Vietnam, one of the world’s most dynamic economies, now faces one of its most important challenges of this century as it faces protectionist headwinds and tepid consumer economies in the U.S. and Europe.

So far, its formidable export-based economy has seemed up to the task. In 2024, overall exports rose 14.3% year-to-year to $405.5 billion. The part of that from foreign direct investment increased 12.4% to $289.2 billion.

Vietnam’s coping strategy, according to an analysis by Trade Data Monitor, has been to turn more toward its prosperous ASEAN partners and China. In 2024, Vietnam increased imports from China a whopping 30.2% to $144 billion.

After the first Trump administration imposed hefty tariffs on Chinese imports in 2018, U.S. and Europe-based consumer goods firms moved or shifted parts of their manufacturing supply chains to Vietnam. It was a boon for the formerly war-torn nation, which promptly build a network of new economic zones, deep-water ports, rail lines and roads. After the 2018 duties, Vietnam’s gross domestic product grew by around 8% a year. In 2024, it expanded by 7.1%. A modern economic export miracle.

According to U.S. trade statistics, in 2024 Vietnam had the third biggest trade surplus ($123.5 billion) with the U.S., after only China ($295.4 billion), Mexico ($171.8 billion), and followed by Ireland ($86.7 billion) and Germany ($84.8 billion).

Now as the U.S. faces protectionist sentiment and economic uncertainty, Vietnam must prepare for an adjustment, and it will be essential to diversify export markets. An analysis by TDM suggests that Vietnam possesses the capacity to find new markets for its exports and diversify fruitfully.

The Asian Connection

Vietnam is tightly networked with its Asian neighbors. Seven of the country’s top ten sources of imports are Asian: China, South Korea, the U.S., Japan, Taiwan, Thailand, Indonesia, Malaysia, Australia, and Kuwait.

In 2024, shipments from South Korea nudged up 6.5% to $55.9 billion. By comparison, purchases from the U.S. rose 9.3% to $15.1 billion. Surprisingly, Japan is still the fourth biggest supplier of goods to Vietnam, although it is slipping. In 2024, Vietnam imported $21.6 billion from Japan, down 0.2% compared to 2023. Almost all of Vietnam’s imports from Kuwait were energy-related. In 2024, Vietnam shipped in $7.3 billion, up 23.3% over 2024, from the Middle Eastern nation.

But China was not yet Vietnam’s biggest export market in 2024. That would be the U.S. Vietnam shipped $119.5 billon of goods to the U.S. in 2024, up 23.2% from 2023. China was second, buying $61.2 billion worth of goods, flat compared to 2023. Vietnam’s next biggest exports markets were South Korea, Japan, the Netherlands, Singapore, India, the UK, Germany, and Thailand.

Now Vietnam faces the specter of new import tariffs from the Trump administration. At the recent World Economic Forum in Davos, Vietnamese prime minster Pham Minh Chinh said he was looking for “solutions” to keep his economy balanced.

Why Vietnam Will Be Able to Diversify

A review of their exports shows that the country is likely in better shape than many fear. Vietnam has trade agreements with over 25 countries. In 2024, Vietnam exports over a billion dollars’ worth of goods to 36 countries.

Vietnam’s top category of exports was computers and electrical products ($72.6 billion, up 26.6%), telephones and mobile phones ( $53.9 billion, up 2.9%), machines, equipment, tools, and instruments ($52.2 billion, up 21%).

But Vietnam is still a dominant producer of more basics manufactured goods, offering it the flexibility it will need to adjust to changing export markets. In 2024, for example, Vietnam exported $22.9 billion of footwear, up 13% from 2023. The biggest destination for Vietnam’s powerful consumer goods manufacturing capacity: the U.S. Vietnam exported $8.3 billion worth of footwear to the U.S. in 2024, up 15.7% from 2023. The next biggest markets for footwear were China, the Netherlands, Belgium, and Japan.

Vietnam also shipped significant quantities of certain kinds of furniture ($3.4 billion, up 33.5%), plastics ($2.6 billion, up 21.3%), iron and steel ($9.1 billion, up 8.7%), fruits and vegetables ($7.1 billion, up 27.6%), rubber ($3.4 billion, up 18.2%), and coffee ($5.6 billion, up 32.5%). The top markets for coffee in 2024 were Switzerland, the Netherlands and Singapore.

To view the insight as it was originally published, click here.

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KEY TAKEAWAYS

• The White House has given the Office of the U.S. Trade Representative, along with the departments of Treasury and Commerce, until April 1 to identify countries the administration should confront with corrective trade actions.
• It would be a mistake for the Trump administration to impose across-the-board tariffs on all nations, even if some run trade surpluses with America.
• The administration should focus on the nations that employ the most extensive arrays of unfair trade practices, including behind-the-border restrictions that specifically target U.S. companies or exports.
• Based on an index composed of 11 indicators covering America’s trade balances and key barriers U.S. industries face in markets around world, the administration should focus the greatest attention on China, India, and the European Union.
• While it is highly unlikely that tariffs or other pressure can convince China to reduce its trade distortions, such measures might work vis-à-vis U.S. relations with other nations.

Introduction

The second Trump administration has taken office looking to put U.S. trade relations on a more equitable footing with the rest of the world. President Trump has railed that other nations “are taking advantage of us” and vowed to ensure that U.S. companies are treated fairly in international markets. As Secretary of State Marco Rubio recently told U.S. allies, “I know you’ve gotten used to a foreign policy in which you act in the national interest of your country, and we sort of act in the interest of the globe or global order. But we are led by a different person now.”

To enact the president’s vision, the White House has instructed the Office of the United States Trade Representative (USTR), in coordination with the departments of Commerce and Treasury, to identify “any unfair trade practices by other countries and recommend appropriate actions to remedy such practices” by April 1, 2025.

Meanwhile, the president has already trained his fire at several nations in the opening weeks of his administration—notably Canada, China, Colombia, and Mexico—but the to-do list is long, as an increasing number of countries around the world have adopted mercantilist trade practices in recent decades. Against that backdrop, the administration should focus on countries where systematically unfair, mercantilist trade policies are inflicting the most significant damage on the U.S. economy and U.S. corporations (large and small alike), and where the United States stands to gain the most by restoring balanced trade. Accordingly, the Information Technology and Innovation Foundation (ITIF) has developed the “Trade Imbalance Index” described in this report. It evaluates 48 countries (15 of which are included in the “European Union” bloc) on 11 measures to ascertain which are the biggest trade mercantilists or scofflaws and where the Trump administration should concentrate its attention as it seeks to advance a trade policy that more effectively defends U.S. interests and ensures more balanced trade relations.

This report evaluates the largest 48 countries by gross domestic product (GDP) on 11 indicators covering 4 categories. In brief, the categories and indicators are as follows:

 Trade balance in goods and information services: This category considers U.S. trade balances in goods and information services. ITIF used the raw values of the trade balances rather than the relative values (e.g., trade balance as a share of GDP) to better measure the overall harm a nation has on the United States when it runs a surplus. In other words, a nation with which the United States has a high deficit would cause more harm to the United States even if the deficit were small when compared to its GDP.

 Trade restrictions: These involve a simple mean tariff rate across all product categories, the prevalence of non-tariff trade barriers (NTBs), and the nation’s Services Trade Restrictiveness Index score.

 Taxes and regulations: These cover the extent of a country’s Digital Markets Act (DMA) regulations, extent of digital services taxes (DSTs), extent of pharmaceutical price controls, the presence of antitrust fines, and the presence of noncompetition fines on the digital economy. 

 Intellectual property (IP): This category includes the 2024 USTR Section 301 Watch List and the nation’s score on the U.S. Chamber of Commerce International IP Index.

Because we believe that America’s bilateral trade balance with a given country is not the most important factor in determining whether the Trump administration should prioritize that nation for a trade response, the trade-balance indicator accounts for only one-quarter of the total weighted score in our index. Ultimately more important than bilateral trade balances are the underlying factors affecting U.S. trade with a given country. So even if a country runs a trade deficit with the United States, there may be reason for the Trump administration to confront it if the country employs a significant number or degree of unfair trading practices.

Weighing these considerations, China, India, the European Union, Vietnam, and Argentina rank as the five worst offenders in ITIF’s index. (In this study, “European Union” refers to the 15 largest EU members, except in the trade-balance indicator where it refers to the whole bloc.)

The more negative the score, the more the Trump administration should prioritize that nation for a trade response. The 10 worst-performing nations with negative scores (from worst to best) are China, India, the European Union, Vietnam, Argentina, Thailand, Brazil, Turkey, Mexico, and Indonesia. In contrast, the nations that should be least likely to face retaliatory measures from the Trump administration include Singapore, Switzerland, Peru, the United Arab Emirates, and the Philippines.

This report begins by offering an in-depth analysis of the problematic trade and economic policies of the top three most problematic nations (or regions in the European Union case). It then analyzes how countries fared on each of the individual indicators in the report. Finally, it offers trade policy recommendations for the Trump administration and Congress to responsibly address the mercantilist practices of foreign countries.

