A Results-Based Order

In a recent essay for Foreign Affairs, Oren Cass states that “[t]he hallmark of U.S. strategy during hegemony was the unconditionality of its vision, providing benefits to other countries regardless of how they exploited the arrangement.”¹Oren Cass, “A Grand Strategy of Reciprocity: How to Build an Economic and Security Order That Works for America,” Foreign Affairs, November/December 2025. Such a system may have once served U.S. geopolitical goals when its allies were down after World War II and in the face of an existential enemy during the Cold War, but the United States can no longer sustain—nor should it tolerate—such an order. 

As U.S. leaders seek to recenter U.S. policy on national interests rather than maintaining an international system that no longer provides reciprocal benefits, they must reorient trade relations to achieve the principal goal of balance. The question for policymakers is how best to do it while setting reasonable and coherent goals for U.S. trade partners. The answer is to establish a new trade bloc based on two principles: balanced trade and reciprocal obligations among its members, and the exclusion of non-market economies like China. 

Policymakers should seek to establish this new bloc through executive, legislative, and diplomatic means. The executive branch should spearhead this effort, utilizing the authority progressively delegated by Congress since 1934 to set tariffs, enforce trade laws, and negotiate new agreements. Congress should codify these policies wherever possible to ensure their durability beyond election cycles. U.S. diplomats should coordinate with allies to establish a new trade bloc based on shared rules and reciprocal enforcement. 

The new framework will have to redefine the nature of reciprocal trade relations. Where the “most favored nations” (MFN) approach attempted to set uniform tariff rates and trade rules unconditionally across U.S. trading partners and expected fair trade to follow, the new framework would recognize balance as the necessary outcome for fair trade and adjust tariff levels to achieve it. Persistent imbalances under the WTO system have demonstrated the impracticality of specifically addressing every distortive economic policy enacted by the world’s vastly different countries, especially given the multitude of policies beyond tariffs that distort trade. The new balanced-centered trading bloc should extend MFN rates to each other, but on a conditional basis, contingent upon mutual enforcement of balanced trade against nations that run persistent surpluses, regardless of the policies or trade conditions driving those imbalances. 

By basing trade among new U.S.-led bloc countries on the principle of balance, the new bloc would replace a complicated and ineffective set of rules with a single principle centered on actual trade results, effectively restoring an adjustment mechanism previously ensured by international gold standards. Relying on a broader notion of balance ensures that the net effect of distortions is borne by the countries that adopt them, rather than their trading partners. Under such a system, participating countries with widely varying economic and political constraints would have greater flexibility in adapting their policies to achieve balance, including through voluntary export restraints and quotas. 

This strategy will require new trade agreements that maintain predictability, foster cooperation among aligned nations, and ensure accountability for fair market practices and the mutual exclusion of bad actors outside the bloc. Such an approach offers a coherent middle path between unpredictable unilateralism and the unaccountable, global multilateralism of the WTO. By coordinating tariffs, investment rules, and enforcement mechanisms on nations outside of the bloc, participating members could neutralize Chinese overcapacity, close transshipment loopholes, secure supply chains, and lay the foundation for a genuinely stable global economy. In leading this shift, the United States would not withdraw from global commerce but redefine it on fairer, reciprocal, and more balanced terms. 

More immediately, U.S. officials should maintain a global minimum tariff, standardize reciprocal tariffs to reflect a nation’s willingness to assume the commitments of the new trading bloc, and use sectoral tariffs to address persistent supply chain vulnerabilities. Stricter rules of origin and labor standards should be used to prevent tariff evasion by non-allied nations. On the capital side, there should be stronger restrictions on both inbound and outbound investments, as well as the introduction of new tools to stabilize currency exchange rates. These policies will create greater incentives for companies to invest in production, infrastructure, and workforce development in the United States, re-anchoring U.S. economic strategy in productive output rather than debt-fueled consumption and asset inflation.

Building a New Trade Bloc

The persistent rise in the U.S. trade deficit, despite increased tariffs on China since 2018, has made evident the need for broader tariffs. China has effectively avoided U.S. tariffs through four means: 1) shipping goods under $800 as individual packages to qualify for U.S. de minimis treatment;²De minimis treatment was revoked for China by executive order in April, all other trading partners by executive order in August 2025, and in law for all trading partners under the One Big Beautiful Bill Act starting in 2027. 2) transshipping goods (both legally and illegally) through third countries; 3) setting up additional factories in nations like Mexico with more favorable U.S. trade and tariff conditions; and 4) further weakening its currency against the dollar.³“U.S. Dollar/Yuan Exchange Rate Historical Chart,” MacroTrends, accessed November 25, 2025. As a result, China’s exports have grown 33% since the end of 2022, while its imports have flatlined.⁴Jason Douglas and Clarence Leong, “Trade With China Is Becoming a One‑Way Street,” Wall Street Journal, June 14, 2025.

