Opinion | Trump’s tariff merry-go-round is destroying global trade. What next?
News Summary
US President Donald Trump implemented a new tariff regime in early August 2025, achieving significant concessions from trading partners, including zero-tariff access, reduced non-tariff barriers, hundreds of billions in annual tariff revenue, and approximately US$1 trillion in purchase commitments, alongside at least US$1.5 trillion in pledged investments, equivalent to 5% of America’s economic output. While some argue these terms provide certainty for business decisions, the article contends that Trump's tariffs are a never-ending "merry-go-round," with more uncertainty expected. Former US Trade Representative Robert Zoellick is quoted, suggesting Trump believes uncertainty enhances his power. This tariff system is projected to inflict significant economic damage on key trading partners like the European Union, Japan, and South Korea, leading to much-needed capital outflows and hindering their anemic economic recoveries. Furthermore, vital industries such as automotive, semiconductors, pharmaceuticals, and shipbuilding could shift to the US, effectively hollowing out these allies' domestic industries and weakening their ability to innovate and compete globally.
Background
This opinion piece discusses President Donald Trump's new tariff regime, which came into force in early August 2025, and its implications for global trade and U.S. allies. The article highlights how the Trump administration leveraged the United States' unparalleled market power to extract significant concessions from trading partners, including tariff reductions, reduced non-tariff barriers, substantial purchase commitments, and investments. Robert Zoellick, former U.S. Trade Representative and World Bank president, characterized Trump's tariffs as a "merry-go-round," noting that Trump believes uncertainty adds to his power, indicating the ongoing and unpredictable nature of the policy.
In-Depth AI Insights
What long-term structural impacts will the Trump administration's tariff strategy have on global supply chains and industrial layouts? The Trump administration's "reciprocal" tariffs and mandatory purchase/investment commitments are not merely short-term trade adjustments but strategic tools designed to reshape the global economic landscape. Their long-term structural impacts include: - Accelerated Supply Chain Restructuring: Forcing multinational corporations to shift production and R&D activities from affected countries (e.g., EU, Japan, South Korea) to the US or regions more aligned with its trade policies, leading to further fragmentation and regionalization of global supply chains. - Risk of Core Industry Hollowing Out: The relocation of high-value-added industries such as automotive, semiconductors, pharmaceuticals, and shipbuilding will undermine allies' innovation capabilities and long-term competitiveness, potentially causing fundamental shifts in these nations' economic growth models. - Intensified Struggle for Technological Dominance: By attracting investment in key industries, the US aims to solidify its dominance in future technologies and high-tech manufacturing, which could prompt other nations to adopt more aggressive industrial policies to protect their own technological ecosystems. What viable strategic response options are available to affected allies (e.g., EU, Japan, South Korea) in the face of escalating US trade protectionism? Allies face not only economic losses but also a test of their sovereignty and strategic autonomy. Viable strategic response options include: - Internal Market Integration and Strengthening: The EU can accelerate internal market unification and enhance the resilience and competitiveness of its internal supply chains through joint R&D and investment programs, reducing excessive reliance on the US market. - Diversification of Trading Partners: Actively seek trade and investment cooperation with emerging markets in Asia (especially ASEAN and India), Africa, and Latin America to build a more resilient global trade network and reduce single-market risk. - WTO Reform and Advocacy for New Trade Rules: Collaborate with other affected countries to push for World Trade Organization (WTO) reforms and actively advocate for new, fairer multilateral trade rules to counter unilateralism. - Targeted Reciprocal Retaliation: In specific areas, implement limited and strategic reciprocal measures to increase the cost for the US of taking unilateral actions, but carefully assess potential backlashes on their own economies. How will this "tariff merry-go-round" impact investor sentiment and global capital flows? Persistent trade uncertainty is a significant negative factor for investors, leading to noticeable changes in capital allocation and risk appetite: - Shortened Investment Decision Cycles: Businesses will find it harder to make long-term strategic plans and large-scale capital expenditures, favoring short-term, low-risk investments or keeping capital on the sidelines. - Capital Repatriation to the US: Mandatory investment commitments and tariff barrier effects could lead to substantial capital flowing back to the US from allies, supporting US economic growth at the expense of economic vitality elsewhere. - Heightened Risk Aversion: Increased global trade friction will boost demand for safe-haven assets (e.g., gold, US Treasuries), while putting pressure on export-oriented economies and related equities that rely on globalization and free trade. - Regionalized Investment Trends: Investors may increasingly favor investments within regions with stable trade relationships rather than broad cross-regional global allocations, thereby exacerbating the regionalization of global capital flows.