Mercantilist Country Analysis

As noted, China, India, and the European Union score lowest in ITIF’s index and stand out as the nations where the Trump administration should focus the greatest attention on rebalancing trade and economic relations.

China

China’s ranking first in the study is no surprise. The country has persistently failed to adhere to the commitments it made to the United States, and other international trade partners, when it joined the World Trade Organization (WTO), as ITIF has documented across numerous reports. Over the past decade, the country has recorded a nearly $3.5 trillion trade surplus in manufactured goods with the United States. In 2023, China’s goods trade surplus with the United States reached $279 billion, with this amount growing to $295 billion in 2024. And that figure represented about one-third of China’s nearly $1 trillion trade surplus with the world last year as its exports swamped the globe. China’s 2022 simple mean tariff rate stood at 6.5 percent.

USTR identified China as a Priority Watch List country in 2024 for its continued infringements on U.S. IP rights. The report notes that “long-standing issues [remain] including technology transfer, trade secrets, counterfeiting, online piracy, copyright law, and patent and related policies.” The Commission on the Theft of American Intellectual Property has estimated that China’s IP theft may cost the U.S. economy as much as $600 billion annually. A 2019 CNBC Global CFO Council report found that one in five North American corporations had their IP stolen in China in 2018. In ITIF’s series of “How Innovative Is China in High-Tech Industries” reports, ITIF documented numerous cases of IP theft in sectors ranging from electric vehicles and nuclear technology to semiconductors and electronic displays. China also continues to be the world’s leading source of counterfeit and pirated goods. The country further imposes more barriers to cross-border data flows than any other nation in the world.

China’s rampant IP theft may cost the U.S. economy as much as $600 billion annually, with high-tech sectors most at risk.

China has opened specious antitrust investigations into U.S. tech companies including Google and NVIDIA and in the past imposed unjustified antitrust fines on U.S. tech companies, such as the $1 billion fine it imposed on Qualcomm in 2015. With regard to pharmaceuticals, China imposes steep drug price controls and favors Chinese firms in national drug selection.

Forced transfer of technology or IP as a condition of Chinese market access—or requirements to manufacture locally as a condition of access to Chinese markets—remains a perennial challenge. Indeed, China calls this strategy “trading technology for market.” However, now that China has sufficiently competitive high-tech firms in a variety of sectors, it is increasingly moving from a strategy of “compulsion” to one of “expulsion.”

For instance, on April 12, 2024, The Wall Street Journal reported that “China’s push to replace foreign technology is now focused on cutting American [chipmakers] out of the country’s telecommunications systems.” The move would impact a variety of U.S. semiconductor companies, including AMD and Intel. The article notes that “[Chinese] officials earlier this year directed the nation’s largest telecom carriers to phase out foreign processors that are core to their networks by 2027.” The effort is similar to one articulated in Document 79, which requires state-owned enterprises in finance, energy, and other sectors to replace foreign software in their information technology (IT) systems by 2027.

Elsewhere, the Chinese government has asked electric vehicle makers from BYD to Geely to sharply increase their purchases from local auto chipmakers, part of a campaign to reduce reliance on Western imports and boost China’s domestic semiconductor industry. China’s Ministry of Industry and Information Technology has directly instructed Chinese automakers to avoid foreign semiconductors if at all possible. Such measures leave no doubt that import substitution and achieving self-sufficiency represent an essential goal of China’s competitive strategy in a range of high-tech industries from autos to semiconductors. Such a strategy is directly antithetical to and contravenes the commitments China made to global trade partners in joining the WTO. China is indeed the world’s number one mercantilist.

India

India ranks second in this index. In 2024, India recorded a $45.7 billion trade surplus with the United States. That was atop a $43.3 billion trade surplus the year before. India’s simple mean tariff rate is 14.3 percent, while on a trade-weighted basis, India’s rate is about 12 percent compared with America’s rate of 2.2 percent. Of the countries assessed in this report, India scores fourth worst with regard to its services trade restrictiveness. India continues to maintain high customs duties on IP-intensive goods such as IT products, solar energy equipment, medical devices, pharmaceuticals, and capital goods.

In 2016, India implemented an equalization levy (EL) of 6 percent on nonresidents engaged in online advertisement and related activities with Indian customers. India’s Finance Act of 2020 expanded the EL to introduce a levy on e-commerce supply or services equal to 2 percent of gross income facilitated by a nonresident e-commerce operator. On March 12, 2024, the Indian Ministry of Corporate Affairs released a draft report of the Committee on Digital Competition Law along with a draft bill on the Digital Competition Act that “bears a striking resemblance” to the EU’s problematic Digital Markets Act. The legislation embraces an ex ante regulatory model and follows the path of overbearing competition policy taken by the EU.

U.S. companies have also been the target of significant antitrust fines levied by Indian authorities. India’s Competition Commission fined Meta $24.5 million for its data sharing practices, contending that the company abused its dominance and “coerced” WhatsApp users into accepting a 2021 privacy policy that allegedly expanded user data collection and sharing, giving it an unfair advantage over rivals. The commission also fined Google $154 million for practices related to its Android operating system. Overall, India is heavily scrutinizing American tech companies and following a European approach.

India remains on USTR’s Special 301 Priority Watch List, as “there continues to be a lack of progress on many long-standing IP concerns raised in prior Special 301 Reports. India remains one of the world’s most challenging major economies with respect to protection and enforcement of IP.” India continues to place elevated restrictions on patent subject matter eligibility that exceeds the required novelty, inventive step, and industrial applicability requirements. Under Section 3(d) of the Indian Patent Act, there exists an additional “fourth hurdle” regarding the inventive step and enhanced efficacy that limits patentability for certain types of pharmaceutical inventions and chemical compounds. India ranks 42nd out of 55 countries on the Global Innovation Policy Center’s International IP Index. Elsewhere, India’s pirating of film and audiovisual content through illicit video recording remains a major challenge.

On February 13, 2025, Indian Prime Minister Narendra Modi visited president Trump in Washington, D.C. He appeared to come prepared to offer certain tariff concessions on some products, including automobiles and electronics, to the United States. Coming out of those meetings, Indian and U.S. officials agreed to start developing “broad contours of [a] proposed trade agreement” between the two countries, which obviously has significant potential to address some of these trade irritants and significantly improve the India-U.S. trade relationship.

The European Union

The EU ranks third in this index, as it’s among the leading practitioners of discriminatory trade policies targeting U.S. enterprises, particularly those in digital industries, thanks especially to its DMA and Digital Services Act (DSA). In fact, there are over 100 digital regulations in force across the EU, enforced by at least 270 agencies. European policymakers ostensibly designed the DMA to create a fairer digital market by preventing large online platforms, which the EU calls “gatekeepers,” from abusing their market power and ensuring more competition for smaller companies and consumers in digital industries. Its sister legislation, the 2022 DSA, addresses illegal content, transparent advertising, and disinformation.

But as ITIF has written, the legislation should really have been called the “U.S. Tech Firms Act,” as the legislation intentionally singles out U.S. tech companies. For instance, the European Parliament rapporteur for the DMA, Andreas Schwab, suggested that the DMA should unquestionably target only the five biggest U.S. digital firms (Google, Amazon, Apple, Facebook, and Microsoft). Basically, the DMA and DSA have been designed to cover, almost exclusively, U.S. firms and not their European or Chinese competitors that offer similar services. A leaked draft of the proposed EU DSA was quite clear on this intent: “Asymmetric rules will ensure that smaller emerging competitors are boosted, helping competitiveness, innovation, and investment in digital services.” Indeed, the European Commission has opened non-compliance investigations against Alphabet, Apple and Meta under its DMA.

The DMA should really have been called the “U.S. Tech Firms Act,” as the legislation has almost exclusively singled out U.S. tech companies.

Certain European countries have used their legislation to impose punitive antitrust fines on U.S. companies. For instance, Apple faced a £1.5 billion ($1.9 billion) class action lawsuit in the United Kingdom for allegedly overcharging software developers through the App Store. The case claims that Apple abused its market dominance by imposing a 30 percent commission on app purchases. Further, the United Kingdom’s Competition and Markets Authority (CMA) has indicated possible investigations into Amazon’s and Microsoft’s dominance in cloud computing, following alleged concerns about anticompetitive behavior in the sector.

In 2023, the EU ran a trade surplus of $208.7 billion with the United States. The EU runs significant trade surpluses with the United States across a number of advanced-technology industries, including pharmaceuticals and medical devices, motor vehicles and parts, electrical goods, telecommunication goods, chemicals, and instruments. Europe’s large trade surplus with the United States in pharmaceuticals stems largely from the extensive drug price controls implemented by most countries on the continent and their failure to pay adequate prices for innovative medicines. Of the 27 EU nations, all but 7 (Malta, Luxemburg, Croatia, Lithuania, Belgium, Spain, and the Netherlands) run trade surpluses in goods with the United States. And the country whose officials complain the loudest of U.S. “digital dominance”—Germany—runs the largest trade surplus.

