As Trump 2.0 as the upcoming administration of U.S. President elect Donal Trump is often referred to as, gets ready to take charge, economic impacts of tariff and trade policies, the trajectory of foreign direct investment in the U.S., supply chain resilience, and the dynamics of bilateral versus multilateral trade negotiations will require reexamination.
The increased formation of global geopolitical and economic blocs has dramatically changed free trade and international cooperation in the last decade. What is the role and future of multilateralism today? What influence does this have on individual countries’ industrial and economic policy and strategy? And what are the implications of the fact that trade policy is increasingly becoming a question of national security?
Christine Lagarde, President of the European Central Bank has warned that a trade war with the United States could lead to a global reduction in GDP. President Elect Donald Trump insists that the EU will have to “pay a big price” for not buying enough American exports. That could hit key industrial sectors hard, not least car manufacturing. Warning of the damage that U.S. tariffs would do to economic growth in the eurozone, officials at the European Central Bank have called on the EU to negotiate with Donald Trump who has of course threatened tariffs on all Imports. The United States accounts for about 10% of global trade and that basically means one third of the global economy in a time where inflation and other kinds of political disruptions are taking its toll. The Trump Administration has always put these tariffs on as a way to engage the counterparts, adversaries and allies alike and force them to the negotiation table.
So as Christine Lagarde calls on the EU to negotiate with the Trump administration’s unilateral tariffs it signals a kind of surrender mentality, agreeing to negotiate in order to escape tariffs. This will create a lot of pretext for other countries to follow the same path and impose similar tariffs on the United States and other countries.
Under Trump version 1.0 as the previous administration is very often referred to most of the measures were China centric; almost half of all tariff lines were affected by some kind of import restrictions, 20% tariff on steel and aluminum, tariffs on motor vehicles cars in particular coming from Europe, and in addition to this, Donald Trump forced Mexico and Canada to renegotiate NAFTA the regional trade agreement that bind these three neighbors together. Compared to these previous trade measures, as the Trump administration begins implementation of proposed tariffs there is the likelihood of retaliatory measures which are going to make things worse in the short term, but in the long term the global economy might see big institutional changes, including the United States potentially leaving the World Trade Organization (WTO) because it no longer agrees with its rules. The other scenario might involve an outright trade war between the U.S. and China with Europe getting involved, which is far more trade dependent on China and is starting to become concerned about this. So the question is whether some countries, especially China and Europe will actually choose to negotiate with the Trump Administration or prefer to just simply retaliate.
The world is going through enormous change with geopolitical tensions and economic strains, and we are at a point where post-war global financial institutions need an overhaul. In 1944 delegates from 44 countries gathered in Bretton Woods, New Hampshire in the United States to agree on a system of economic order and Global cooperation. This year marked the 80th anniversary of the United Nations Monetary and Financial Conference (the “Bretton Woods Conference”), an occasion for reflection on both the past and future of global financial systems. Eighty years later, the seeds sown there for the likes of the International Monetary Fund (IMF) and World Bank still dominate the world. But with the rise of countries like China and the rest of the global south, many think it’s time for a substantial rethink of those Bretton Woods institutions, especially in the wake of the recent meetings of APEC, G20 and COP29. Going forward, what is going to be a priority for many countries is economic security, about reducing dependencies.
States outside the transatlantic alliance have gained leverage in international affairs in recent years and, with that, the potential to significantly reshape the global order. Engagement with these pivotal powers, which include Brazil, Indonesia, India, Nigeria, Saudi Arabia, South Africa, and Turkiye, should become a priority for Europe and the United States.
The world is at a turning point where it is impossible to know if multilateralism will survive. So this may well be a turning point not only to reinvent Bretton Woods but to transform the global financial architecture. This has been on the agenda for almost 30 years since the Asian financial crisis but also the global financial crisis. But earlier there was only one economic power that had a huge impact in terms of spillover to the global economy but now there are two main powers, the U.S. and China. The 1990s was about integrating China in the global economy and we can argue today that it has been quite successful. Now trade tensions, protectionism, currency wars and confrontation have become the centrepiece of the conversations, and there is a need to shift the agenda to international cooperation. This is only possible if the global economy is willing to accept that there are new emerging powers.
At the recent summit of the Group of 20 (G20) in Rio, Chinese President Xi Jinping spoke about the importance of staying committed to multilateralism, less “small yard, high fences,” so that more and more developing countries will be better off and achieve modernization.Today China, the second largest global economy, is facing major challenges such as inflation, debt accumulations. China needs to find a way to rely on a export-led growth model as it used to be, and domestically rethink ways to increase consumption and to reduce the level of indebtedness of municipalities. Measures that have been announced recently are a good starting point but many foreign analysts and many local experts think that might not be enough for the size of China’s economy.
The G20 Leaders Summit is intended to be the main forum for international economic cooperation. But as the 19th summit of the Group of 20 (G20) in Rio revealed, working together requires agreement, and instead there are deep divisions within the group. Tensions between the U.S. and China are high, the Russian president did not attend, and there’s uncertainty about global trade practices with the return of Donald Trump as U.S. president.
A major element of this recent G20 Summit was basically the role that developing countries have been playing, especially Brazil, the host in terms of prioritizing what the developing countries need instead of the priorities of the Western countries or the big economies like the United States. Host Brazilian President Lula da Silva railed against global inequality. He underlined the need for reform at major international organisations like the World Bank and UN Security Council. One of his solutions is a 2% tax on the ultra-rich. He said that money could be spent tackling climate change and social unrest.
Economic and political friction between great powers has placed multilateral institutions under enormous strain. The frictions are reflected in accusations that China is attempting to occupy and dominate United Nations agencies, that the United States is stymying the World Trade Organization’s disputes resolution mechanisms. G20 presidencies from emerging economies, global south are leading the way forward for multilateralism. As the Bretton Woods institutions crumble amid sanctions, populism, and global conflicts, a new multipolar world is emerging. The global South, led by nations like BRICS, is creating alternative systems of trade, finance, and development, rejecting the dominance of the U.S.-led West. The BRICS has emerged as a progressive grouping, adapting to changing times and shifting geopolitical realities with its expansion. ‘Global South’ has been reappropriated to indicate new centres of growth. Keeping the focus on international development, even as geopolitics continued to play itself out, has been a significant achievement of these two groups with global south countries at the helm. For some decades now it has been clear that multilateral institutions have not been responding to the needs of the global south. The WTO, IMF, and World Bank have all become conveniently defunct as their rules started to deliver on the promise of liberal development.
So as trade wars, geopolitical competition, and the weaponization of interdependence have emerged as threats to economic security, countries may look to boost their resilience and strengthen their strategic autonomy, infusing economic policies with geopolitical considerations. However, this new approach to economic statecraft risks undermining the multilateral liberal world order. To preserve multilateralism in an increasingly fragmented international environment, global leadership will need to balance the pursuit of economic security with broader foreign policy goals.