Because world trade markets remain heavily integrated with China, the United States must take a global approach to addressing its trade imbalance. While the U.S. bilateral trade deficit with China has decreased, many U.S. trading partners now run significantly higher deficits with China, and the United States higher deficits with those nations. The United States can no longer absorb other countries’ trade deficits with surplus nations like China.⁵Alan Tonelson, “What’s Left of Our Economy: A Grand Inter-Allied Bargain Against China May Finally Be Within Reach,” RealityChek, June 20, 2025. If nations continue to trade with non-market nations outside of the new trading bloc, they should expect to face higher tariffs from the United States if they run a trade surplus. The United States should use reciprocal tariff negotiations to encourage⁶CNBC, “Treasury Chief Urges Canada, Mexico to Match U.S. Tariffs on China as Deadline Looms,” March 1, 2025. allied economies to limit Chinese imports⁷Demetri Sevastopulo, “Justin Trudeau Says Canada Will Impose Steep Tariffs on Chinese EVs and Steel,” Financial Times, August 26, 2024. and exert further pressure on China to end its mercantilist policies and increase its consumption share of GDP. 

The goal of tariffs under the new regime should be to correct imbalances, stop the further erosion of U.S. industry, and spur greater investment in U.S. production to recover sectors previously offshored. Within a new bloc, balanced trade could also be ensured through voluntary export restraints or quotas, similar to those agreed to by Japan⁸Wells King and Dan Vaughn, Jr., “The Import Quota That Remade the Auto Industry,” American Compass, September 29, 2022. in the automotive sector in the 1980s, or greater foreign investment⁹“TRUMP EFFECT: A Running List of New U.S. Investment in President Trump’s Second Term,” The White House, August 15, 2025. in production capacity in the United States. The United States could also increase demand for U.S. exports by encouraging its trading partners to appreciate their currencies against the dollar, as was done with the Plaza Accords, or by implementing stronger capital controls as discussed below.

These measures should be aimed at correcting, not fostering, mercantilist export-driven models of surplus nations that have generated imbalances in the first place. As Oren Cass has pointed out, “We do not try to run trade surpluses at the expense of other countries, and if we did they would scream bloody murder… We have already begun efforts to decouple from China and certainly would not ask other countries to go any faster than we go.”¹⁰Oren Cass, “America’s Three Demands,” Understanding America, March 31, 2025. In short, the United States would not be asking other countries to make changes or face disruptions that the United States will not face itself, nor hold them to a higher standard than balance. The goal should not be to replace America’s deficit economy with an equally distortive surplus economy like China’s, but to eliminate distortions across economies so investment tracks truly efficient and beneficial outcomes for all countries in the balanced trade bloc. Under such a system, “comparative advantage” might be able to work the miracles it is meant to.

The economic risks of decoupling from non-market economies and balancing trade with other U.S. trade partners are manageable and will ultimately benefit the nations concerned, especially those economies now¹¹Katia Dmitrieva, Philip Heijmans, and Prima Wirayani, “Trump’s Tariffs Send Fresh Wave of Chinese Goods to Global Markets,” Bloomberg Businessweek, March 19, 2025. facing similar threats¹²Sander Tordoir and Brad Setser, “How German Industry Can Survive the Second China Shock,” Centre for European Reform,” Centre for European Reform, January 16, 2025. from China’s state-driven industrial economy. As U.S. demand for Chinese goods declines due to higher tariffs, China will continue to seek alternative markets for its surfeit of goods. This influx of Chinese goods into U.S. trading partners’ markets will subject those markets to the same disruptions the U.S. is now seeking to remedy, making this new paradigm more attractive. This will ultimately benefit current surplus nations, such as Germany and Japan, which face their own economic challenges. Often, countries that run surpluses face weak domestic demand, which slows growth and can lead to political backlash. It can also mean inefficient investments that cause their own bubbles and fail to generate broader prosperity. The collapse of China’s property sector and its ballooning domestic debt-to-GDP ratio are illustrative examples. 