While the European Union applies a relatively low simple mean tariff rate, this obscures a variety of value-added taxes and other fees that make U.S. products more expensive in Europe. For example, the EU levies a 10 percent tariff on U.S. car imports, while the United States imposes a 2.5 percent duty. And as president Trump has observed, when Europe’s value-added taxes (VAT) are added in, U.S. car exports to Europe can be tariffed and taxed as high as 30 percent.

Indicator Analysis

Trade Balance in Goods and Information Services

The Trade Balance in Goods and Information Services indicator provides a standardized score for each nation based on its trade surplus or deficit in goods and information services with the United States in 2023, as measured by the U.S. Census Bureau’s “USA Trade” and the Organization of Economic Cooperation and Development (OECD). Countries with large trade surpluses against the United States receive a low standardized score, those with moderate surpluses receive a mid-range score, and those with trade deficits or balanced trade receive a high score.

This indicator is included in the index because significant trade imbalances are often perceived as evidence of unfair trade practices, currency manipulation, or insufficient market access for U.S. goods. ITIF uses the trade balance in goods and information services measure here (as opposed to trade balance in goods as a share of GDP measure), recognizing that the Trump administration places a significant focus on the overall harm a large trade deficit has on the United States. In other words, the administration is more concerned with a nation with a large deficit than one with a large deficit relative to its GDP. As such, under the Trump administration, countries with low scores should be more likely to face retaliatory measures such as tariffs, stricter trade policies, or efforts to renegotiate trade agreements.

China, the European Union, Mexico, and Vietnam all could become prime targets for trade restrictions or renegotiations based on their substantial surpluses. For example, China has the highest surplus at $277.5 billion. The European Union runs a surplus of $208 billion, while Mexico runs a surplus of $151 billion and Vietnam enjoys a $104 billion surplus. Meanwhile, Australia, the United Arab Emirates, and the United Kingdom maintain a more balanced trade relationship with the United States, all running a deficit that exceeds $10 billion, making them less likely to face economic pushback from the administration on account of trade balances.

Trade Restrictions

Simple Mean Tariff Rate for All Products

The Simple Mean Tariff Rate for All Products indicator provides a standardized score for each nation based on its unweighted average of simple mean tariff rates across all traded products for 2022, as measured by the World Bank’s World Development Indicators. Countries with high simple mean tariff rates receive a low standardized score, those with moderate tariffs receive a mid-range score, and those with low or near-zero tariffs receive a high score.

This indicator is included in the index because high tariff rates create significant barriers for U.S. exports, raising costs for American businesses and reducing market access. Protectionist tariff policies can stifle competition, inflate consumer prices, and disrupt global supply chains, making it harder for U.S. firms to compete internationally. Lower-scoring countries should legitimately face more trade scrutiny from the Trump administration.

Non-Tariff Trade Barriers

The Non-Tariff Trade Barrier indicator provides a standardized score for each nation based on the prevalence of NTBs, as measured by the Fraser Institute’s Economic Freedom of the World 2024 index. Countries with extensive NTBs receive a low standardized score, those with moderate restrictions receive a mid-range score, and those with minimal barriers receive a high score.

This indicator is included in the index because NTBs limit market access for U.S. firms, increase compliance costs, and reduce U.S. firms’ competitiveness in the global market. As such, under the Trump administration, countries with low scores are more likely to face countermeasures, such as tariffs, trade restrictions, or heightened regulatory scrutiny.

For example, Argentina requires importers to request nonautomatic import licenses on about 1,500 products and has reduced the validity of licenses from 180 days to 90 days. Nigeria also employs NTBs that are detrimental to importers. For instance, it requires food, drugs, and cosmetics to be inspected but does not have the capacity to perform these inspections in a timely manner. Meanwhile, Singapore and Chile employ the fewest NTBs of nations in this study and are less likely to face sanctions for this particular reason.

Services Trade Restrictiveness Index

The Services Trade Restrictiveness Index indicator provides a standardized score for each nation based on the level of restrictions in its services trade sector, as measured by OECD’s Services Trade Restrictiveness Index in 2023. Countries with highly restrictive services trade policies receive a low standardized score, those with moderate restrictions receive a mid-range score, and those with mostly open services trade policies receive a high score.

This indicator is included in the index because restrictive services trade policies can hinder U.S. companies operating in sectors such as finance, telecommunications, and digital services. High restrictions increase costs, limit market access, and reduce competitiveness for American firms. Moreover, they also reduce supply and increase the cost of services for U.S. consumers.

For example, Indonesia is particularly restrictive partly due to its restrictions in legal services, accounting services, and telecommunications. Meanwhile, Thailand is quite restrictive in services trade because reforms that liberalize services trade have slowed in recent years. In contrast, Japan, the United Kingdom, Chile, and Australia have the most open services trade policies and are less likely to face pushback from the administration for this reason. Japan notably has a stable regulatory environment for services and has moderately liberalized its logistics and insurance sectors.

Taxes and Regulations

Digital Markets Act

The Digital Markets Act indicator provides a standardized score for each nation based on the presence or absence of a DMA or a similar regulatory framework in a nation. Countries that have implemented a DMA or comparable legislation receive a low standardized score, those now developing such regulations receive a mid-range score, and those without such laws receive a high score.

This indicator is included in the index because digital market regulations, such as the DMA, impose restrictions on large technology firms, many of which are U.S.-based. These regulations can limit firms’ revenues, restrict business practices, and increase compliance costs, potentially reducing profitability and innovation. The Trump administration should scrutinize countries that field anticompetitive DMA laws.

This is because these nations either have a DMA or similar law themselves or are subject to one as part of a regional entity (e.g., their EU membership.) For instance, Thailand has adopted the Platform Economy Act, legislation that represents a combination of the DMA and the DSA. Similarly, the United Kingdom has the Digital Markets, Competition, and Consumer Act of 2024, a DMA-like legislation that imposes restrictions on digital firms. Twenty nations with a standardized score of 0.7 are the least likely to face retaliation based on this measure, as they have not adopted a DMA-like law. These nations include, among others, Singapore, South Africa, Taiwan, the United Arab Emirates, and Vietnam. 

Digital Services Tax

The Digital Services Tax indicator provides a standardized score to each nation based on whether it imposes a DST on firms’ revenues using data from the Digital Services Taxes DST—Global Tracker and Digital Policy Alert’s Digital Services Taxes Tracker. Countries that have fully implemented a DST receive a low standardized score, while those without such a tax receive a high score. This indicator is included in the index because DSTs can increase operational costs, reduce profitability, and harm U.S. technology companies’ competitiveness.

The United Kingdom is likely to face repercussions due to its 2 percent tax on marketplaces, social media platforms, and search engines that exceed an annual global sale of £500 million ($635 million) and an in-country sales threshold of £25 million ($31.8 million). Canada imposes a 3 percent tax on digital service companies with more than CA$20 million of revenue from Canadian sources. Similarly, India imposes a 6 percent tax on advertising and a 2 percent tax on goods and digital services. Finally, 18 nations are unlikely to face penalties by the Trump administration for this reason, as they do not impose DSTs. These nations include Australia, Japan, Mexico, South Korea, and Switzerland.

Presence of Digital Economy Fines on U.S. Companies

The Presence of Digital Economy Fines on U.S. Companies indicator provides a standardized score that reflects whether U.S. firms have been subjected to digital economy-related fines by foreign governments, as tracked by the Digital Policy Alert’s Activity Tracker. Countries that have imposed a fine on U.S. companies receive the lowest scores, while those with no such penalties receive higher scores. ITIF includes this indicator because it highlights regulatory environments that may disproportionately target U.S. firms, harming their competitiveness in the global economy.

These nations include Australia, several European Union nations, India, South Korea, and the United Kingdom. For instance, Argentina’s Agency for Access to Public Information fined Google 180,000 Argentine pesos for refusing to give an individual access to her personal data. Meanwhile, the Reserve Bank of India fined Amazon Pay 30.6 million Indian rupees for failing to comply with “Master Directions on Prepaid Payment Instruments” and the “Master Direction – Know Your Customer Direction” provisions. In contrast, 23 nations, including Canada, Japan, Mexico, Switzerland, Taiwan, Thailand, and Vietnam are unlikely to face retaliatory measures. 

Extent of Pharmaceutical Price Controls

The Extent of Pharmaceutical Price Controls indicator provides a standardized score for each nation based on its ranking in ITIF’s report “Contributors and Detractors: Ranking Countries’ Impact on Global Innovation” and other outside sources. Nations with a low standardized score exhibit a high degree of pharmaceutical price controls, those with a mid-range score have a moderate level of controls, and those with a high score impose minimal price controls.

