the intellectual context, because without it you cannot understand the magnitude of what has happened. For roughly 40 years, from the late 1970s onward, the world operated under what economists called the Washington Consensus. The core idea was elegant in its simplicity. Free trade, open markets, and economic integration would create prosperity, and prosperity would create stability, and stability would make war less likely, and therefore the entire global order, democracy, peace, human rights, depended on this engine of commercial interdependence. This was not a fringe view. This was the orthodoxy of the IMF, the World Bank, the WTO, Harvard's economics department, the editorial board of every major Western newspaper, and the foreign policy establishments of every NATO ally. And the crown jewel of this system, the relationship that was supposed to prove the theory once and for all, was the relationship between the United States and China.
When China joined the WTO in 2001, the celebration in Washington and Brussels was extraordinary. This was, they said, the moment when the largest country on Earth was finally being woven into the fabric of the international rules-based order. Trade would grow. China would grow. And as Chinese citizens became more prosperous, they would demand the freedoms that prosperity tends to produce. The theory had a name, the democratic peace theory, and the mechanism by which it was supposed to work in China was simple. Economic liberalization would inevitably lead to political liberalization. I studied this theory. I taught versions of it to students in China for years, and I watched it fail slowly and then all at once.
Because what actually happened was something the architects of the Washington Consensus had not modeled. China took the rules-based trading system and used it brilliantly, not to integrate into the Western order, but to build its own. It used the access to American and European markets to accumulate the capital and the technology it needed to develop state champions. It used the WTO's dispute resolution mechanisms selectively, complying when compliance was convenient and dragging its feet when it was not. It used the doctrine of sovereign economic policy to maintain a managed currency, to provide state subsidies to industries it deemed strategic, and to structure its economy in ways that systematically disadvantage foreign competition within its borders while its own companies competed freely in foreign markets. And every time Western governments complained, they were told by their own economists and their own business lobbies that the benefits of engagement outweighed the costs. The multinationals that had built supply chains in China were making too much money to want the music to stop. The financial institutions that were helping Chinese companies list on Western exchanges were earning too many fees. The think tanks that received Chinese funding were producing papers that counseled patience and engagement. The system had captured the very people who were supposed to evaluate whether the system was working.
And so, for 20 years, the answer from the political establishment on both sides of the Atlantic to anyone who raised concerns about the China trade relationship was always the same. Engagement is the only path. Decoupling is impossible. The economies are too intertwined. The supply chains are too complex. The costs of disruption are too high. You cannot unscramble this egg. You cannot put this genie back in the bottle. And any American president who tried would crash the global economy, alienate every ally, destroy American consumers purchasing power, and ultimately fail anyway because markets are more powerful than politics. That was the consensus. That was what every think tank in Washington believed. That was what the economic advisers in every Republican and Democratic White House believed. That was what the CEOs of America's largest companies believed. That was what the finance ministers of America's closest allies believed. And then Donald Trump looked at all of that and said, "I don't care."
Now, I want to be careful here because I am not making a simple partisan argument. I have spent enough time in both Washington and Beijing to be deeply skeptical of simple partisan arguments. What I am doing is something harder. I am trying to give you an honest assessment of what Trump actually accomplished, stripped of both the hagiography of his supporters and the reflexive contempt of his critics. And when I do that honest accounting, the picture is more complicated and more significant than either side wants to admit. Here is what Trump actually did. He initiated the first serious, sustained, structurally significant challenge to the framework of US-China economic integration since China joined the WTO. He did this through tariffs, blunt, aggressive, economically disruptive tariffs uh that the entire economics profession told him would not work. He was told that China would never negotiate under pressure. He was told that tariffs would simply be passed on to American consumers. He was told that American companies were too dependent on Chinese supply chains to absorb the shock. He was told that the allies would not follow. He was told, repeatedly and emphatically, that the structural gravity of the trading relationship would pull everything back to equilibrium. Who?
And then something remarkable happened. China negotiated, not perfectly, not in ways that completely satisfied American demands, but the People's Republic of China, the government that had spent decades insisting it would never change its economic model in response to foreign pressure, the government whose official position was that its domestic economic policies were sovereign matters outside the scope of any bilateral negotiation, that government sat down at the table and made concessions. They purchased additional American agricultural products. They agreed to language on intellectual property that they had resisted for years. They made commitments on currency management that represented a meaningful departure from previous practice. And beyond the specifics of any particular deal, something even more significant happened. The assumption of irreversibility was broken. The wall that the Washington consensus had built around the China trade relationship, the wall that said this structure cannot be changed. This integration cannot be unwound. Any challenge is doomed to fail. That wall developed cracks. And once a wall has cracks, it is never quite as solid again.