It will remain important for the United States to keep balance in view under a bilateral approach. While past bilateral trade deals, such as the “Phase One Agreement” with China, sought to increase U.S. commodity exports, this is not a surefire way to balance trade. Commodity purchases are fungible, meaning a nation can substitute agreed-upon commodity purchases for alternative U.S. imports.¹³Michael McNair, Quarterly Investment Handout, Retirement Systems of Alabama, February 25 2020. Alternatively, the U.S. might sell fewer of those commodities to other countries due to supply constraints or increase prices as demand rises. For example, when China retaliated against U.S. tariffs in 2018 by purchasing fewer U.S. soybeans, it increased its imports from Brazil, which in turn sold fewer to Europe, causing Europe to buy more from the United States.¹⁴Michael McNair (@michaeljmcnair), “From my 2020 paper: ‘China buying more oil or soybeans from the US does not allow the US to increase the production of oil or soybeans. US production is dependent on the aggregate level of Chinese purchases and not the geographic mix of those purchases,’” X, May 2, 2025. Changes in commodity prices can temporarily influence markets and alter bilateral trade imbalances, but they don’t guarantee long-term shifts in overall trade balances. Because global markets are now highly integrated, surplus nations must correct their overall trade surplus by increasing overall domestic demand if deficit nations are to see permanent relief.¹⁵Michael Pettis (@michaelxpettis), “Maroš Šefčovič, the EU’s trade commissioner: ‘If what we are looking at as a problem in the deficit is €50bn, we can solve this problem very quickly through LNG purchases, through some agricultural products like soyabeans, or other areas,’” X, May 2, 2025.

Tools for a New Trade Bloc

A Global Baseline and Reciprocal Tariffs

As of November 2025, the United States is maintaining a minimum 10% tariff across its trading partners, excluding goods that qualify for free trade treatment under the USMCA agreement, to counter persistent trade imbalances. As recommended in previous proposals by American Compass, such a tariff should be codified into law by Congress to establish a more permanent higher tariff baseline until U.S. trade is balanced.¹⁶The Balancing Act, American Compass, March 23, 2022. This would continue to generate revenue for the United States while preventing goods from third nations from entering tariff-free. The BUILT USA Act,¹⁷H.R. 505, 119th Cong. (2025–2026): To impose additional duties on imports of goods into the United States, Congress.gov, introduced January 16, 2025. reintroduced this Congress, aims to implement such a proposal, which the CBO estimates¹⁸Philip Swagel, The Tariffs’ Effects on the U.S. Economy, Congressional Budget Office, December 18, 2024. could generate over $2.2 trillion in revenue over ten years.

While this is unlikely to fix the trade deficit on its own at a 10% baseline, a higher global tariff would punish some U.S. trading partners for the abuses of others, much like the previous low MFN rates benefited both market and non-market economies. For this reason, the United States should pursue higher bilateral tariffs on a country-by-country basis, in addition to the global baseline. Because they are more complicated and less predictable than a global tariff, bilateral tariffs should primarily serve as leverage for the United States to get its trading partners to lower tariff and non-tariff barriers on U.S. goods and place higher tariffs and barriers on surplus and nonmarket economies. U.S. trade partners who agree to these terms and maintain balanced trade with the United States should enjoy the global minimum rate, and potentially lower rates when strategically advantageous. Once a balanced trade bloc is more established, countries could also be offered less stringent corrective mechanisms for general and strategic sectoral imbalances, such as voluntary export restraints or quotas. This would allow trading bloc partners to correct trade imbalances on simpler and friendlier terms than raising tariff rates.

Beyond bilateral tariffs used for negotiations, a permanent higher tariff should be imposed on China. China is currently the primary driver of global trade imbalances, running a trade surplus that largely mirrors the U.S. deficit, and the United States is unacceptably dependent on China across numerous critical supply chains. American Compass proposes a default rate of 25% on Chinese goods and 100% rate on strategic goods in its larger report, “Disfavored Nation.”¹⁹Mark DiPlacido, Chris Griswold, and Trevor Jones, “Disfavored Nation,” American Compass, October 1, 2024. Legislation to this effect has also been sponsored in the House²⁰“Moolenaar Introduces First Bipartisan Bill to Revoke China’s Permanent Normal Trade Relations,” press release, House Select Committee on the Chinese Communist Party, January 23, 2025. and the Senate.²¹“Cotton Reintroduces Legislation to End Permanent Normal Trade Relations with China,” press release, Senator Tom Cotton, January 23, 2025. Countries currently facing higher U.S. bilateral tariffs due to persistent deficits, non-market practices, or an unwillingness to increase tariffs and trade barriers on goods from other non-market economies should expect their tariff rates to eventually reach parity with China’s if U.S. trade terms are not met.

