There is much to lament about Trump’s reckless approach, not least his unsound and punitive formula for calculating tariff rates. But there is a reason we are here: the old trade order plunged millions of working-class Americans into misery and precarity, impelling a decisive share of them to elect Trump twice. As far as they’re concerned, there is no going back to a system that, in the words of United Auto Workers leader Shawn Fain, turned once-proud industrial centers into “blast zones”.

Influential pundits such as Matthew Yglesias and prominent Democrats such as Colorado Gov. Jared Polis are bent on getting Democrats to reaffirm the superiority of “free trade”. But they are misguided about what this moment calls for. Instead of simply denouncing Trump’s agenda, progressives must stand for a holistic trade policy that reimagines development at home and abroad.

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Trump’s ‘Liberation Day’ will fail

By Justin H. Vassallo

Not long ago, progressives were clear-eyed about the fictions and concealed costs of liberalized trade and global economic integration. In the Nineties, labor unions, environmentalists, and anti-sweatshop activists warned against the “race to the bottom” of globalization without basic guardrails to limit pollution and prevent human-rights abuses. Distant, multi-stage supply chains portended ecological damage and the severe coercion of vulnerable foreign workers, including children, while unfettered import competition in an era of shrinking public investment threatened the foundations of working-class security at home.

These concerns usually met with indifference in Washington, despite growing evidence that new trade agreements disproportionately benefited powerful multinationals and were riddled with opportunities for exploitation. Echoing President John F. Kennedy, who believed deeper trade would bolster America’s Cold War alliances, mainstream economists assured that global growth would bring prosperity for all.

It was a utopian promise, backed by technocratic models and clever political stagecraft.

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The benefits, even to the developing world, were overstated. Remove China’s share of the global middle class, and poverty reduction over the last 25 years looks far less encouraging. While there are fewer “least developed countries” today than there were in the year 2000, the World Bank reports that middle-income countries, which include over 60% of the world’s total poor, are struggling to diversify their economies and improve their developmental outcomes.

The main obstacles are becoming more, not less, insurmountable. Although Covid restrictions, a strong US dollar, and higher interest rates have sunk expectations for global growth this decade, the People’s Republic’s massive export dominance is a central factor in this story. The “China Shock” — once thought to be an unfortunate byproduct of US-China trade limited to the American Rust Belt — has spread to other parts of the world, in some cases undermining the transition to advanced manufacturing. Particularly in sub-Saharan Africa, this has led to what the economist Dani Rodrik calls “premature deindustrialization”. (Notably, this trend has no discernible upside in terms of lower greenhouse-gas emissions, biodiversity, soil health, and potable water.)

On the domestic front, meanwhile, Trump has shrewdly exploited the failure to create good new jobs to replace the ones lost to free trade. Presidents Bill Clinton, George W. Bush, and Barack Obama championed tech-driven global commerce. But the promised jobs boom in tech, professional services, and advanced manufacturing never materialized. Each recession since 1990 has resulted in a so-called jobless recovery, whereby lost skilled work is not made up for through new opportunities in emerging industries. Americans without college degrees, still over 60% of the electorate, are now predominantly underemployed or hold multiple low-wage jobs.

These developments markedly changed the country’s economic geography. While inequality in the United States has always had a distinctly regional dimension in addition to race and gender, globalization has amplified the concentration of economic power by class and zip code, rather than dispersing it. Small industrial cities and rural areas across the Greater Midwest and South have suffered the most, fueling populist resentment.

Conditions aren’t much better for America’s middle class, even within the perimeter of prosperous liberal-leaning metros. A college education — an increasingly unproven ticket to upward mobility — now costs a fortune, and debt-laden graduates have swelled the ranks of precarious service and gig workers since the Great Recession. Rent inflation and the housing shortage have all but transformed major coastal cities — the main engines of growth prior to Covid — into upper-income enclaves.

Deindustrialization and the country’s worsening trade deficit aren’t, in every instance, the direct cause of these crises. Deregulation and weak antitrust enforcement have played their part. But economic hardships stemming from trade policy are interwoven with most of the other factors driving inequality, including shareholder buybacks, short-term profit-seeking, needless tax breaks for the wealthy, and the clout of venture capitalists who increasingly determine when, where, and how business investment happens.

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Democrats are wasting a populist moment

By Justin H. Vassallo

A progressive trade policy would dramatically overhaul a system that has privileged non-productive investment and upward redistribution. It would rebuild the country’s industrial base and create opportunities in places starved of them. But in sharp contrast to the current administration, such a vision would aim to eliminate financial loopholes, stop the use of tax havens, and enforce the labor, health, environmental, and safety regulations whose absence would revert America to the harsh industrial conditions of the Gilded Age.