Let me tell you what I observed from my vantage point. I have spent years working in Chinese education, studying Chinese institutions, talking to Chinese officials, academics, and business people. And I can tell you that the impact of Trump's tariff war on the Chinese policy conversation was profound in ways that Western commentators almost entirely missed. Inside China, there was a serious, sustained reckoning with the question of whether the export-led growth model was strategically sustainable. Chinese economists who had previously been confident that the American market would always be available because American consumers needed cheap goods and American companies needed Chinese manufacturing began to seriously examine scenarios in which that was no longer true. Strategic industries began accelerating domestic production of inputs they had previously relied on importing. Technology companies began investing more heavily in developing indigenous capabilities rather than licensing from foreign partners. And the Chinese government's entire dual circulation strategy, which emphasizes developing a robust domestic market as a buffer against external shocks, is at least in part a direct response to the realization that Trump had demonstrated the American market was not a permanent unconditional asset.
So, when people say Trump's tariffs failed because China didn't fully comply with the phase one deal, or because the trade deficit with China didn't immediately disappear, they are missing the deeper story. The deeper story is that the political economy of American trade policy was permanently changed. Before Trump, any politician who proposed serious tariffs on Chinese goods was dismissed as a protectionist dinosaur who didn't understand economics. After Trump, the question is not whether to have a tough trade policy with China, it is how tough, on what industries, with what strategic objectives. Joe Biden kept most of Trump's tariffs. He added new ones on electric vehicles and semiconductors. The bipartisan consensus that now exists in Washington on the need for a harder edged economic relationship with China is something that would have been considered politically impossible in 2015. That is a revolution in the framework of American foreign economic policy, and Trump caused it.
But I want to go deeper because I think there is something even more important here that gets lost in the trade policy wonkery. What Trump did was not just change a policy. What he did was demonstrate that a certain kind of political will, messy, disruptive, institutionally reckless, deeply uncomfortable for allies and opponents alike, can actually move systems that conventional political actors had declared immovable. And that demonstration has consequences that go far beyond trade policy. Think about what the last decade of global politics has shown us. The period from roughly 2016 to the present has been characterized by an extraordinary proliferation of leaders who are willing to violate the norms and challenge the structures that the post-Cold War international order had established as permanent. Some of these leaders were authoritarian populists who used the disruption to consolidate power in ways that were genuinely dangerous to democracy, but some of them, and this is the uncomfortable part that both the establishment right and the establishment left don't want to grapple with, some of them were responding to real failures of the existing order. Real structural problems that conventional political leadership had proven unable or unwilling to address.
The Washington Consensus failed, not partially, not in minor ways that can be patched with better implementation. It failed in its core promise, which was that economic integration would produce broadly shared prosperity and would bring authoritarian states into the rules-based international order. Instead, what it produced was extraordinary wealth concentration, the hollowing out of manufacturing in advanced economies, the rise of China as a strategic competitor that had used the open trading system to build the tools of a surveillance state and a military capable of challenging American primacy in the Western Pacific, and a political backlash in Western democracies that took the form of the very nationalist, anti-globalist politics that the architects of the Washington Consensus thought they were preventing. The people who built that system and who defended it longest were wrong. And they were wrong in ways that had enormous human costs. For the factory workers in Ohio and Pennsylvania and Michigan who lost their jobs and their communities and their sense of purpose. For the populations of developing countries that were promised that integration would lift all boats and found instead that the boats that got lifted were primarily the ones already sitting in the harbor. For the democratic activists in China and Hong Kong and elsewhere who were told that commerce would bring freedom and found instead that the commerce had given their government more money and more tools to suppress them.
Trump did not have a sophisticated intellectual framework for understanding all of this. He operated on instinct and grievance more than analysis. His tariff policy was often incoherent. His negotiating strategy was frequently self-undermining. And his personnel choices for trade and China policy were a mix of genuine expertise and alarming dysfunction. None of that is in dispute. But the instinct, the instinct that the existing trading relationship with China was not working for the United States. That it needed to be fundamentally renegotiated. And that the only way to achieve that renegotiation was to be willing to accept serious short-term pain to demonstrate credible commitment. That instinct was correct. And it was correct in a way that the entire expert class that had managed American trade policy for 40 years had refused to acknowledge. There is something deeply uncomfortable in that admission. And I want to sit with it for a moment rather than rush past it. Because I think one of the most important intellectual tasks of our current moment is to be honest about where the establishment consensus failed. Without using that honest accounting as an excuse to embrace every challenger who comes along and says the establishment is wrong. The fact that Trump's instinct on China trade was essentially correct does not mean that every instinct of every populist disruptor is correct. The fact that the Washington consensus failed does not mean that protectionism is always the answer or that international institutions are always obstacles rather than assets. The task is much harder than that. The task is to hold two things simultaneously. Yes, the old system failed and yes, the disruption of that system carries its own serious risks and costs.
