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Geopolitics
The great trade hack: how Trump’s tariffs are rewriting the rules for global business
Trump’s tariff shock didn’t just disrupt trade: it hacked the system. Richard Baldwin explains what it means for global business and why protectionism is here to stay
On 2 April 2025, the United States firebombed the global trade rulebook. With a barrage of sweeping tariffs, the world’s largest economy, once the system’s architect, turned enforcer, judge, and executioner.
This wasn’t just another round of tariff tit-for-tat. It was something deeper and more disruptive: a structural strike against the global trade system itself, driven less by economic strategy than by political grievance. For global business leaders, especially those in manufacturing, supply chains, and corporate strategy, the implications are already unfolding.
“This is not economic policymaking; it’s emotional theatre.”
The grievance doctrine
To understand this moment, don’t reach for an economics textbook. Reach for a political speech.
President Trump’s words in his 2 April address were unambiguous: “For decades, our country has been looted, pillaged, raped, and plundered by nations near and far, both friend and foe alike. American steelworkers, auto workers, farmers, and skilled craftsmen…watched in anguish as foreign leaders have stolen our jobs, foreign cheaters have ransacked our factories, and foreign scavengers have torn apart our once beautiful American dream.”
This is not economic policymaking; it’s emotional theatre. A grievance doctrine now drives US trade: the belief that America has been betrayed by a system rigged by globalist elites and exploited by foreign rivals.
In this worldview, tariffs aren’t just policy tools. They’re weapons. Trade is no longer about mutual benefit but about payback. Allies are recast as freeloaders. Rules are seen not as stabilizers but as shackles. The result is a trade strategy that is politically powerful, and economically incoherent. Tariffs aren’t chosen because they solve problems. They’re chosen because they dramatize them.
Tariffs are popular not despite their ineffectiveness, but because of it.
Why tariffs won’t deliver
Strip away the politics, and the economics are brutally simple: tariffs can’t fix what’s broken. They won’t reduce the US trade deficit: it’s driven by domestic imbalances in savings and spending. They won’t revive manufacturing because that takes capital, infrastructure, and skilled workers, not just border taxes. And they certainly won’t help the middle class, 90% of whom work in services, which tariffs don’t touch.
Tariffs are popular not despite their ineffectiveness, but because of it. They allow politicians to appear tough, deflect blame, and dodge real solutions. As a result, protectionism is now the American default, not a Trump-era detour, but a structural feature of US politics.
This is not a general economic tremor. It’s a targeted hit on global supply chains. The fallout has already begun.
What this means for business
If you operate in global manufacturing, logistics, or procurement, the April 2 tariffs weren’t just political noise. They were a shot across your bow.This is not a general economic tremor. It’s a targeted hit on global supply chains. The fallout has already begun.
- Supply chains are exposed: Key sectors – EVs, semiconductors, steel – now face steep new tariffs, pushing up input costs and disrupting flows.
- Production footprints need rethinking: The logic of offshoring is cracking. Nearshoring, dual sourcing, and regional hubs are moving from backup plans to frontline strategy.
- Operating models must evolve: The era of seamless global integration is over. The new era is one of geopolitical risk management. Redundancy is no longer inefficiency; it’s insurance.
This isn’t a temporary disruption. It’s a redesign moment. And those who adapt first will gain the edge.
Cascading protection vs. domino liberalization
History reminds us that tariff shocks don’t stop at the border. In the 1930s, US tariffs ignited a global spiral of retaliation. Could 2025 be a replay?
One risk is cascading protectionism: US tariffs push exports to third countries, flooding local markets and stoking defensive tariffs in response. If nations react emotionally, as the US just did, things could spiral.
But there’s also a counterforce: domino liberalization. Exporters shut out of the US will push their governments to open new markets. Trade deals emerge. Tariffs fall elsewhere. Which force prevails, protection or liberalization, will shape the global business environment in the years to come.
In the most hopeful scenario, the rest of the world pushes forward.
Three scenarios for what comes next
The global trade system hasn’t collapsed, but it’s wobbling. Three paths lie ahead, each with distinct business implications:
1 – Managed multilateral drift
Tensions persist, but the system muddles through. The US continues to violate WTO norms, while others respond with discipline. Regional and bilateral deals proliferate.
Business impact: More red tape, but also more opportunity, especially outside the US. Firms that stay flexible and agile in diverse regulatory environments will benefit.
2 – Fighting trade blocs
This is where geopolitics trumps economics. The world splits into three blocs: a US-led camp (with reluctant followers like Canada and Mexico), a China-led bloc, and an EU-led one. Trade barriers go up between them.
Business impact: Strategic alignment becomes existential. Firms may have to duplicate operations, firewall IP, and localize value chains to continue operating across blocs.
3 – Reglobalization without America
In the most hopeful scenario, the rest of the world pushes forward. “Leadership herds” of like-minded nations form new coalitions, advance digital and green trade rules, and revitalize WTO frameworks, without US participation.
Business impact: Investment, innovation, and partnerships shift to economies still committed to openness. US exposure becomes a risk to hedge, not a market to scale.
The future is uncertain but standing still isn’t an option. Here’s what business and policy leaders should prioritize.
- Plan for turbulence: Don’t wait for tariff lists to be final. Model scenarios, diversify suppliers, and stress-test your global operations now.
- Stick to the rules: WTO-consistent responses keep the guardrails up. The more firms and governments that follow the rules, the harder they are to dismantle.
- Push back wisely: Counterpressure is sometimes necessary, but don’t mirror the chaos. Strategic responses should protect the system, not deepen its breakdown.
- Keep the door open: A post-hack US may seek re-entry. Firms and allies should preserve relationships, not burn bridges.
- Lead the renewal: Trade rules must evolve. The private sector has a critical role in shaping frameworks for AI, digital flows, climate, and services.
This is a test, not just of trade, but of leadership
Trump’s Great Trade Hack exposed a truth many sensed but few said out loud: the US is no longer the anchor of the global trade system. That anchor has been cut. But the system hasn’t sunk, yet.
More than 85% of global trade still flows outside the US. That means governments, firms, and institutions across the world have both the power and the responsibility to keep the system afloat, not just by defending it, but by reinventing it.
If they don’t, the collapse won’t come with a bang. It will arrive as a slow bleed, through lost investment, shrinking markets, rising costs, and missed innovation.
Trade isn’t just about goods. It’s about predictability. Trust. Prosperity. And right now, it’s on the line. The decision whether to rise to the moment or retreat from it will shape the global economy for generations.
This article is based on Richard Baldwin’s new CEPR eBook, The Great Trade Hack: Why Trump’s Trade War Fails and the World Moves On. Download the book for free to explore the full analysis and scenarios shaping the future of global trade.
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