Apologists for the new trade war claim that the “one-time price adjustment” Trump is imposing will be soon offset by a rollback of business and environmental regulations, thereby creating more favorable conditions for new factory construction. Their argument rests on this basic equation: excessive regulations have made it even harder for domestic industry to compete with cheap imports, and the regulatory obstacles to new investment outweigh the impact of dramatically raising the cost of foreign inputs and semi-finished goods via tariffs.

Ironically, the “abundance liberals” most vehemently opposed to industrial protectionism tacitly agree with the Trump administration that the permitting process is in desperate need of reform if America is to build more housing, bolster energy independence, and make it easier to grow small and mid-size businesses. To be sure, there are cases of regulatory bottlenecks needlessly delaying or preventing large-scale projects that benefit working-class Americans. Yet it is the broader pattern of outsourcing, short-termism, financialization, and regional disinvestment in worker training — not, say, clean air and safety standards — that are most to blame for the fact that it is impossible to produce an array of tradable goods in America.

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In contrast to a plan which would sacrifice US labor and environmental standards, progressive trade policies would have real teeth when it comes to international standards. Fair-trade advocate Lori Wallach, now director of Rethink Trade, a new think tank, has long maintained that many Left-of-center global policies — carbon restrictions, barriers to trade dumping, and laws against forced labor — amount to targeted tariffs.

This is neither extreme nor a measure of last resort. Sensible tariffs can directly and indirectly buttress a host of standards and norms that Western societies take for granted, and that trade unions over several generations fought for. The goal of trade policy should be to accommodate the right of poorer countries to develop, without undercutting modern taboos against forced labor, servitude, and reckless extraction.

Here, though, would be another opportunity to draw a distinction with Trump’s short-sighted and isolationist tendencies. As opposed to a massive tariff wall, progressives could deploy a mix of carrots and sticks similar to those used to stoke domestic reinvestment. Routine bad actors on child labor, for example, would be excluded from favorable trade relations, and antitrust law could be conceivably wielded against companies that try to circumvent “social” or environmental tariffs. But the US government would also recommit to supporting state capacity, the rule of law, and humane working conditions in countries that aspire to surpass the “millennium development goals” enunciated by the United Nations at the turn of the century.

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That would entail reversing DOGE’s life-threatening cuts to international aid. Yet it would also ideally involve other measures to restore US credibility on the world stage. If America is to repair the damage this administration has already caused, a future progressive government needs to demonstrate unequivocal support for renewable energy abundance (very much including nuclear power), food security, and workers’ rights in developing regions.

In spirit and name, this would be a chance to repudiate the country’s past support for policies which constrained and sometimes crushed movements for economic democracy in the Global South. At the same time, a new progressive trade paradigm must readily eschew the elitism and policy incoherence that have tainted the environmental movement in the eyes of ordinary Americans and working and lower-middle classes across the Atlantic. Following years of austerity, workers need to be assured that a different trade regime combining national economic priorities and global standards will markedly improve their livelihoods and communities, not lower their sights further.

Harmonizing these domestic and international goals has often eluded the US government in the past. The accelerating fallout from Trump’s abysmal international posture promises to make it more difficult still. Progressives, however, have little choice but to recognize the full complexity of trade policy — and to develop solutions to the disappointments and betrayals that have led to this stunning rupture of the postwar order.

Nothing less than global peace, prosperity, and democracy depend on it.

The damage will not be limited to financial markets. Around half of all imports into the US homeland are used by American manufacturers as inputs to produce goods. By increasing the costs of production, Trump’s tariffs will reduce the competitiveness of US manufacturers. This will destroy manufacturing jobs, not promote them. Higher consumer prices from tariffs and trillions of dollars of wealth destruction will reduce consumer spending, threatening recession and rising unemployment. Uncertainty will freeze business investment, likely leading to layoffs. US manufacturing exporters will be hit hard by any foreign nations that choose to retaliate.

Some of the president’s closest advisers are true believers in protectionism and are likely surprised by the market’s reaction over the last three trading days. They may still believe that Trump’s policies will eventually produce beneficial results. They’re wrong.

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By Wolfgang Munchau

How can the president pivot? Three alternatives present themselves.

First, the president could declare victory. European Commission President Ursula von der Leyen offered Washington a “zero-for-zero” tariff scheme today. Trump could accept her offer. The Japanese leadership has likewise signaled a desire to reach an accommodation. Other nations would follow. Trump could herald himself as having successfully struck great deals for American workers and businesses while taking a step back from the ledge of economic self-harm.