Sectoral Tariffs

In addition to baseline tariffs, the United States should seek to protect industries that are key to its national security. As of November 2025, since the first Trump administration the United States has launched Section 232 national security investigations into steel, aluminum, automobiles and auto parts, uranium, titanium sponges, transformers and transformer components, vanadium, certain rare earth elements, copper, timber and lumber, semiconductors and semiconductor manufacturing equipment, pharmaceuticals and their ingredients, trucks, processed critical minerals and derivative products, commercial aircraft and jet engines, polysilicon, drones, wind turbines, robotics and industrial machinery, and personal protective and medical equipment.²²“Section 232 Investigations,” Bureau of Industry and Security, U.S. Department of Commerce, accessed November 25, 2025. The Office of the U.S. Trade Representative (USTR) is also investigating China’s targeting of the semiconductor industry and maritime, logistics, and shipbuilding sectors for global market dominance under Section 301.²³“Section 301 Investigations,” Office of the United States Trade Representative, accessed November 25, 2025.

As the United States forms a new trade bloc, it should balance the goals of maintaining viable domestic industries in sectors key to national security with building balanced supply chains with allies and fair trading partners. Exempting certain trading partners from Section 232 tariffs may serve the strategic goal of quickly securing supply chains, but building on American shores remains preferable for all industries essential to national security. These sectoral tariffs should be further supported by a wider set of industrial policies, including the establishment of an industrial development bank to scale new production capacity.²⁴Chris Griswold, “Not By Tariff Alone,” Commonplace, May 2, 2025. Trading partners’ efforts to maintain industries vital to their own national security should also be anticipated and respected, consistent with past trade agreements, including Article XXI of the General Agreement on Tariffs and Trade.²⁵“Article XXI (Security Exceptions),” in GATT Analytical Index: Guide to GATT Law and Practice, World Trade Organization.

Rules of Origin and Labor Standards

Under current trade rules, goods are tariffed based on the last country in which they undergo a substantial transformation. This means much of the content and components that go into a finished good can still come from third countries that distort their markets. Because tariffs are currently based on where production happens, the current tariff regime also does little to counter cases where such countries build and subsidize production facilities in third countries. 

Trade partners in good standing with the United States should be expected to implement similar reciprocal trade policies with their own trade partners, ensuring that no nation within the bloc can accrue significant surpluses at the expense of its trading partners. Rather than determining tariff rates based on the last substantial transformation made to a final good, countries in a new balanced trading bloc should have higher intra-bloc content requirements for strategic goods, similar to the “Regional Value Content” outlined in Section 7 of the USMCA.²⁶“19 C.F.R. Part 182 — United States‑Mexico‑Canada Agreement,” U.S. Customs and Border Protection, Code of Federal Regulations. Goods that fail to meet these requirements should face significantly higher tariff rates. Maintaining higher rates on goods that don’t comply with these content requirements will create greater incentives for nations in the new trading bloc to ensure content from non-market economies is kept out of allied supply chains. Additionally, the United States could consider rebating or exempting tariffs on U.S. content in final goods from trade partners to encourage greater integration of the allied supply chains.²⁷For example, the United States has exempted U.S. content of USMCA-compliant automobiles, trucks, and buses from Section 232 tariffs.

Countries in the new trading bloc should also partner to enforce stronger protections against transshipments from third countries outside the bloc, including by standardizing customs and border enforcement procedures and protocols, and by mutually enforcing penalties against determined trade abuses and dumping. In the case of China, which massively subsidizes its major manufacturers, nations should also screen incoming investments to prevent Chinese companies from owning or operating production facilities within their borders. Legislation such as the Axing Nonmarket Tariff Evasion (ANTE) Act, sponsored by Sen. Jim Banks and Rep. Jodey Arrington, would allow USTR to investigate investments made by a country subject to Section 301 tariffs into a third country and to impose additional tariffs on products resulting from those investments.²⁸“Arrington Introduces Legislation to Counter Nonmarket Tariff Evasion,” press release, Office of Congressman Jodey Arrington, May 23, 2025. The Leveling the Playing Field 2.0 Act, sponsored by Sens. Todd Young and Tina Smith, would similarly allow the Department of Commerce to circumvent evasion of anti-dumping and countervailing (AD/CV) duties by expediting investigation timelines, expanding criteria for consideration, and allowing Commerce to extend AD/CV duties to investments by offending countries into third countries.²⁹“Young, Smith Introduce Legislation to Strengthen Trade Laws, Protect American Workers,” press release, Office of Senator Todd Young, February 24, 2025.

