During last week’s formal events in London, President Donald Trump and Prime Minister Keir Starmer celebrated the trade deal they reached in May, presenting it as a renewed foundation for the “special relationship” between Washington and London. What they will not emphasize is that, beyond this specific agreement, the two nations are progressing in opposite directions concerning trade. While the United States continues to erect substantial tariff barriers, the U.K. — along with most of America’s primary trading partners — is actively working to dismantle them.
This does not imply that global trade is entirely dominated by free-trade principles. China persists in subsidizing surplus capacity, releasing significant volumes of manufactured goods into international markets. Supply chains have fragmented as calls for “near-shoring” bring vital components closer to their point of origin. Over the past decade, the World Bank has noted a considerable increase in regulations that restrict trade.
However, much like a river, global trade currents invariably circumvent obstacles. Following 2.9% growth last year, increasing uncertainty in trade policy might cause a minor reduction in overall trade volumes this year, according to the World Trade Organization (WTO). Yet, the WTO’s most recent forecast projects a recovery to 2.5% growth in 2026. Trade in services, which is less impacted by tariffs, could achieve around 4% growth this year and next.
The uncertainty, naturally, originates from Washington, where the Trump Administration’s agreements have so far boosted average U.S. tariffs to 3% from recent levels below 2%. This figure is likely to climb further once sectoral tariffs on pharmaceuticals or semiconductors are implemented.
U.S. business executives frequently voice concerns about trade policy that could shift with the next social media post, but the future is clearer than they may perceive. After decades of spearheading global initiatives to reduce tariff barriers, America’s new trajectory appears firmly established. Even a Supreme Court decision invalidating the president’s use of emergency powers to justify tariffs would probably only prompt him to employ similar measures under alternative legal frameworks to tackle unfair trading practices or threats to strategically vital industries. The political appeal of protectionism remains strong. And irrespective of any future president’s opinion of Trump, neither a Republican nor a Democrat will readily relinquish an estimated $3 trillion in additional revenues over the next decade, given the precarious state of federal finances.
The paradox is that, even as key trading partners have entered into Trump’s protectionist agreements, they still do not embrace the trade philosophy he advocates.
China and India responded to Trump’s tariffs with their own retaliatory measures, but most other nations have realized that tit-for-tat actions merely exacerbate price distortions. Indeed, a courageous few, including the E.U. and Japan, have even opted to accept so-called “reciprocal” tariffs on their exports to the U.S., while simultaneously cutting their own tariffs to zero on some U.S. imports. In one sense, they yielded to U.S. pressure. But they have also, in effect, provided their citizens with a tax reduction, without expanding their budget deficits.
Meanwhile, even if Trump’s protectionism has significantly hindered the WTO’s efforts to negotiate and uphold free trade regulations, individual member states clearly still recognize the benefits of lowering tariffs. The European Union, founded on principles of open markets, recently finalized an agreement with Indonesia that eliminates tariffs on 90% of imports. Discussions are ongoing with India, Australia, and Mercosur, which includes South American countries such as Brazil, Argentina, and Uruguay. Canada is engaged in free-trade negotiations with the Southeast Asian economies of ASEAN. Japan is negotiating with the Gulf states.
Awkwardly for Starmer this week, the U.K. signed a free trade agreement with India over the summer, shortly before Trump imposed punitive tariffs on Indian imports as retribution for its purchases of Russian oil. Even more awkwardly, British negotiators were the first non-Pacific country to join what was once the Trans-Pacific Partnership, which Trump abandoned as a catastrophe on his first day in office during his initial term.
Trump’s supporters contend that America needs drastic measures to restore the manufacturing jobs that were lost due to free trade. Other industrialized economies have experienced a decline in their manufacturing sectors in recent decades, but they appear to understand that a greater portion of those jobs were lost to automation rather than trade policy. They also seem to recognize that attempting to revert to pre-war protectionism is not the answer — and that free trade is an enduring reality.
If that holds true, it will prove exceedingly costly for America. And rectifying Trump’s errors will be more challenging than ever.