This indicator is included in the index because stringent pharmaceutical price controls reduce revenue for U.S. pharmaceutical companies, limiting their ability to invest in research and development (R&D). This, in turn, can hinder the development of next-generation drugs, potentially impacting public health in the United States. Indeed, as ITIF explained, “Pharmaceutical firms view current drug price regulations as likely to continue, reducing their potential profits while disincentivizing their investment in R&D.” As a result, countries with low scores may be more likely to face retaliatory measures under the Trump administration.

 Just like in Europe, Japan’s extensive drug price controls have decimated the country’s biopharmaceutical industry, as Japan’s share of global value added in the pharmaceutical industry declined by 70 percent, from 18.5 to 5.5 percent, from 1995 to 2018. Moreover, an ITIF report finds that, after adjusting for GDP per capita, prescription drug prices in the United Kingdom are 53 percent of those in the United States. In other words, for every $100 spent on prescription drugs in the United States, the United Kingdom spent only $53. Meanwhile, Taiwan, Switzerland, Singapore, and six other nations are least likely to face trade scrutiny for this reason, as their pharmaceutical price controls are relatively minimal. 

Antitrust Fines

The Antitrust Fines indicator provides a standardized score for each nation based on the presence of antitrust fines imposed on corporations. Countries with no antitrust fines receive a high standardized score while those that have imposed fines receive a low one.

This indicator is included in the index because aggressive antitrust enforcement can create regulatory uncertainty, increase compliance costs, and disproportionately impact large U.S.-based firms, impeding U.S. firms’ competitiveness. High antitrust fines can be viewed as a tool of protectionism, targeting successful foreign companies while shielding domestic competitors.

China stands out as one of the worst offenders on this indicator, marred by its unfounded fining of Qualcomm for $975 million in 2015 and its subsequent baseless announcements of antitrust investigations against Google and NVIDIA. Elsewhere, Australia has fined Google over what it deems misrepresentation of consumer data collection. The maximum fine per violation is now the greater of $50 million or 30 percent of a company’s Australian turnover during the infringement period. In January 2025, Apple faced a £1.5 billion ($1.9 billion) class action lawsuit in the United Kingdom for allegedly overcharging software developers through the App Store. Meanwhile, the Mexican competition authority has fined the Mexican unit of Walmart, Walmex, for alleged anticompetitive practices. It has also fined HP in the past for not obtaining appropriate consent for a merger with Plantronics.

Meanwhile, 20 nations score well at 0.8, signaling a more business-friendly approach. These nations include Canada, Brazil, and Japan in addition to the countries listed below. The EU, known for its stringent competition policies and major fines on U.S. tech giants, stands in the middle range with a score of -0.4. 

Intellectual Property

USTR Special 301 Watch List

The 2024 USTR Special 301 Watch List indicator provides a standardized score for each nation based on its inclusion in USTR’s Special 301 Report, which catalogs the nations that most extensively infringe on the interests of U.S. IP rightsholders. Countries on USTR’s Priority Watch List (i.e., the most intensive IP-infringing countries) receive the lowest score, those on the Watch List receive a mid-range score, and those not listed in the Special 301 report received the highest score. ITIF includes this indicator because the Special 301 Report assesses the adequacy and effectiveness of U.S. trading partners’ protection and enforcement of IP rights. Nations with lower scores generally exhibit weaker IP protections and are therefore more susceptible to facing retaliatory measures from the Trump administration, as inadequate IP policies or enforcement increases the risk of U.S. IP theft.

China represents a particularly likely target, as it is the world’s most significant perpetrator of IP theft. Moreover, the nation has not addressed U.S. concerns over forced technology transfers despite committing to the removal of those policies. Meanwhile, India would also be a prime target for Trump administration scrutiny because of its presence on the priority watch list. The nations with a score of 0.6, including Norway, Israel, Taiwan, and the United Kingdom, would be least likely to face retaliatory measures for this reason, as they were not listed on the 2024 Special 301 watch list. 

International IP Index

The International IP Index indicator provides a standardized score for each nation based on the strength of its IP rights framework, as measured by the U.S. Chamber of Commerce Global Innovation Policy Center’s International IP Index 2024, Twelfth Edition. Countries with strong IP protections received a high standardized score, those with moderate protections received a mid-range score, and those with weak or inadequate protections received a low score.

This indicator is included in the index because robust IP protections benefit U.S. companies—particularly in pharmaceuticals, technology, and entertainment—by safeguarding patents, copyrights, trademarks, trade secrets, and other forms of IP. Weak IP protections can increase counterfeiting, piracy, and unfair competition, harming U.S. businesses. Under the Trump administration, countries with low scores may be more likely to face countermeasures such as trade sanctions, tariffs, or pressure to strengthen their IP environments.

Indeed, according to the International IP Index, Pakistan ranks as the fifth-worst nation in terms of patent rights and second worst for copyright protections. Meanwhile, Egypt was the sixth-worst nation for copyright-related rights and trademark-related rights. In contrast, the United Kingdom, Japan, and the European Union have the strongest IP protections and are unlikely to face pushback from the administration for this reason. Indeed, the United Kingdom ranked in the top 10 nations with the best patent rights, copyright-related rights, and trademark-related rights.

Policy Recommendations

President Trump is certainly correct that, for too long, too many nations have been taking advantage of unbalanced trade relationships with the United States. In too many cases, the United States has extended lower tariffs, imposed fewer NTBs, or offered a more protective environment for IP rights than has a partner trade nation. The United States has also tolerated wildly unbalanced trade flows with nations such as China for far too long. Reciprocal and equitable trade relationships with partner nations are certainly a compelling vision, and the Trump administration is certainly justified in exploring policy measures to make that a reality.

That said, tariffs are not the unalloyed good the Trump administration appears to believe they are. The Trump administration should certainly not be implementing a universal tariff on all nations. Likewise, blanket, global sectoral- or technology-based tariffs—such as the tariffs “in the neighborhood of 25 percent” on imported vehicles, pharmaceuticals, and semiconductors that president Trump proposed on February 18, 2025—are unjustified and would inflict tremendous harm on the U.S. (and global) economy. Tariffs on intermediate products, such as the 25 percent tariffs president Trump has proposed on steel and aluminum products, are also certain to be counterproductive and deleterious to the U.S. economy.

In the opening days of his administration, Trump threatened 25 percent tariffs on Canada and Mexico (and 10 percent on China) to create negotiating leverage to draw stronger action from those nations to dramatically reduce the flow of illegal immigration and fentanyl into the United States. On March 4, 2025, president Trump proceeded with implementation of those 25 percent tariffs on Canada and Mexico (at the 10 percent level for Canadian energy imports) and 20 percent for China. The president has similarly threatened tariffs on EU nations to win concessions from them regarding several of the unfair trade practices documented in this report. It’s one thing for the Trump administration to threaten tariffs as a negotiating tool, but when partner nations respond by meeting the Trump administration’s demands—as, for instance, Canada and Mexico clearly have with their steps to enhance border enforcement and interdict drugs—then the Trump administration should take tariffs, or the threat thereof, off the table. This is certainly the case with Canada and Mexico, where the Trump administration’s proposed tariffs would also place the United States in clear contravention of its U.S.-Canada-Mexico (USMCA) free-trade agreement (FTA) commitments.

Reciprocal tariff relations among nations make the most sense when those tariffs are at zero.

China stands in a different category from virtually all the other countries assessed in this report. That’s true first because China pursues fundamentally mercantilist trade and economic practices—what ITIF has identified as “power trade”—in a manner distinct from most of the other largely market-based, if occasionally protectionist, countries in this report. Second, for this reason, China is unlikely to modify its fundamentally mercantilist approach in response to Trump administration pressure, whereas other countries may respond by dropping or modifying some of their unfair trade practices in response to such pressure. And while tariffs on China may well be justified due to its litany of unfair trade practices ranging from currency manipulation to massive industrial subsidization to rampant IP theft, tariffs alone will be insufficient to address the China challenge. Rather, as ITIF has written, America must pursue a holistic strategy to turbocharge its own innovation-based economic growth while marshalling an allied coalition that pressures China to stop rigging markets and start competing on fair terms. Effectively dealing with the China challenge will require a much more sophisticated set of tools than tariffs alone.

President Trump’s preoccupation with tariffs would be a fine thing if it were focused on eliminating them as broadly as possible, not on introducing new ones on trade partners across the world. Yet, his instinct for reciprocal trade relations is correct. For that reason, the Trump administration should make it a major initiative to expand the Information Technology Agreement (ITA), a plurilateral WTO agreement that commits member nations to eliminate tariffs on trade across hundreds of information and communications technology products. Similarly, the 1994 Agreement on Trade in Pharmaceutical Products—more commonly referred to as the “zero-for-zero initiative”—commits Canada, the European Union and its 28 member states, Japan, Norway, Switzerland, the United States, and Macao (China) to reciprocal tariff elimination for pharmaceutical products and for chemical intermediates used in the production of pharmaceuticals. As noted, if the Trump administration had real ambition here, it would roll up the ITA, the Pharmaceutical Goods Agreement, and the proposed Environmental Goods Agreement into an Innovation Technology Agreement that pursued zero tariffs on goods and their component inputs across all high-tech industries for participating nations. Indeed, reciprocal tariff relations among nations make the most sense when those tariffs are at zero.