In addition to greater enforcement of customs rules, the United States should insist on more vigorous enforcement of labor rights and standards, including through utilizing rapid-response mechanisms similar to those outlined in the USMCA. More trade agreements could also replicate the USMCA’s wage minimums in specific industries to maintain U.S. competitiveness. Trade agreements among bloc members should also mutually enforce prohibitions against imports produced by forced labor.³⁰The language included in Article 2.9 of the “Agreement Between the United States of America and Malaysia on Reciprocal Trade” is a promising baseline. These provisions would put upward pressure on consumption as a share of GDP in surplus nations, ensuring that economic growth is shared across a wider swath of the population. This would benefit workers across trading partners, as nations that suppress wages are excluded from more world markets.³¹Some economists and many commentators will then conflate “cheap labor” with comparative advantage, which ignores a more fundamental question about wage distribution in surplus countries. If the government or owners of capital in such countries keep more of the profits to either purchase foreign assets or expand production beyond demand to the point of unprofitability—as is the case in China—it is not an “efficient” use of capital. For more, see American Compass essay, “Mutual Disadvantage.”

Two Methods for Balancing Capital Flows

The United States’ willingness to accept imbalanced foreign capital inflows helps fuel the U.S. trade deficit and erodes its net foreign asset position, drawing foreign investors toward U.S. dollar-denominated assets rather than U.S. goods and services. A free-floating dollar further enables foreign nations to devalue their currencies, making their exports more competitive in the United States and U.S. imports less competitive in their domestic markets. Definitionally, as a matter of balance of payments, balanced trade will require balanced capital flows. The United States has a few options for achieving that, including a market access charge (MAC)³²“Implement a Market‑Access Charge,” American Compass, February 11, 2025. or a new international currency agreement, already referred to by some as a “Mar-A-Lago Accord” (MALA).³³Julius Krein, “What a Mar‑a‑Lago Accord Can and Cannot Do,” The American Conservative, April 7, 2025. Regardless of approach, a new trade bloc should return to the pre-1970s norm of seeking to better align monetary and trade policy and prevent an artificially strong dollar from adversely affecting U.S. exports and advantaging foreign imports.

The Market Access Charge

Excess demand for U.S. assets can be addressed by imposing a charge on acquiring those assets. A market access charge would ideally start at a 50-basis-point charge on all capital inflows into the United States economy. This would adjust, similar to an adjustable global tariff, until the U.S. trade deficit is brought into balance. Senators Tammy Baldwin and Josh Hawley have sponsored³⁴S. 2357, “Competitive Dollar for Jobs and Prosperity Act,” 116th Cong. (2019‑20). legislation offering such a proposal.³⁵Jeff Ferry, “Baldwin‑Hawley Act Would Fix Overvalued U.S. Currency Problem,” Coalition for a Prosperous America, September 5, 2019.

This policy has a similar advantage to a global tariff in being predictable and straightforward. It would also initially be paid by foreign governments and banks, and its incidence would fall more on U.S. asset holders rather than U.S. consumers and importers. Implementing a MAC alongside tariffs could therefore help better spread the incidence of the trade adjustment across wealth tied to both income and assets, while ensuring incentives for balance are working on both sides of the balance of payments.

The policy is also not entirely without precedent. The United States withheld 30% of most non-residents’ investment returns until 1984.³⁶Lawrence H. Goulder, “Implications of Introducing U.S. Withholding Taxes on Foreigners’ Interest Income,” in Tax Policy and the Economy: Volume 4, ed. Lawrence H. Summers (Cambridge, MA: MIT Press, 1990), 103–142. Now, returns on most investments by foreign entities are exempt from U.S. taxes or are subject to lower rates than those applied to returns from investments by U.S. citizens. A market access charge would be a step towards regaining a more sensible posture towards foreign capital flows.³⁷Raising taxes on foreign returns would function similarly to a MAC by effectively increasing charges on foreign capital flows, but it may not be as broad-based or as easy to adjust.

Like the global tariff, this charge would be levied universally. To better target the charge at nations engaging in predatory investment, such as China, the United States could impose further purchase restrictions, asset quotas, or requirements on specific trading partners. For example, legislation has already been proposed to prevent Chinese entities from purchasing U.S. real estate and other sensitive assets. Alternatively, the United States could revisit its tax treaties with individual nations, creating additional leverage alongside the Trump administration’s reciprocal tariffs to build a new balanced trade coalition.³⁸Michael McNair, “Of Trade and Capital: A Tale of Two Strategies,” Commonplace, June 11, 2025. The United States should also champion reciprocity on the capital flow side: nations with capital controls should expect to face similar controls in the United States. 