Second, he could alter the calculations used to derive the tariff rates. Team Trump has published the formula it used to calculate reciprocal tariffs. That formula has parameters that need to be selected, and administration economists turned to the research literature for the best parameter values. But the co-author of one of the key papers on which those administration economists relied, Alberto Cavallo of Harvard Business School, correctly pointed out that the administration picked the wrong value from his paper.

“While the [US Trade Representative] tariff calculator cites [our] findings”, Cavallo wrote, “it is not entirely clear how they use our findings. Based on our research, the elasticity of import prices with respect to tariffs is closer to one. If that figure were used, instead of 0.25, the implied reciprocal tariffs would come out about four times smaller.”

This mistake has big implications: the reciprocal tariff rates that the administration calculated are four times are large as they would have been if administration economists had picked the correct parameter value from the paper.

My American Enterprise Institute colleagues Kevin Corinth and Stan Veuger calculated corrected reciprocal tariff rates, using the administration’s formula and the right parameter values. According to them, the administration should be applying 10 percent tariffs for imports from key allies, including Taiwan, South Korea, Japan, Israel, and the European Union. That is instead of the astronomical figures in the “Liberation Day” document that caused hearts to sink among political and business leaders the world over, and sent equity prices on a downward spiral.

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In response to this, the president could announce that the administration spent the weekend refining its calculations. He wouldn’t have to walk back his methods or even throw any staffers under the bus; he could simply announce the new rates.

Cards on the table: I support free trade, and I would like tariff rates to be much lower than the levels at which these calculations would leave them. But applying the formula correctly would be a good start. Subsequently, as more foreign leaders follow the example of von der Leyen in offering zero-for-zero, the president could lower tariff rates to zero.

Third, Trump could announce an immediate pause and follow up with a decision to roll trade policy changes into his plans for tax reform.

To avoid a massive tax hike this year, when key provisions of Trump’s signature 2017 cuts expire, Congress and the president must act. They could take this opportunity to overhaul the tax system by replacing the corporate income tax with a national consumption tax and a tax on business cash flows. By allowing the full expensing of business investment, this would accelerate productivity growth and raise the wages of working-class Americans.

Because some consumption goods are imported and some domestically produced goods are exported, such a tax would require a border-adjustment provision in which imports would be taxed and exports would not be.

This is not a tariff, but it sure resembles one. It would generate a lot of revenue. And unlike the administration’s current tariff policy, it would boost growth. The president could argue that this border adjustment satisfies his campaign promises and his goal to strike a better deal with other nations when it comes to international commerce.

I don’t see the problems with the economic situation of typical workers that the president sees. But even if I did, I would want to see Trump pivot from his current policy, because higher prices and more unemployment are bad for workers.

Trump has the opportunity to pivot. For the sake of the working class that sent him back to the Oval Office — and of the nation as a whole — I hope the president takes it. Some in the media, Left and Right, would no doubt crow. But there is greater heroism in reassessing a position in the face of evidence than in obstinacy.

Yet for all its claims to represent the future, this ephemeral economy is starting to unravel, as the world begins to wake up to the fundamental realities underlying daily life. It turns out that, while they may seem old-fashioned in today’s digital world, material goods actually matter when they are hard to procure. Over the past year, traditional industries such as manufacturing, agriculture and energy have thrived, while media companies have lost $500 billion in value and tech firms have suffered a reversal of an astounding $4 trillion. Today, it’s not steel companies or gas plants that are experiencing mass layoffs, but firms such as Goldman Sachs, Meta, Amazon and Google.

Indeed, after its decade-long bender, the progressive economy is about to wake up to a massive hangover. And its minions are getting restless. Companies such as Amazon and Starbucks — like their industrial predecessors during the Depression — face increased union militancy, an uncomfortable reality for long-time virtue-signallers such as Starbucks’s Howard Schultz, who has long portrayed himself as an enlightened model aristocrat. Discontent is even brewing in the media, with the New York Times now experiencing labour unrest. Across the board, a bitter truth is slowly coming into focus: skilful public relations no longer can make up for widening class distinctions.

Equally unsettling has been the incessant labour unrest at America’s universities. Amid mounting declines in enrolment, these lordly institutions have been exposed as exploitative, favouring a tenured faculty with rich pensions but offering little to severely underpaid adjuncts and teaching assistants, who now constitute the vast majority of the academic workforce. These are the folk now staging walkouts. The professoriate may see themselves as enlightened tools of right-on thinking, but to many others they seem like Stalin’s much maligned Kulaks, rich peasants thriving on the work of the poor.

