CNAS Insights | A Year After Liberation Day, Can Trump’s Trade Wars Be Salvaged?

A year ago, in the weeks leading up to President Donald Trump’s “Liberation Day” announcement of bruising global tariffs, the CNAS Energy, Economics, and Security Program ran a trade wargame to consider how foreign governments might respond to extreme U.S. trade pressure. That experience showed us that heavy tariffs, though disruptive and unpopular, could create the leverage and incentives to drive a reset of a stagnant trading system. Twelve months in, however, Trump’s trade wars have led to a rupture in U.S. alliances and sharp retaliation from China. What went wrong?

First, let’s start with what the Trump administration got right. The previous international trading system needed a reboot. U.S. trade policy was stuck in a bad equilibrium: too much integration with China, too little integration with close security allies, and seemingly no leverage to drive a better outcome. The Trump administration recognized that tariffs provided a powerful point of leverage, as other countries could be persuaded to make large policy shifts to maintain access to the attractive U.S. market. In our trade wargame, the U.S. team adeptly used this leverage, providing tariff relief to teams representing like-minded countries in exchange for lowering barriers to U.S. exports and mirroring U.S. policies to derisk from China. In the real world, several governments signaled a willingness to strike similar bargains early in the second Trump administration, as they had grown wary of China’s predatory trade practices and would accept unbalanced deals with the United States to head off steep U.S. tariffs.

As the trade wars have played out over the last year, however, the Trump administration has fumbled its opportunity. The administration’s approach to trade has been highly coercive, but did not take into account that effective economic coercion requires not just a credible threat to impose costs on another government, but also a credible promise of safety from future threats once the partner accommodates U.S. demands. Continually battering trading partners with tariff threats for any and all foreign policy disagreements has undermined the stability that the administration’s trade deals, negotiated in the months following Liberation Day, were intended to provide. The Supreme Court decision striking down tariffs based on emergency economic powers introduced further chaos and uncertainty into U.S. trade policy, as the administration now rushes to rebuild its tariff walls and foreign governments wait to see what it will mean for deals reached in recent months.

Consider the trade wars in Europe. Last summer, European leaders swallowed a lopsided trade deal with the United States, which was nominally about lowering tariffs but more fundamentally about keeping the United States committed to European security. Yet this accommodation didn’t prevent Trump from threatening trade pain on European countries in his ill-advised quest to acquire Greenland. While a small dose of trade leverage could have been productive to address long-standing trade issues, tipping over into blunt trade coercion to threaten European sovereignty had a corrosive effect on the transatlantic alliance. Today, Europe is no closer to giving up Greenland and has repeatedly slow-walked implementation of its trade deal with the United States.

The administration also overplayed its hand with China. The U.S.-China trade wars in the first Trump administration were bruising but ultimately sustainable. Economic impacts were not as dire as projected and the tariffs proved politically popular, with President Joe Biden’s administration choosing to maintain them. But the tariff playbook against China in the second Trump administration has not fared as well. Tariffs were higher and more unpredictable, and China was prepared to hit back. Between retaliatory tariffs and sweeping controls on the export of rare earths, China established itself as a peer geoeconomic sparring partner. The United States was forced to roll back some of its more severe actions, and now faces the possibility of stiff Chinese retaliation any time it attempts to take future competitive actions. Rather than leading a coalition of allies to derisk from China, the Trump administration has found itself isolated and off balance as it chases an elusive bilateral trade deal.

The question now is whether it is too late to return to a positive pathway where America ushers in a productive reset of the global economic order. U.S. allies are burned by erratic trade and foreign policy actions and have little trust in American leadership. Rather than working collaboratively with the United States, many are putting their political energy into derisking from America rather than from China. Governments are taking active steps to diversify trade away from the United States, such as the recent EU-India free trade agreement. While this diversification will take time to be realized, these sorts of mutually beneficial deals are far more likely to last than the lopsided deals that the United States has negotiated, which have often been upended by more tariff threats.

And yet, as we move into a second year of “liberation,” there are still some reasons for optimism. Notably, U.S. Trade Representative Jamieson Greer has called for the United States to negotiate a binding plurilateral trade agreement on critical mineral supply chains, using a range of nontraditional tools, such as price floors, to strengthen resiliency against Chinese critical mineral coercion. The creativity and urgency behind this effort should be welcomed, and this sort of project is far more ambitious than any similar attempts by the prior administration.

U.S. allies should prioritize making the critical mineral deal a success. Not only does it address their own strategic interest in reducing their long-standing vulnerability to Chinese coercion, it is an important test case to demonstrate the value of allied coordination to an administration otherwise not inclined toward cooperative approaches. If the critical mineral negotiations are successful, partners could look to replicate this approach in other key sectors with a similar strategic logic, starting with semiconductors and pharmaceuticals.

Over the long term, these small coalitions to address specific economic security problems could be a stepping stone toward a more ambitious project in the global economic order. What we saw in our trade wargame indicated that a new type of economic security architecture was possible, with deeper integration among close security partners and coordinated approaches to reduce dependencies on Chinese supply chains. After a year of chaotic trade wars, the question now—for the rest of this administration and whatever comes next—is if there is still a path to realize this vision.

Emily Kilcrease is a senior fellow and director of the Energy, Economics, and Security Program at the Center for a New American Security. Geoffrey Gertz is a senior fellow in the same program.