Policy designers might also choose to exempt or apply lower rates to foreign capital flows directed toward genuine greenfield investment on U.S. soil, while maintaining the full charge on other incoming capital.³⁹Michael Pettis, “Trade Deficit Could Be Reduced Under Baldwin‑Hawley Senate Bill,” Bloomberg Opinion, August 1, 2019. This would channel more capital into healthy and sustainable investments rather than investments that further inflate existing assets. If foreign capital inflows are indeed fueling asset bubbles as they have in the past, the charge would ensure greater long-term economic stability.

Facing lower after-tax returns on U.S. asset purchases, surplus countries would face greater incentives to purchase U.S. goods and services instead, thereby encouraging more balanced trade. Increased foreign demand would also yield real increases in corporate earnings and U.S. income, which would increase stock prices by virtue of better corporate performance and U.S. investment rather than speculative valuations and foreign net asset accumulation.”⁴⁰For a more thorough discussion of why a sell-off of U.S. bonds might not be as devastating as some predict, see Michael McNair’s essay on the major foreign selloff of U.S. bonds at the beginning of World War I. In short, he argues, “When European nations liquidated U.S. securities equivalent to 15% of GDP during the 1914 crisis, markets initially declined. Yet within two years, the Dow was up 40%, and earnings were up 150% from pre-crisis levels. Why? Because the dollars previously channeled directly into financial markets first passed through the real economy, supporting stock valuations through dramatically improved corporate earnings rather than merely increased buying pressure. When foreigners stopped buying financial assets and instead purchased U.S. goods and services, these dollars increased American incomes and stimulated a manufacturing boom. This boom created a virtuous cycle: rising corporate profits improved market fundamentals, while higher domestic incomes gave Americans greater capacity to invest domestically.”

A New International Monetary Agreement

Secondly, the United States could pursue a new international monetary agreement, or “Mar-A-Lago Accords” (MALA). Such an agreement would seek to preserve the dollar as the world’s reserve currency while better managing its value to correct unsustainable imbalances. The MALA could require nations within a new balanced trading bloc to gradually adjust their currencies over time until trade is brought into balance, in exchange for lower tariffs and continued access to the U.S. market. To strengthen the dollar, this could be accomplished by swapping short-term bonds for long-term bonds (e.g., century bonds), which would put less immediate upward pressure on the dollar while preserving its integrity in foreign markets.⁴¹If necessary, the Federal Reserve could intervene to prevent instability in the short-term bond market in the event of a selloff. Alternatively, countries could agree to sell more of their currencies to the United States, increasing their supply and circulation relative to the dollar and driving up their relative values.

Rather than repeating the temporary, ad hoc approach of the Plaza Accords, the MALA should seek a more permanent arrangement. Parties to the MALA could agree to mutually enforce penalties on surplus and deficit nations through tariffs or fees on capital flows, directly targeting trade imbalances. In exchange, the United States should ensure the currencies under the new alliance smoothly transition to the new balanced system, especially emerging markets that might face greater instability if, for example, the renminbi rapidly appreciates. 

Weighing the Risks

Ongoing tensions between the United States and China and the potential for the proposed trade coalition to create a new bifurcated global trade system raise the obvious question: Could the United States really manage to complete a hard break from China? Would other U.S. trading partners be able to exert enough pressure on the United States to maintain the current system? 

Trade in goods and services is equivalent to about 25% of U.S. GDP, compared to a global average of 59%.⁴²“Imports of Goods and Services (% of GDP),” World Bank, accessed November 25, 2025. Consistent with the United States’ wide deficit, imports⁴³“U.S. International Trade in Goods and Services, December and Annual 2024,” U.S. Bureau of Economic Analysis, February 5, 2025. are equivalent to 14% of GDP,⁴⁴“United States — Gross Domestic Product (GDP),” Trading Economics, accessed November 25, 2025. while exports account for 11% of U.S. GDP.⁴⁵Imports are not counted toward a nation’s gross domestic product. China accounted for approximately 13% of all U.S. imports in 2024, meaning imports from China are equivalent to around 2% of U.S. GDP. Calculated in dollars, Chinese imports were around $439 billion in 2024, while U.S. GDP was $29.35 trillion. U.S. exports to China totaled around $184 billion last year, accounting for only 7% of U.S. exports and 0.62% of U.S. GDP.