The Trump administration should also ensure that other nations pay their fair share for innovative medicines. As H.E. Frech et al. have suggested, for example, “US officials could raise these issues at international negotiations and advocate for higher prices than presently set in high-income ROW countries. A multi-country agreement in this direction would represent a serious effort to support improved world health.” In the absence of that, the United States should file a WTO case based on the complaint that price controls on the pharmaceutical sector violate IP rights because they enable international arbitrage through parallel trading.

The U.S. Constitution empowers Congress to set import tariffs, although Congress has largely delegated that power to the executive branch. Still, Congress retains an essential voice in guiding U.S. tariff and trade policy. The Trump administration is invoking the International Emergency Economic Powers Act (IEEPA) as the basis for many of the tariffs it has proposed, including those on Canada and Mexico. But Congress intended IEEPA, originally enacted in 1977, to be used only in times of genuine national emergency—such as an actual war with the Soviet Union—and certainly not as a basis for tariffs on FTA partners or as a catchall justification for blanket tariffs of the type the Trump administration has proposed.

As such, Congress should pass the Stopping Tariffs on Allies and Bolstering Legislative Exercise of Trade Policy Act (STABLE), proposed by Tim Kaine (D-VA) and Senators Chris Coons (D-DE), which would institute a requirement of congressional approval before a president could impose new tariffs on U.S. allies and FTA partners.

Congress could undertake some additional productive legislation. Congress should charge USTR with working with willing allied partners to develop a full “China Bill of Particulars” report. As this report documents, China is the world’s most significant trade scofflaw. Accordingly, the United States needs to spearhead development of a collaborative report with allies that comprehensively documents the extent of Chinese mercantilist unfair trade and domestic economic and technology policies. Many of these have been noted, albeit in a piecemeal manner. Although it should also be noted that all foreign-nation exporters into the EU would pay a similar VAT.

Congress should amend, and the administration should use, Section 301 of the Trade Act of 1974 to target digital trade issues. Congress should amend a key U.S. trade defense tool—the Trade Act of 1974—to respond to the digital barriers central to modern trade. The law should detail the responsible agency and process (i.e., the actions, such as licensing, certification, or legal judgment) whereby the administration can impose specific retaliatory measures on a foreign service provider. The administration also should use Section 301 of the Trade Act to initiate an investigation of Europe’s DMA, which has been used to target and penalize U.S. tech firms. Section 301 can be used to enact tariffs, taxes, or restrictions on EU digital service companies doing business in the United States.

Congress should amend the Internal Revenue Code to allow authorities to impose mirror taxes on countries imposing Digital Service Taxes on U.S. firms. Section 891 of the Internal Revenue Code allows the president to retaliate against foreign discriminatory or extraterritorial taxes by taxing foreign citizens and firms. Congress could adapt this code by mandating a tax on the global revenues of large firms based in countries imposing DSTs, such as Italy and France, as a retaliatory measure against the discriminatory taxes placed on American tech firms. These mirror taxes could be legislated to expire upon either of two events: agreed international rules that subject tech giants to taxation in countries reached by their platforms or, in the case of an individual country, repeal of its own DST tax.

Congress should require U.S. aid to be contingent on countries not engaging in digital protectionism. Since the end of WWII, U.S. foreign aid programs have ignored foreign mercantilist practices that harm U.S. techno-economic interests, and that is no longer acceptable. Congress, with its oversight of various federal aid programs, should investigate and require that these agencies limit funding to countries engaging in digital mercantilism or IP theft. Specifically, development aid through the InterAmerican Development Bank or the World Bank should be contingent on nations limiting digital protectionism wherever possible.

Conclusion

The Trump administration has made it clear to global trade partners that sustained unfair trade practices deleteriously impacting U.S. enterprises and industries will no longer be tolerated. The increasing global proliferation of mercantilist practices certainly provides the Trump administration with a “target-rich” environment of trade scofflaws. But the administration should focus the most attention on countries where U.S. industries face the worst trade distortions and imbalances, and where action can most significantly advance U.S. economic interests. As such, this report shines a light on the countries—China, India, and the European Union—that the Trump administration should first prioritize in rebalancing U.S. trade and economic interests.

Appendix 1: Methodology

The country index scores were calculated by taking the raw score of each of the 11 indicators for the top 48 nations with the highest GDP. The raw scores originated from various sources, including the Chamber of Commerce, the U.S. Census Bureau, and the World Bank.  The mean and standard deviations were then calculated using each indicator’s raw score before the raw scores of each nation were standardized to find a z-score. The z-scores indicate the number of standard deviations an indicator’s raw score is compared with its mean value. The z-scores for each indicator were then weighted. Finally, the weighted z-scores were summed together to obtain an overall score for each nation.

The 15 European Union nations in the top 48 nations with the highest GDP were combined into a collective country variable of European Union. The European Union variable was calculated by taking the share of GDP each nation contributed to the overall European Union’s GDP and then weighing the indicator score for each nation by those weights. Finally, the weighted indicator scores for these nations were summed together. As noted, Russia was excluded from the report on the amount of trivial two-way trade (just $3.5 billion in 2024) occurring between Russia and the United States in the wake of the Russia-Ukraine war.

ITIF weighed each indicator’s standardized scores to reflect their importance. The USTR 301 Watch List and International IP Index indicators had a weight of 0.75. The extent of pharmaceutical price controls, DMA law, DST, NTBs, Services Trade Restrictiveness Index, simple mean tariff rates for all products, antitrust fines, and digital economy fines on U.S.-based companies (noncompetition) indicators had a weight of 1. The 2023 trade balance of goods and information services had a weight of 3.5. 

To read the report as it was published on the Information Technology & Innovation Foundation’s website, click here.

To access the full PDF as it was published, click here.

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Consider the following two stories involving legal disputes between American companies and foreign governments.

In 1919, the ocean steamer The Pesaro sailed from Genoa, Italy, for New York City. Built in Germany for a German shipper and formerly named the SS Moltke, the steamer had been seized by the Italian government in 1915 after Italy entered World War I. On board for its departure to America four years later were 75 cases of artificial silk owned by a company incorporated and based in the United States called the Berizzi Brothers. When The Pesaro arrived in New York after two weeks at sea, however, the Berizzi Brothers cried foul: Only 74 cases of silk were delivered. One had been lost or damaged in transit.

Eighty-two years later, a dispute on an altogether larger scale began. In 2001, with Argentina’s economy mired in recession, the country defaulted on around $93 billion of government debt, in what was then the largest sovereign debt default in history. Though a portion of that debt was owed to foreign governments, the default primarily involved private bondholders such as institutional investors. Most of these creditors would eventually agree to restructure the debt for cents on the dollar (thus booking losses), but a minority of the debt holders refused to accept this “haircut.” Like the Berizzi Brothers eight decades earlier, these holdouts, too, were based in the United States, namely a group of Wall Street “vulture funds” that had invested in the debt at distressed prices.

Beyond the fact that both cases pitted American firms against foreign governments, what links these stories is that the firms in question sought legal redress for their grievances. Not only that, but they sought this redress specifically in American courts, and thus by appeal to US law. The Berizzi Brothers sued for $250 in damages; the vulture-fund owners of the Argentinian debt sued for full face value plus interest.

The Berizzi Brothers’ case ended up in the US Supreme Court, and in 1926 the company lost, which is to say that the Italian government won. The Pesaro was owned and operated by Italy, and it was well established under US law that foreign governments (and their oceangoing vessels) were immune from suit in domestic courts. Yes, the Italian government was engaged in this case in a commercial activity, but it was so engaged, the court ruled, in a public rather than private capacity and with a public purpose.

But the Argentine government would not prove so fortunate, twice finding itself on the receiving end of negative legal judgments in its battle with the vulture funds. The first was when the US courts decided in 2012 in favor of the creditor holdouts, ruling that the full bond value was indeed due. The second followed Argentina’s subsequent decision—highly unusual among sovereign debtors in recent decades—to stand firm and continue to not pay up. While the US courts could not directly make Argentina pay, they could and did make life extremely uncomfortable, issuing rulings from 2012 to 2014 that indirectly forced the Argentine government’s hand by prohibiting it from making payments to other creditors unless it paid the holdouts first, and by prohibiting anyone anywhere in the world except Argentina from helping the country make such payments.

This pair of legal battles prompts a number of questions: What role does the law play in the arbitration of economic disputes? How does the direct involvement of sovereign states in such disputes affect that legal function? And what difference does it make when legal and economic disputes involving governments spill across national borders? These concerns have once again moved to the fore, with an explicitly protectionist and imperially minded president having taken the reins of power in America. The transition from The Pesaro and silk to Argentinian bonds and American vulture funds is an essential backdrop against which to answer these questions. In the course of eight decades, US courts seemingly made a decisive turn against foreign governments, stacking the deck in favor of American companies and becoming, in the process, a handmaiden to American empire.