Let me be specific about those risks and costs because I would be giving you an incomplete picture if I did not. The tariff war with China, whatever its strategic merits, has imposed real costs on real Americans. Farmers who relied on Chinese markets for soy and pork and corn faced devastating price drops when China responded to American tariffs with agricultural tariffs of its own. The phase one deal addressed some of this, but the agricultural trade relationship has never fully recovered to its pre-tariff levels. American companies that had built supply chains in China faced enormous adjustment costs as they were forced to diversify to other suppliers in Vietnam, Mexico, India and elsewhere. Costs that were ultimately borne by consumers in the form of higher prices. The inflation that characterized the post-pandemic period in the United States had multiple causes, but the tariff-driven disruption of supply chains was a contributing factor. These are not trivial costs. They are real economic pain experienced by real people.
And there is a geopolitical risk that I think has not been adequately reckoned with. By pursuing a unilateral trade strategy rather than working through multilateral mechanisms, Trump's approach damaged relationships with allies that share American concerns about Chinese trade practices, and that could have been powerful partners in a coordinated pressure campaign. The European Union, Japan, South Korea, Australia, all of these countries have legitimate grievances against Chinese trade practices, and all of them were engaged in their own processes of reassessing the China relationship when Trump's tariffs created a complication. The tariffs targeted them, too, not just China. The steel and aluminum tariffs that Trump imposed hit European producers as hard as Chinese ones. That created a situation where America's natural allies in any coordinated China strategy were simultaneously being targeted by American trade policy, which made coordination much harder and drove some of them toward a hedging strategy that tried to maintain good relations with both Washing- -ton and Beijing rather than aligning fully with the American position. That is a strategic cost. It is not fatal, and some of the relationship damage was repaired under subsequent administrations, but it was real, and it represents the downside of the instinct-driven, institutionally reckless approach that was Trump's signature.
So, what is the honest final accounting? What did Trump actually do that world leaders said was impossible? He broke the spell. That is the most precise way I can describe it. He broke the spell that had convinced an entire generation of policymakers, academics, business leaders, and journalists that the US-China economic relationship was a permanent, irreversible structure that could not be fundamentally challenged. He demonstrated that political will, applied with sufficient intensity and sufficient willingness to absorb short-term costs could actually move a system that had been declared unmovable. He changed the domestic political economy of trade policy in the United States in a way that has proven durable across administrations. And he forced China to reckon earlier and more seriously than it otherwise would have with the question of whether its growth model was strategically sustainable in the face of a United States that was willing to use economic tools as strategic instruments.
None of this means he was right about everything. None of this means the approach was optimal. None of this means the costs were worth the benefits. That is a calculation that historians will be making for decades. But the notion that it was impossible that the structural gravity of the trading relationship would inevitably pull everything back to equilibrium, that no American president could seriously challenge the framework of US-China economic integration. That notion is simply empirically demonstrably false. Trump proved it false. He did what world leaders said could not be done. And that has consequences that go far beyond Donald Trump himself. Because once you have demonstrated that a system can be challenged, once you have shown that the gravity can be overcome, you have given every future actor, American and Chinese and European and everyone else a new map of the possible. The question now is not whether the US-China economic relationship can be restructured. It clearly can. The question is how it should be restructured, by whom, with what objectives, through what mechanisms, and in ways that serve which populations. Those are hard questions. They are the right questions. They are questions that the Washington Consensus prevented us from asking for 40 years by insisting they were moot because the system was permanent.
I will close with something that I think about often. I have spent a significant part of my career working in and writing about China, trying to understand a society and a political system that most Westerners find opaque and threatening. And one thing I have learned is that the Chinese leadership, whatever its many faults, whatever its authoritarian brutalities, whatever its strategic opportunism, is deeply empirical in its assessment of power. Chinese policy makers study history relentlessly. They look at what actually happened, not what was supposed to happen. They draw lessons from observed reality rather than from theoretical models. And the lesson that China drew from Trump's trade war is one that I think the West needs to draw as well. Systems that powerful people insist are permanent can change. The rules that seem immutable can be rewritten. The structures that appear too complex to challenge can be challenged. And the actors who are willing to accept the disruption and disorder of that challenge, who are willing to pay the short-term price of breaking old arrangements in pursuit of better ones, will have an advantage over those who are paralyzed by the weight of existing conventions.
The question for the West is not whether Trump was right or wrong. The question is whether we can learn from what happened, from both the genuine breakthrough and the genuine mistakes, to build a more honest, more strategic, more sustainable approach to China and to the global economic order. That requires the intellectual honesty to admit that the old consensus failed. It requires the strategic sophistication to not repeat Trump's mistakes even while learning from his insights. And it requires the political courage to have an honest conversation about what kind of global economy we actually want, who it should serve, and what we are willing to pay to achieve it. That conversation is long overdue. and whatever you think of Donald Trump, and I suspect many of you watching this have very strong feelings in one direction or another, one thing is undeniable. He forced it to begin.