"Trust in the U.S. Collapses Under Trumpism... Global Trade Moves Forward Without America" [Interview]

Harold James, Princeton University Professor
Inevitable Inflation and Supply Instability in the U.S.
Long Road to Restoring Trust Even If Free Trade Returns
Trump's Protectionism Marks a Turning Point for Global Trade
Global Trade Order to Be Reshaped Through International Cooperation and Openness
Expansion of Knowledge and Service Trade Expected

"The United States has lost its credibility. The world will attempt to continue trade even without the U.S. Trump's protectionism will not mark the end or suspension of globalization, but rather serve as a turning point that will reorganize the global trade order."

Harold James, professor of history and public and international affairs at Princeton University, is being interviewed via video call by Asia Economy on the topic of the trade policy of the Donald Trump administration. New York=Photo by Kwon Haeyoung

Harold James, professor of history and public and international affairs at Princeton University and a leading authority on global economic history and the international trade and financial order, shared this assessment of President Donald Trump's trade policy in a recent interview with Asia Economy.

Professor James stated, "Even within the U.S., it will soon be recognized that the adverse effects of tariffs are catastrophic. Policies that incur much greater costs than in the past will inevitably reach a dead end, making a fundamental reassessment unavoidable." He added, "Even if the U.S. returns to free trade, the political wounds will remain deep, and it will take a long time to restore trust in the international community."

He provided historical context for U.S. tariffs, noting, "In the 19th century, industrialization was achieved despite high tariffs, and in the 1930s, it was the financial crisis, rather than tariffs, that devastated the economy." He warned, "Today, with a high dependency on key resources such as rare earth elements, protectionism is being pursued on a much more fragile foundation than in the past."

He also predicted that President Trump's protectionism would actually encourage greater solidarity among countries other than the United States. "As the U.S. voluntarily steps back, other countries are recognizing the importance of trade even more acutely," he said. "There are emerging movements to establish a new trade order without the U.S. This will unfold not as a few giant blocs, but as a direction in which many countries cooperate and expand openness," he emphasized.

The following is a Q&A with Professor James.

-How do you assess the protectionist policies of the second Trump administration?

▲Protectionism was certainly present during Trump's first term, with the steel and aluminum tariff measures being prime examples. The succeeding administration of Joe Biden did not repeal these measures, making it appear as a kind of bipartisan consensus. However, in the second Trump administration, the tariffs announced on April 2, "Liberation Day," were far more extensive than expected. By late summer, extremely high tariffs were imposed on India, Switzerland, Brazil, and others, and tariffs are now being used as a tool of foreign policy. The world now faces a situation where it must endure higher trade barriers and greater uncertainty.

-What impact is expected on the U.S. economy?

▲Inflation and supply instability are inevitable. Unemployment will rise and the economy will contract, but at the same time, prices will also increase. In particular, the deportation of undocumented immigrants and large-scale detention measures are expected to drive up costs in agriculture, construction, and the service sector. The Federal Reserve will need to lower interest rates to counteract the economic downturn, but will face a dilemma as inflation will force it to consider raising rates instead.

-The Smoot-Hawley Tariff Act of the 1930s, which imposed an average tariff of 59% on more than 20,000 imported goods, worsened the Great Depression. What ripple effects could Trump's protectionism have on the global economy?

▲Tariffs alone will not plunge the global economy into recession. The 1930s and today are different. Back then, trade was closer to simple exchanges of raw materials, food, and manufactured goods. The Smoot-Hawley Tariff Act had an immediate impact on industries such as Japanese silk and Swiss watches, but the main factor that deepened the Great Depression was not tariffs, but the financial crisis. Similarly, today, greater risks could arise when trade tensions are combined with financial instability, rather than from trade tensions alone.

-The U.S. court has ruled tariffs imposed under the International Emergency Economic Powers Act (IEEPA) unlawful. What is your outlook for future rulings?

▲Tariffs are essentially taxes and thus fall under the authority of Congress. However, they are currently being implemented solely by presidential executive order. While the Supreme Court does have a number of justices appointed by Trump, depending on the ruling, Congress could regain its authority over trade policy.

-However, Trump still holds several other legal tools, known as 'Plan B.'

▲That is correct. The president can maintain tariffs on other legal grounds, such as national security provisions. However, by that time, the costs of tariffs will have become fully apparent. Up to now, retailers have mitigated the impact by securing inventory before tariffs took effect, importing Chinese products such as Christmas decorations, gifts, and toys in advance. However, starting next year, the situation will change, and price increases will be unavoidable.

-After Trump, will the U.S. be able to return to free trade?

▲Historically, the U.S. quickly learned from the failure of the Smoot-Hawley Tariff Act. The Franklin Roosevelt administration enacted the Reciprocal Trade Agreements Act in 1934 to shift toward openness. I believe that, as the recognition of the catastrophic effects of tariffs spreads rapidly this time as well, the U.S. will be able to return to free trade.

-With Trump's protectionism and the weakening of the World Trade Organization (WTO), how will the global trade order be reorganized in the medium to long term?

▲Since Trump's first term, the WTO's dispute settlement function has been weakened, and this trend has intensified in the second term. Nevertheless, the world will not stop. There is a growing movement to rebuild a new trade order without the U.S. Recently, Morocco, Rwanda, Malaysia, Costa Rica, Panama, Paraguay, and Norway have joined the Future Investment and Trade Partnership (FIT-P), led by Singapore and the United Arab Emirates. The European Union will also expand cooperation with major Asian countries. As the U.S. withdraws, other countries are recognizing the importance of trade even more acutely.

-Will new trade blocs be formed?

▲Yes, but not in the form of a few giant blocs as in the 1930s. Rather than a single bloc centered on China, India, or Europe, the reorganization will take the form of many countries cooperating flexibly and expanding openness. In that sense, this is also a hopeful phase. The U.S. is not large enough in this context to paralyze the global economy.

-As an economic historian, how do you assess and forecast Trump's protectionism in the context of globalization?

▲It is clearly a turning point. In particular, it will leave deep wounds in U.S. politics, and it will take time to recover from the aftermath of this turmoil. The United Kingdom is also bearing long-term costs after Brexit. Still, the world will move forward. Countries will pursue reshoring and diversification to reduce reliance on single sources, but complete self-sufficiency is impossible. Dependence on trade and international division of labor will continue, and technological advances will accelerate cross-border exchanges of services. While the trade of physical goods may decrease, trade in knowledge and services is likely to expand.

About Professor Harold James

Professor Harold James is a world-renowned historian in the fields of modern European history, international economic history, and financial history. He has conducted extensive research on modern German history, financial crises, and the development and limitations of globalization, and has served as the official historian of the International Monetary Fund (IMF). He received his master's and doctoral degrees from the University of Cambridge in the United Kingdom and has been teaching at Princeton University since 1986. He is currently a professor in the Department of History and the School of Public and International Affairs at Princeton University.