The two stories with which we began effectively bookend the account of transnational commercial law that Shaina Potts, a geography professor at UCLA, provides in her new book, Judicial Territory. Potts’s study is capacious, offering insights on everything from financialization and hegemony to international trade and globalization. But at the core of the book is the history of how we got from US courts being willing to rule in favor of foreign governments and against American firms in the 1920s to the opposite outcome in the 21st century.

In a nutshell, that history is a chronicle of expanding US judicial authority over the economic decisions and activities of foreign governments, and in particular their relationships with private—usually American—companies. Governments that had previously been treated as sovereign and immune, such as the Italian government in its ownership and operation of The Pesaro, are no longer accorded such deference by US courts. Foreign states and their commercial dealings had not formerly been beyond the reach of US power altogether: The United States’ executive branch had rarely granted them immunity, especially when American interests were involved. What changed was that the US judiciary started to treat foreign governments exactly like private corporations, robbing them of any special legal status. This, as Potts describes it, was an epochal shift.

The change began in earnest in the 1950s and ’60s, and it was initially centered on what came to be termed “the Third World” and on developments in various postcolonial countries. Independence for such countries was frequently followed—albeit sometimes not until decades later—by the nationalization of foreign-owned assets and by the establishment in their stead of state-owned enterprises. Bolivia, for instance, nationalized its tin mines; Turkey nationalized its railways, ports, and utilities; Egypt nationalized the Suez Canal; and countries ranging from Iran to Mexico nationalized their oil industries.

Such nationalizations, which were integral to the plans of developing countries for a New International Economic Order, had long been regarded as beyond the purview of US law. But after World War II, a shift gradually occurred, and American courts increasingly came to treat the nationalization of US assets as unlawful expropriation. The nationalizations in Cuba on the heels of its revolution—Castro famously nationalized all American-owned sugar companies in 1960—were a particular flash point and are given special attention by Potts.

The path from The Pesaro to Wall Street vulture funds, and the markedly different legal treatment accorded to the latter, were enabled by transformations—halting, uneven, and in certain respects still ongoing—in two main legal doctrines that had historically insulated foreign governments from US courts. The first concerned foreign sovereign immunity rules: Who and what were immune from lawsuits? In the 1950s, both the who and the what began to be understood by US jurists in more restrictive ways, with the result that the commercial acts of foreign states—such as Italy’s conveyance of silks to America—lost their former immunity (through the so-called “commercial exception”).

The second key doctrine was “act of state.” This international legal principle asserts that acts carried out by sovereign states in their own territories—such as nationalizations—cannot be challenged by other countries’ courts. Historically, US courts fully respected this doctrine, but by the 1960s they’d started to chip away at it. In particular, commercial acts came to be excluded, just as they were from foreign sovereign immunity rules. Increasingly, it didn’t matter to US courts who a business operator or asset owner was: The activities and possessions of all economic actors (be they public or private) were no longer protected by the rules of sovereign immunity and acts of state.

The expansion of US judicial authority that resulted from the parallel transformations of these two doctrines has been as audacious as it has been largely unnoticed outside of narrow legal circles. It has also been multidimensional: While the juridical encroachment on foreign sovereignty has perhaps been most notable in cases of financial contracts (with creditor rights typically being privileged, as with Argentina’s debt), the phenomena newly falling within the ambit of US law are far more extensive. Anything that conceivably could be subjected to the transnational application of US domestic commercial laws has been. This includes, for example, cigars: A landmark case was Alfred Dunhill of London, Inc. v. Republic of Cuba (1976), in which the US Supreme Court ruled against the Cuban government, which had nationalized the cigar industry and subsequently refused to return the money mistakenly paid to it for pre-nationalization cigar shipments by importers in the United States. All that has been required to bring foreign governments to heel, Potts shows, is to successfully argue that the relationships or activities in dispute are “merely economic” (that is, private and commercial) rather than public and political, which is an argument that US courts have been increasingly happy to accept.

Meanwhile, alongside this expansion of what is litigable in the United States, more striking still has been the expansion of who can be sued and where the relevant activities or assets are located. Today, no sovereign government can operate without the risk of falling afoul of US laws and being held so accountable, and this is true wherever in the world they happen to be operating. Indeed, while making foreign governments subject to US laws for what they do in America is one thing, making them subject to these laws for what they do elsewhere, including in their own countries, is something else entirely. Yet that is precisely what has come to pass.

In 1990, the Nigerian government found itself embroiled in a US court case involving a contract it had awarded for the construction of a military hospital in Nigeria. Why? One American firm had accused another of having secured the contract through the bribery of Nigerian officials. The US Supreme Court decided that it did have the power to adjudicate the bribery accusation, thus reminding foreign governments the world over that they cannot deal with American firms, even at home, without considering how US courts will judge those dealings. (President Trump has recently weighed in on the appropriate course of judgment, telling US jurists to stop ruling against such bribery: “It’s going to mean a lot more business for America,” he said.) As Potts insists, it is surely a sea change of profound political significance that, over the course of several decades in the post–World War II era, the US legal system has “helped make the whole world part of US economic space.”

The transformations discussed in Judicial Territory are, as Potts admits, familiar ones to certain legal experts and well documented by legal historians. The particular importance and value of her new account lies in refusing the idea—implicit if not always explicit in the bulk of the existing literature—that this is merely a technocratic history, consisting merely of technical juridical tweaks. This process was not technocratic whatsoever, but partisan and nationalistic—thoroughly political from start to finish.

To begin with, the timing of the commencement of this shift in legal treatment—in the 1950s—was anything but happenstance. It coincided both with an upsurge in the socialist and postcolonial nations pursuing economic development models that prioritized domestic populations and industries rather than multinational (increasingly, US) capital, and with the diminishing potential for powerful Western countries to strangle those upstart development models in ways they had in the past. The American courts’ growing subordination of the international arena into merely another jurisdiction of US domestic law is part and parcel, then, of a longer and larger historical policy of containment.

Hence, the history that Potts narrates refuses technicist readings every step of the way. Behind the expansion of US judicial reach in the second half of the 20th century was the desire and determination of US government and corporate actors to tame statist national economic models overseas and to nip in the bud any developments remotely inimical to the interests of US capital. Much of the richness of Potts’s account is found in its careful identification of the primary nonjudicial actors (the private companies, investors, and policymakers with intimate connections to both constituencies) that animated and motivated these historical juridical transformations.

The value and importance of Judicial Territory also lies in Potts’s assessment of the consequences and indeed intrinsic nature of the massive expansion of US judicial authority. One of the most enduring puzzles of the postcolonial age has been the question of why previously colonized countries so frequently failed to flourish once the colonizers were sent packing and formal sovereign status had been achieved. Potts does not exactly situate her study as an answer to that question, but an answer—one adding to and complementing a range of existing answers—is nonetheless what she indubitably provides. Postcolonial nations have widely failed to thrive, Potts effectively argues, because in reality they remained part of a de facto empire, although in this case an American as opposed to a British, German, or Spanish one; and this has served to undermine their nominal sovereignty.

In fact, the refreshing thing about Potts’s book is that she makes no bones about it: Imperialism is clearly what we are dealing with here. But it is a different type of imperialism, one where exogenous judicial authority increasingly stands in for military or executive authority. Her book is a call to treat the United States as an imperial power precisely (although not exclusively) because of this extension across international space of US legal authority and, correspondingly, of the interests of US capital. Potts writes of the latter-day American empire evincing a “judicial modality”—of foreign sovereign nations and their peoples being subordinated to America by law rather than by colonial occupation or military force.

What is perhaps most insidious about the “imperial modality”—another striking Potts framing—of US judicial power is the extent to which it was designed to quietly snuff out “postcolonialism.” The expansion of US judicial territory after World War II, Potts writes, “enabled the United States to continue exercising substantial authority over the decisions of foreign governments in an age of avowed anti-imperialism and formal sovereign equality.” More than that, the turn to law was a mechanism of the active disavowal of empire. “The recoding of many foreign policy issues as merely legal,” Potts notes at one point, “has been an especially potent way for the United States to obscure its own imperial operations.” Or, as she puts it elsewhere, the trick has been “to cloak the pursuit of US geopolitical and geoeconomic goals (always entangled to a large degree with private corporate interests) in the guise of the ‘rule of law.’”

For that, of course, is the thing about law: its self-professed impartiality and, well, judiciousness. A modern-day empire rooted in law, of all things? The very idea seems counterintuitive, absurd even. Yet that is what Judicial Territory presents us with: empire camouflaged by the veneer of fairness that the law furnishes. If, as Carl von Clausewitz famously argued, war is merely the continuation of politics by other means, then, for Potts, law—at least the transnational application of domestic American commercial law—represents the continuation of empire by other means.

