The tweet resonated round the world: US President Donald Trump to slap high tariffs on imported steel and aluminum—25 and 10 percent, respectively. While World Trade Organization (WTO) rules allow for a national-security exception, which the US government will likely cite, the United States created the international system and has benefited immensely from it for decades. Unsurprisingly, the international response has been swift and vigorous: every major player in international trade has threatened to retaliate if the US plan moves forward.
Despite all the overreaction that Trump’s tweet has elicited, however, the US plan needs to be put in context. This is not the first time the United States tries to make the international trade and financial system bend to its interests. The Nixon Shock of 1971 and Reagan’s protectionist policies, infamously directed against Japan, were instances when the United States decisively acted to protect its interests, with little concern to their effects internationally. The international trade system survived those challenges then; it will also survive Trump’s today.
If anything, the current episode suggests the extent to which the system remains centered on the United States: the fear is real that a US retreat could start unwinding the system. If purchase of the international trade system is truly strong and enduring, it should evolve with or without the United States. This said, real damage can result from those planned tariffs. This week’s first Spotlight article presents a sketch on how reaction to Trump’s tariffs could rattle the Indonesian economy. Due to its relatively low exposure to world trade, Indonesia will likely only have to manage second-order challenges from an adversely affected China and an unstable international trade system.
Our second Spotlight article, meanwhile, looks at the effects Trump’s tariffs can have on Southeast Asia as a region. The picture is substantially darker in this case, as both Trump’s tariffs and retaliations responding to them threaten to undercut the exports of countries like Singapore, Malaysia and Thailand. In turn, the weakening trade balance for these countries may sap the economic growth of neighboring countries that have deep economic ties with them. The challenge to the international trade system that Trump’s tariffs present is a systemic problem for Southeast Asia because it will have no alternative but the WTO.
Though coverage of international trade has normally highlighted China’s expanding role, the fact that a mere tweet—not yet an official government policy—can upset the system shows the United States’ central role in underwriting the system. There is a chance this wave of US discontent with international trade will pass, as it did under Nixon and Reagan. If the United States decides to opt out, however, what is stopping other countries from moving forward with strengthening international trade themselves?