China’s GDP is roughly $19 trillion. The United States consumes one-fifth (21%) of China’s exports, which comprised 19% of China’s GDP in 2024.⁴⁶Lingling Wei and Raffaele Huang, “Beijing Doesn’t Want America to See Its Trade‑War Pain,” Wall Street Journal, April 30, 2025. This means that U.S. consumption accounts for roughly 4% of China’s GDP—nearly 6.5 times as high as Chinese consumption’s effect on U.S. GDP. Goldman Sachs estimates that between 10 million and 20 million jobs in Chinese factories are directly tied to meeting U.S. demand, and China’s unemployment rate was already around 10% before the current administration imposed additional tariffs.⁴⁷Hannah Miao, “Goldman Lowers China GDP Forecast, Citing Tariffs,” Wall Street Journal, April 10, 2025.​​ Chinese economist Lu Ting also estimated that Trump’s tariffs could cost China upwards of 15.8 million jobs.⁴⁸Wei and Huang, “Beijing Doesn’t Want America.” In 2020, former Chinese Premier Li Keqiang estimated that total foreign trade directly or indirectly accounted for over 180 million jobs in China.⁴⁹Ibid.

China’s investments are also losing effectiveness as greater production levels require increasingly higher government spending.⁵⁰Mark A. DiPlacido, “Mutual Disadvantage,” American Compass, September 24, 2025. In an effort to maintain 5% annual growth, China has now increased its total non-financial debt-to-GDP ratio to over 300%.⁵¹Herbert Poenisch, “China Has Just Raised Its Debt Ceiling,” OMFIF, March 11, 2025. As nations continue to wake up to China’s strategy of stealing intellectual property and subsidizing production to capture strategic markets, they have begun to pull investment, with China witnessing a 27.1% decline in foreign direct investment in 2024.⁵²John Liu, “China’s Foreign Investment Sank in January,” CNN, February 20, 2025. A coordinated tariff regime to curb excess Chinese production would cause severe pain and further amplify calls for economic reforms in China.

It is not the role of the United States to manage China’s economy. But it should be evident to all of America’s closest allies that China’s current economic regime benefits the Chinese Communist Party at the expense of China’s population. A centrally planned economy, orchestrated to build a geoeconomic war machine that keeps its population’s consumption far below the world average despite its enormous industrial advances, should not be a desirable trading partner for any nation. The problem is not that China is growing; the problem is that its leaders continue to advance that growth at the expense of its trading partners and the prosperity of its own citizens. Rather than continue to drive growth through excessive investment, China should allow consumption to rise to a level where the production of goods does not heavily outpace domestic consumption. It should also allow its currency to appreciate so that its exports do not outpace imports by $1 trillion annually. Put another way, China should allow wages to rise so that Chinese consumers can enjoy the benefits of Chinese production, rather than appropriating Chinese wages and savings for additional infrastructure projects, capital investments, and industrial subsidies to expand sales in foreign markets. 

Furthermore, most other major economies the United States trades with are surplus nations. They will therefore find it far more challenging to adapt their economies for a greater partnership with China if the United States draws a line in the sand and forces a choice. Worldwide, the United States accounts for approximately 25% of GDP, but over 31% of household consumption⁵³“Domestic Credit to Private Sector (current US$),” World Bank, accessed November 25, 2025. and upwards of 41% of annual world investment inflows.⁵⁴Council of Economic Advisers, Executive Office of the President. Economic Report of the President, Chapter 6 (2025). U.S. Government Publishing Office, 2025. Because the United States has supplied consumption and assets to most of the world’s economies for so long, few will find it in their interest to further disrupt their U.S. trade relationship. There is no reason to believe that closing off trade with China will not yield greater U.S. demand for goods from other trading partners with more balanced economies. Faced with a flood of cheap Chinese goods that can no longer make it over the U.S. tariff wall, many nations are likely to prefer swimming in temporarily choppy U.S. trade waters to drowning in China’s sea of exports. 

If China does not institute reforms, its other trading partners will face similar effects to those experienced by the United States as a result of China’s trade surpluses. Continued neutrality in the face of China’s mercantilist trade strategy would doom its new trading partners to the same fate as the United States – hollowed-out industry, loss of assets, and economic erosion. An early example is Brazil,⁵⁵David Oks and Henry Williams, “The Long, Slow Death of Global Development,” American Affairs, Winter 2022. which has already imposed tariffs on Chinese iron, steel, fiber optics, and EVs to protect its industries after a surge in Chinese imports.⁵⁶Alessandro Parodi and Victoria Waldersee, “China Floods Brazil with Cheap EVs, Triggering Backlash,” Reuters, June 20, 2025.