Even the preferred geographic heart of the progressive economy — big, dense, expensive cities — is clearly fading. Today, most of those places dominated by progressives face mounting financial pressures, which are leading activists to demand higher taxes on the rich. With high-tech start-ups and high-wage jobs stagnating, in California, for example, a $100 billion state surplus is now widely expected to turn into a $25 billion deficit next year. Ultra-blue New York, Illinois, and Massachusetts also face potentially large, and expanding, shortfalls.

As these progressive economies unravel, we are likely to see greater conflict between their two bulwarks: the Leftist activists and ultra-rich oligarchs who have embraced causes as a part of their identity. This profoundly contradictory romance could soon explode, as calls for an expanding and intrusive welfare state — the prime goal of the modern Left — becomes increasingly unpalatable for the wealthy. In flush years, these oligarchs could afford elaborate welfare and climate policies to flourish, even at their considerable expense. But increasingly, particularly since the pandemic, wealthy individuals are bailing to low-cost places such as Florida. Elsewhere, governors such as New York’s Kathy Hochul and California’s Gavin Newsom may express worries about new tax-the-rich schemes, but they will soon have to face off with determined, increasingly radical elements in the Democratic Party more interested in promoting class warfare and “climate justice” than sustaining the local economy.

Of course, the root of this conflict is bipartisan. The rapid decline of Trumpism, and its transformation into a kind of weird cult, has ripped off the adhesive that united the ultra-rich, the militant activists and the party machine. Silicon Valley still retains its close ties to Democrats but the big money is shifting somewhat towards the GOP. Even long-time progressive funders such as Nike’s Phil Knight have had enough, and put $1 million behind the Republican candidate for Governor in Oregon.

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The pandemic has also played a critical role in this evolution, first boosting tech, real estate, and stock prices to historic highs — and then forcing interest rates to increase, as the pandemic eased and the cost of massive bailouts, supply chain issues and inflation became clear. Real estate prices, particularly in elite office districts, plummeted, while stocks lost their appeal. The market for digital products began to sag and, in the case of cryptocurrency, collapsed.

Crucially, inflation on food, energy and home prices hits traditional Democratic constituencies the hardest. It’s unsurprising that those most affected by shortages in the labour market are not graduates of Oberlin or other elite liberal colleges. Instead, the big demand, notes former California labour commissioner Michael Bernick, is for people who can drive a truck, construct a house, change beds, or perform nursing duties. Venture capitalist and AI entrepreneur Rony Abovitz suggests the future may be brighter for people who can install plumbing systems than those who perform tasks easily done by machine. “It’s the end of the white-collar knowledge work,” Abovitz told me. Instead, he predicts the coming years will be shaped more by the rise of the “sophisticated, technically capable blue-collar worker”.

A political programme that focused on increasing training in these fields might, therefore, seem reasonable. And yet today the usual progressive solution is to conjure solutions from above, such as rapid rises in minimum wages and extending welfare benefits, rent control and regulatory oversight of companies. All of which sounds nice on paper; the problem is that many blue states may soon no longer have the money to pay these freebies.

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After all, it is not just blue-collar industries that are moving away from the bluest states. Over the past five years, finance, business services, business management and even tech companies are shifting from New York, LA, Chicago and San Francisco to places such Austin, Dallas, Salt Lake and Raleigh-Durham. Worse, many of these businesses are joining the general population and much of the middle class in ditching progressive states for more conservative places such as Texas, Tennessee and Florida, which offer better opportunities and lower housing costs.

Whether the Democrats can stem this exodus will be decided by who dominates the progressive world over the next year. The moderate Democrats, some assert, did well in the midterms and certainly represent a larger group than the progressives. But ultimately, the party’s heart belongs to the favourites of the Left — Bernie Sanders, Alexandria Ocasio Cortez, as well as beloved losers such Stacey Abrams and Beto O’Rourke.

Yet perhaps the main problem the party faces is how to expand the welfare state without killing off its key sources of income. The prioritisation of progressive issues such as transgender bathrooms and reparations may swiftly seem outdated as the economy unravels, more people suffer, and widespread pessimism about the future grows. Elsewhere, too, other issues look set to further fracture this fragile progressive alliance — such as the relentless drive for an increasing number of draconian climate policies. Activists push for “climate justice” but are rightly discomforted by the reality that, for many of the ultra-wealthy, climate policies provide just another opportunity to enrich themselves by exploiting government subsidies for the “energy transition”. Meanwhile, working-class people, such as those in the automobile industry, face cuts in a China-dominated electric car industry, higher energy prices and the likely loss of jobs.

If this happens, it’s hard not to see how conflict won’t erupt. The long period of progressive success has relied on an alliance that is turning sour — and the upstairs/downstairs coalition, nurtured by Bill Clinton and Barack Obama, and amplified by a complacent media, now seems destined to endure an almost inevitable period of internecine conflict.