Just as Indigenous populations worldwide resisted the imposition of foreign occupation and rule that was European colonialism, so too have national governments worldwide—to varying extents and with varying degrees of determination—resisted and challenged the postwar expansion of US judicial authority. Potts recounts many such examples of confrontation. The Cuban government has long been a particular irritant for the United States in this respect, repeatedly and robustly arguing against the overreach of American judicial authority.

But Potts is also clear-eyed about the fact that, for the most part, these challenges have ultimately been in vain: “Once judicial decisions are made,” she observes, “most foreign governments do obey them most of the time.” But why? After all, as Potts notes, “transnational law is not backed directly by the enforcement power of the police the way domestic law is.” Her answer emphasizes the chilling impact of the economic blackballing that routinely comes with not conforming: “Foreign governments simply cannot afford to be locked out of US markets or legal services.”

The case of Argentina’s defaulted debt and the vulture-fund holdouts appeared, at least, to represent something of a counterpoint to this tendency. When the US courts initially ruled in 2012 that the country did have to pay the vulture funds in full, Argentina continued to refuse to do so. It held firm.

But that was not the end of the matter. As mentioned, the courts proceeded over the next two years to ratchet up the pressure further—effectively blocking Argentina from paying its other bondholders unless it first paid the holdouts in full—and in the end, the government buckled: In 2016, it settled with the vulture funds to the tune of more than $10 billion. Why? Argentina had essentially been excluded from the international capital markets while making its stand, compounding its domestic economic strife. Settling with the holdouts enabled Argentina to restore its credibility in the markets, issue new debt, and take measures to stabilize its economy.

In the end, Argentina had no real choice, besides isolationism, other than to settle. Settling was structurally required of it, given the country’s dependent positioning in the circuits of international finance. Economists call this structural bind “international financial subordination,” by which they mean that fundamental inequality in the global financial system structurally subordinates less powerful states and constrains their financial autonomy. What Potts has brought to light with Judicial Territory is the crucial role of the law in fashioning and enforcing such subordination—that is, in demanding and securing the obedience of sovereign states.

And the vulture funds? They made out like the bandits. According to data published by the courts in conjunction with the 2016 settlement, the funds each earned returns on investment of between 300 and 1,000 percent. But in its own analysis of the numbers, The Wall Street Journal found that one fund, Florida’s Elliott Investment Management, had actually achieved a return of up to 1,400 percent.

Elliott was very much the public face of the vulture funds in the lengthy battle with Argentina, receiving endless brickbats for its leading role in facing down the Latin American sovereign. Indeed, the normalization of the term “vulture” to refer to Elliott and the other investment funds involved in the litigation plainly indexed the way they were widely viewed: as operating somehow beyond the acceptable pale. “Elliott is the ugly face of America,” one critic, capturing the mood, exclaimed in 2018.

But to suggest that an investment fund such as Elliott is an aberration from contemporary American capitalism is to miss the point entirely. Insofar as it trades on the rule of law that the United States propagates and exercises globally, Elliott is American capitalism’s globalizing arm, its vanguard rather than black sheep.

Argentina’s government was demonstrating an “inexhaustible disregard for the rule of law,” Paul Singer, Elliott’s founder and president, opined in a letter to his clients at the height of the dispute. In 2014, a banker who’d done business with the firm was asked by a journalist what made Elliott so successful. “They have deep respect for the rule of law and they expect others to share it,” the banker said. But what would happen if Singer and his colleagues ever sensed that others did not share this “respect”? “I think you know the answer,” the banker replied.

To read the article as it was posted on The Nation website, please click here.

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Executive Summary

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A. What is VAT?

VAT is a consumption tax levied on the supply of goods and services – similar to sales tax in the United States – but with some key differences. While businesses collect and pay VAT throughout the supply chain, the tax is ultimately borne by the final consumer. It is generally considered neutral for businesses, ensuring a level playing field for both foreign and domestic companies.

B. How does it work in practice?

The VAT system operates through a multi-stage payment mechanism: when a business buys a good or service from its supplier (inputs), it pays VAT. When that same business then sells its own goods or services (outputs), it collects VAT from its customers. The business then calculates the amount of tax owed to the tax authorities by taking the input VAT it collected from customers and offsetting it against the VAT it paid to suppliers, resulting in a net tax liability. This mechanism ensures that VAT “flows through” the business and ultimately rests on the final consumer. At each stage of the supply chain, businesses are entitled to fully deduct the input VAT they have incurred. This ensures that the tax burden ultimately falls on the final consumer and does not unduly burden businesses within the supply chain.

Because VAT can be an effective way to raise government revenue without creating barriers to international trade, VAT has been adopted by over 170 countries globally. Some countries call it Goods and Services Tax (GST) instead of VAT, but the concept is the same. The United States is a notable exception, being the only major economy that does not apply a national VAT. Instead, it relies on a system of sub-national sales and use taxes at the state level.

C. What does it mean that VAT is neutral?

VAT systems are designed to treat all businesses equally, regardless of their location or origin. This principle of neutrality ensures that no business has an unfair competitive advantage or suffers disadvantage solely because of where they are based, which may otherwise distort international trade and limit consumer choice. The cornerstone of VAT neutrality is the destination principle, which stipulates that goods are taxed in the country where they are consumed, not where they are produced. Under the destination principle, exports are exempt from VAT in the country of origin, while imports are subject to the same VAT as equivalent domestic goods in the destination country. This ensures that all products competing in the same market face identical tax treatment, regardless of their origin.

Neutrality for business is ensured at each stage of the supply chain through input VAT deduction (the right for a business to deduct VAT incurred on its purchases as input VAT), which makes it a tax borne and paid by the final consumer.

D. Is VAT discriminatory towards foreign business?

No. Due to its design, VAT ensures a level playing field for businesses whether locally established or established abroad.

In concrete terms, this means:

• If a business makes purchases from a local supplier for its operations (for example, manufacturing goods), it pays domestic VAT to that supplier, which the business then deducts as input VAT.

• If the same business makes purchases from a foreign supplier (for example, imported raw materials), it pays import VAT, which is likewise deductible as input VAT, thereby ensuring VAT neutrality.

• Whether the business is established locally or abroad, it is treated on equal footing — provided that appropriate business structures are in place. While VAT is collected at various stages in the supply chain, its design ensures neutrality for business both for local and foreign business who are only the collectors.

E. So, is VAT comparable to a tariff?

No. VAT is not the same as a tariff. Here’s why:

Definition and mechanism:

• VAT is a consumption tax applied to the value added at each stage of production and distribution of goods and services. It is typically collected at the point of sale to the final consumer. Even when VAT is due on an import, it is deductible, meaning that the tax burden ultimately will be borne by the consumer and will be the same for domestic and imported goods.

• Tariffs, on the other hand, are taxes levied specifically on imported goods. While they generally do not have a deduction mechanism similar to VAT, certain schemes such as duty drawbacks, free trade zones, and inward processing may allow for tariff relief in specific cases.

• Scope of application: VAT is a broad-based tax applied to most goods and services consumed withina country regardless of origin, whereas tariffs are limited solely to imported goods.

• Impact on prices: While both VAT and tariffs can impact prices, they do so through different mechanisms. Tariffs directly increase the cost of imported goods, while VAT is generally passed on to consumers as part of the product price and applied equally to both domestic and imported goods.

F. Conclusion

VAT and tariffs are substantially different not only in scope but also in terms of the impact they have on trade and the overall economy. VAT is neutral by design. Viewing it as a reciprocal tariff could lead VAT-imposing countries to adopt retaliatory measures, potentially escalating trade conflicts unnecessarily.

Finally, some additional considerations to note:

• Targeting the use of VAT regimes could encourage the adoption of other harmful tax or non-tax policies (such as imposing customs duties on electronic transmissions).

• While VAT is neutral from a tax perspective, its practical implementation creates significant burdens for businesses, particularly micro-, small- and medium-sized enterprises (MSMEs). Simplifying VAT compliance and refund processes would benefit both businesses and tax authorities – reducing compliance costs and improving compliance for companies while lowering administrative costs and improving tax collection efficiency for governments.

To preview the policy brief as it was published, click here.

To read the full PDF, as it was published by the International Chamber of Commerce, click here.

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For more than two decades, China has worked to free itself from dependence on Western technology while making the West dependent on Chinese products. It protects priority industries and subsidizes them into becoming export juggernauts. 

China engages in economic coercion. Its civil-military fusion strategy powers a significant buildup of its military, surveillance, and disruptive capabilities. Its aggressive territorial claims in the South and East China Seas, and its threats to Taiwan’s integrity, present real risks of military conflict. Beijing and Moscow’s declaration of a “no limits” strategic partnership, and China’s active support for Russia’s war on Ukraine, threaten US and European security, interests, and values. 

Although the transatlantic partners are closer in their assessments of the China challenge today than they were four years ago, they approach Beijing from different strategic positions, with different tools, and with different senses of urgency. They have allowed their own bilateral squabbles to get in the way of robust transatlantic efforts to address Chinese aggression. These simmering problems could boil over in 2025.

