In his second term, President-elect Donald Trump will be responsible for reshaping the United States’ economic engagement and leadership in the world, placing national security at its core. Today, national security and economic relations are inextricably linked. This necessitates a new paradigm for US international economic relations, with particular attention to which trading partners are allies, adversaries, and neutral states. The era of unconstrained global trade has come to an end, and the world is entering a new, more geopolitically stratified economic landscape. This development does not herald an end of global trade—total trade may well continue to grow as a greater number of emerging economies integrate into the global economy—but it will likely shape trade in a different direction than before.
In this new economic era, the United States has a massive stake in the resilience of economic alliances among like-minded nations—similar to security blocs—which will play a pivotal role in determining the national prosperity and security of all involved. The combined economic weight of the United States, the European Union (EU), Japan, and the United Kingdom exceeds half of global gross domestic product, dwarfing that of the China-Russia-Iran-North Korea axis. When combined with the United States’ Indo-Pacific partners such as India and Australia, this advantage grows even more pronounced. To capitalize on these advantages, the United States should foster economic alliances by deepening sector-specific agreements, closely coordinating financial markets, co-developing rules and standards for future technologies, and bolstering joint efforts to strengthen trade ties with Global South countries.
The end of an era
National security concerns are already prompting the United States and its allies to adopt industrial policies aimed at safeguarding critical sectors. The United States and China are engaging in export controls on each other’s markets. The World Trade Organization’s inability to curb China’s mercantilist practices and market distortions, which affect economies worldwide, diminishes its relevance in guiding global trade. This shift marks the end of the era of unconstrained globalization that drove the global economy over the past four decades. At the height of that era, financial markets and multinational corporations, which benefitted from relocating production to low-cost regions, prospered immensely. Yet, their success was often accompanied by significant economic displacement in the United States’ domestic economic landscape—a problem neglected by both public- and private-sector leaders.
Most notably, US and European industries focused on expanding markets and supply chains in countries that have since emerged as major adversarial powers, such as China and Russia. This vulnerability was especially evident in Europe’s energy dependence on Russia and the West’s reliance on China for key manufactured goods, critical minerals, and markets. However, this era is ending, and how the United States and its allies shift the direction of their trade policies will be highly consequential. For his part, Trump has long been vocal about both the costs of economic displacement from unconstrained globalization and the danger of imprudent reliance on adversaries for critical economic sectors such as energy.
How the US can lead in the era of economic alliances
As the age of unconstrained globalization comes to a close, the United States and its allies risk entering a period of discordant industrial policies, inflation, and protectionism. Past waves of reactive protectionism and shortsighted industrial policies, such as the Smoot-Hawley tariffs in the United States and their corollary in Europe during the interwar period, resulted in economic decline and political instability. For the United States and like-minded nations, prioritizing pragmatism and shared interests over political expediency and opportunism would help shape economic realities to the collective benefit. Times call for deft US leadership and coordination.
As the global economy becomes more stratified along geopolitical lines, economic exchanges may come to fall into three broad categories. First, the United States and its allies may seek to fully decouple from China in high-performance semiconductors and advanced technologies. Second, they may de-risk critical industries to reduce dependency on China, especially in sectors like electric vehicles, critical minerals, batteries, and clean technologies. Third, general trade in nonstrategic goods, such as consumer products, could continue largely as before.
Common sense, national interests, and realism call for Washington to work closely with the EU, the United Kingdom, and Japan to shape this stratified global economy to shared benefit. This will require collaboration in areas suitable for decoupling and de-risking from Chinese mercantilism, along with alignment on tariffs, targeted industrial policies, intellectual property, and digital economy and advanced technology standards.
Sector-specific agreements among the United States, the EU, the United Kingdom, and Japan—covering areas such as semiconductors, critical minerals, pharmaceuticals, artificial intelligence, and defense production—hold great promise to bolster economic security. Early initiatives, such as the US-Europe Secure Supply Chains Working Group, the AUKUS (Australia-United Kingdom-United States) defense production partnership, and the proposed EU-US Critical Minerals Agreement, are steps in this direction. However, more robust sector-specific commitments are warranted. Similarly, closer coordination of financial markets among the United States, the EU, the United Kingdom, and Japan, with additional input from India, could channel capital to trusted economies, denying adversaries the same advantages.
A unified economic strategy by the United States and its allies is better positioned to effectively address the economic aspirations of the Global South. The United States and its allies must prioritize coordinated efforts at greater economic integration with African countries in particular. In the absence of heightened coordination, individual actions by these allies may not be sufficient to counter China’s role as the primary trading partner for more than 120 countries, many of which are in the Global South.
A stratified global economy demands a renewed commitment to longstanding alliances with demonstrable collective benefits. This new era calls for greater US-EU-Japanese-UK economic coordination, leaving an open door for India when it is ready to join. The China-Russia-Iran-North Korea axis has thus far shown greater resolve in challenging US-led alliances. The United States is fortunate to have robust allies in the EU, Japan, the United Kingdom, and Australia, among others, and should leverage these partnerships to their fullest potential. Allowing intra-allied competition to dilute or undercut solidarity against common adversaries would be imprudent.
The moment calls for US leadership in building a robust and realist coalition of economic partners to counter a determined China and its allies. There will surely be turbulence ahead, but Trump’s deal-making instincts present an opportunity for the United States to lead in the era of economic alliances. There’s no better way to fulfil his pledge to “make America great again” than by doubling down on the overwhelming natural advantages the United States and its allies enjoy over adversaries such as China and Russia.
Kaush Arha is the president of the Free & Open Indo-Pacific Forum and a nonresident senior fellow at the Atlantic Council’s Global China Hub and the Krach Institute for Tech Diplomacy at Purdue.
Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.
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Image: Flags of member countries of the European Council at the 50th G7 summit in Brindisi, Apulia, region of Italy on June 13, 2024. EYEPRESS via Reuters Connect.