Mexico would benefit from a more balanced trade paradigm, as it currently runs the 7^th largest trade deficit and faces challenges competing with nations that subsidize production and weaken their currencies.⁵⁷Michael McNair, “Making Sense of the Seemingly Nonsensical Mexican and Canadian Trade War,” Medium, March 5, 2025. Both Canada⁵⁸John McNally, Canada‑US Trade: Getting Up to Speed, Scotiabank Economics, January 31, 2025. and Mexico⁵⁹Christine Murray, Nassos Stylianou, Irene de la Torre Arenas, and Dan Clark, “How China Is Setting Up Shop in Mexico,” Financial Times, December 16, 2024. are heavily dependent on U.S. consumption. Trade accounts for over two-thirds of both economies’ GDP, and the U.S. accounts for over three-quarters of each country’s exports. USMCA-compliant goods – which must contain a higher percentage of North American and United States total content versus the normal “substantial transformation” threshold for favorable tariff treatment – are currently exempt from tariffs. There is great potential for both nations to benefit from a more integrated and balanced North American trading bloc.

The European Union runs a $315 billion deficit with China but makes up for it by running a $235 billion surplus with the United States, helping to buoy its global trade surplus of $171 billion. The United States should not be expected to absorb the trade deficits its trading partners run with China and other non-market economies. Citing research from Allianz, the Wall Street Journal also noted in April that “European businesses have thinner profit margins, making them less able to absorb the costs of tariffs. In the U.S., average operating margins have increased from 12.5% to 14.3% over the past decade, while in Europe they have increased from 9.7% to 11.2.”⁶⁰Tom Fairless, “Tariffs Are Bad for Europe. Drawing Closer to China Isn’t a Magic Bullet,” Wall Street Journal, April 5, 2025.

After basing their economies on export-led growth for decades, Japan and Germany face challenges similar to those of China and would benefit from increasing domestic consumption as a share of their GDP. Their markets also now face greater direct competition from China.⁶¹China Shock 2.0 with Brad Setser, American Compass Podcast, hosted by Oren Cass, July 18, 2025.

With all of that said, it is unlikely that other nations will abandon the current regime without pressure. Incentives within any given system are often aligned against substantial change absent a genuine crisis, especially when those who rise to the top under such a system hold significant political power. Indeed, there are still plenty of people in the calcified establishment of both major political parties who argue that everything is going well and that the United States should continue on its current path. Such a significant change in course will remain challenging in the face of these headwinds, but it does not have to be a zero-sum game. As the United States shifts demand away from China, some of that demand will flow to other trading partners. There will also be continued opportunities for mutual investment and coordination on strategic supply chains, particularly in sectors where the United States has fallen behind.⁶²Krein, “What a Mar‑a‑Lago Accord Can and Cannot Do.” A clear case can be made to foreign leaders that a new trade bloc premised on balance offers a more stable economic future for all of its members.

The Path Forward

The era of “free trade,” characterized by the unconditional, unrestrained flow of goods and capital across borders, has failed. While such a framework made sense after World War II, fueled growth in many developing countries, and provided short-term economic gains for the financial sector and multinational corporations in the United States, it also contributed to widespread deindustrialization, supply chain fragility, and declining opportunities for the middle class.⁶³Jan Mazza and Andrej Mijakovic, Domestic Inequality and Global Imbalances, August 28, 2025. The United States has experienced a significant decline in manufacturing and a persistent trade deficit that undermine its economic stability and national security. A new trade policy must shift toward a balanced trade model that ensures the benefits of trade are widely shared, reduces dependence in strategic sectors, and protects domestic production and innovation.

The point is not to enrich America on the backs of other nations, but to acknowledge that other countries have enjoyed peace and prosperity for decades without reciprocal burden sharing with the United States.⁶⁴“CEA Chairman Steve Miran Hudson Institute Event Remarks,” The White House, April 7, 2025. This has come at a great cost for average Americans who have paid taxes and sent their sons and daughters overseas to defend an economic order that has harmed their communities and their nation’s broader interests. It has also seen the U.S. amass a debt burden that future generations will have to carry, while opportunities for the kind of economic security most Americans hope for have diminished. To correct course, the United States will also have to shift investment toward more productive uses that benefit a wider swath of Americans and away from investments that merely increase obligations or that solely benefit current asset holders. This will, in turn, encourage U.S. GDP to grow faster than U.S. debt. 

To achieve this vision, the United States must lead the world in reshaping the rules of global commerce. The current system, built around outdated agreements and institutions, no longer reflects the geopolitical and economic realities of the twenty-first century. America must work with allies and partners to establish a new framework centered on balance that challenges mercantilist countries motivated to distort markets. Rather than pursuing openness and neutrality at all costs, the new model should prioritize balance to ensure economic stability, national strength, and widespread prosperity. By embracing this approach, the United States will revitalize its own economy, strengthen its alliances, reclaim its economic sovereignty, and set world trade on a more sustainable path.