This series analyzes the impact of China’s rise on transatlantic ties and presents ideas about how to forge a constructive partnership to meet the China challenge. It is based on a yearlong series of CEPA-sponsored workshops of leading European and US experts that I chaired together with Lucinda Creighton under the Chatham House Rule.

The basic question we addressed is whether Donald Trump’s new administration and Europe’s new leaders believe their own bilateral disputes are more or less important than the need to adopt joint or complementary approaches to China. Does the Trump administration believe it can and should fight predatory Chinese economic practices on its own, or forge a broad coalition of countries that could impose far greater costs on China than individual efforts? Are Europeans willing and able to bridge their own considerable differences over both China and Trump’s America to help lead such a coalition? 

A joint approach to China should be guided by three Ds: deconflict, disentangle, and deny. The US and Europe should deconflict their own bilateral ties so they do not endanger transatlantic cooperation on China. They should disentangle their economies from uncomfortable dependence on China. And they should deny critical technologies, data, or goods to China that could advance Beijing’s military capabilities and revisionist goals.  

To deal with China, the transatlantic partners first need to deal with each other. A transatlantic accord could include European commitments to boost defense spending to 3% or more of gross domestic product by the end of the decade; bolster support for Ukraine; diversify from Russian energy; buy more US-produced liquified natural gas and other energy exports, agricultural products, and defense equipment; and refrain from levying unilateral digital services taxes on US firms. The US, in turn, could commit to maintain an active role in NATO, ensure Ukrainian security and sovereignty, refrain from imposing preemptive tariffs, and explore effective global tax reform. 

The two parties should streamline the US–European Union (EU) Trade and Technology Council, now ensnared in an unwieldy tangle of many working parties, with three strong pillars. Pillar One would focus on mitigating US-EU disputes and advancing bilateral cooperation. It could include efforts to strike a quick trade deal to avoid a transatlantic trade war, finalize the Global Arrangement on Sustainable Steel and Aluminum, conclude critical minerals agreements, reduce trade costs by expanding conformity assessments, improve transatlantic risk assessments, and ensure that new EU laws such as the Digital Markets Act do not privilege Chinese and Russian tech over US firms. NATO allies should invoke Article 2 of the North Atlantic Treaty to promote defense-related innovation, and enhance screening of foreign investment in security-related infrastructure, companies, and technologies.

Pillar Two would address the China challenge: extending sanctions on Chinese actors for supporting Russia’s war efforts; improving and expanding coordination on export controls; restricting data flows to China, Russia, and other countries of concern; sharing information on nonmarket policies affecting digital trade; and improving inbound and outbound investment screening. 

Pillar Three would include areas in which the US and the EU could address China-related issues by working with like-minded partners. These include strengthening and expanding cooperation on critical minerals, energy security and climate change; coordinating and enhancing efforts to counter Chinese theft of intellectual property; supporting the use of trusted vendors in digital technologies; reviving and expanding US-EU-Japanese talks on nonmarket economies; and promoting a “Free Road Initiative” to help allies develop more secure and resilient connectivity options. 

It is an ambitious agenda. Any effort to forge joint or complementary US-European approaches to China could be a bridge too far. Yet the high stakes warrant exploring what a transatlantic deal on China might look like.  

To read the full Comprehensive Report, please click here.

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Indeed, given the importance of trade between the two regions, deteriorated trade relations would be detrimental for both, but likely more for the United States than for the EU, especially for the manufactured goods sector. The United States relies on the European Union for 18.3% for its trade in goods, compared to 6.7% for the EU. An analysis of value-added trade somewhat mitigates this data, depending on the sectors.

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Concurrently, advancements in technology are playing a pivotal role in this transformation, with digital trade revolutionizing how goods and services are exchanged, fintech innovations streamlining financial transactions, and artificial intelligence (AI) optimizing supply chain management. However, this multipolar trade world does not come without its challenges; geopolitical tensions, rising protectionism, and the threat of economic fragmentation pose significant risks to the stability and predictability of international commerce. Nevertheless, this environment also presents unique opportunities for smaller economies to navigate and leverage the shifting dynamics to their advantage.

This paper aims to critically analyze these multifaceted changes, exploring how emerging economies and technological advancements are reshaping global trade patterns while addressing inherent challenges and identifying strategies for resilience and growth in a complex global economy. Through case studies and future scenarios, we seek to provide valuable insights for policymakers, businesses, and institutions aiming to thrive in this new era of global trade.

The Rise of Emerging Economic Powers in Global Trade

How are China, India, and Brazil influencing current trade patterns?

The influence of China, India, and Brazil on current trade patterns is multifaceted, reflecting both their growing economic capacities and strategic positioning within global economic frameworks. These nations have significantly impacted the World Trade Organization (WTO), challenging the established order and contributing to a breakdown of multilateralism within the organization. This shift is part of a broader power struggle, as these emerging economies increasingly contest the traditional dominance of the U.S. and other developed nations. As a result, international governance organizations have undergone changes to better represent and incorporate the interests of these major growing economies. Their rise is not only altering trade relations but is also contributing to the evolution of the global economy, as they demand a more equitable role in shaping trade rules and policies. The economic advancements of China and India, in particular, have been notable, with both countries experiencing above-average growth in industrial value added, which further underscores their increasing influence on global trade dynamics. This ongoing evolution necessitates strategic adjustments in international trade policies and practices as the balance of economic power continues to shift toward these emerging economies.

What role do alliances such as BRICS+ and RCEP play in this shift?

Alliances such as BRICS+ and RCEP are pivotal in redefining global trade dynamics, particularly in the context of the shifting power balance between emerging economies and traditional powers. BRICS+ serves as a framework that not only expands the set of alliances for member countries but also leverages existing trade or investment agreements to foster multilateral cooperation within an enlarged group, thereby enhancing global trade integration. By incorporating key regional integration blocks like MERCOSUR, SACU (South African Custom Union), and EEU (Eurasian Economic Union), BRICS+ forms a crucial “regional rim” of partnerships, facilitating a collaborative environment that strengthens the influence of member countries in global economic affairs.

Additionally, the BRICS+ initiative emphasizes inclusiveness and diversity, aiming to create alliances that are comprehensive and representative of major regions across the developing world, thus challenging existing hegemonies and contributing to a more balanced international trade order. These efforts underscore the potential of BRICS+ and RCEP not only to redefine trade patterns but also to establish a new global platform for economic integration, promoting a multipolar world that diminishes the dominance of traditional Western powers. As these alliances continue to evolve, they could play a crucial role in coordinating trade strategies and fostering cooperation frameworks that bridge the gap between developing and developed nations, thereby necessitating ongoing dialogue and collaboration to ensure equitable and sustainable growth. 

How is the balance of power changing in the global trade landscape?

The shifting balance of power in the global trade landscape can be seen in the dynamics within the WTO, where emerging powers have progressively altered the traditional power structures. The collapse of the Doha Round serves as a watershed event, marking a significant breakdown in the WTO’s core negotiating function and highlighting the transforming power dynamics at play. Emerging economies such as Brazil, India, and China have played pivotal roles in this transformation, effectively challenging the previously unchallenged dominance of developed countries like the U.S. and the European Union (EU). These emerging powers have consolidated their influence by forming strategic coalitions and alliances, such as the G20-T, G33, and G77+China, which have been instrumental in reshaping negotiation roles and countering the aggressive stances of traditional powers. The concerted effort by developing nations to assert their agendas underscores a new era of multipolarity in global trade, where power is more dispersed and no single entity can unilaterally dictate terms. This evolving landscape necessitates renewed strategies for cooperation and negotiation, reflecting a more inclusive and equitable balance of power in the global trade system.

The Role of Technology in Reshaping Global Supply Chains

In what ways is digital trade transforming international commerce?

Digital trade is fundamentally reshaping international commerce by introducing digital technology multinational enterprises (digital economy MNEs) that are actively transforming both the manufacturing and service sectors. These enterprises prioritize non-physical assets, such as data and intellectual property, over traditional physical assets, leading to a shift toward asset-light forms of international production. This shift is not only redefining the competitive strategies of businesses but also altering global value chains (GVCs) as technological advancements facilitate new forms of digital trade and disrupt traditional commercial practices.

The digitization associated with Industry 4.0 further influences this transformation by changing the nature of tasks performed by machines versus humans, which in turn affects the geographic distribution of production and the interactions among buyers and suppliers. As a result, the “lightness” attributed to digital economy MNEs might suggest a wider trend towards increased “lightness” across various industries, potentially influencing development outcomes across different regions. This ongoing transformation in digital trade underscores the need for regions to adapt by fostering technological capabilities and rethinking traditional economic models to harness the benefits of a rapidly digitizing global economy. 

How are fintech innovations impacting global trade operations?

Fintech innovations are playing a fundamental role in reshaping global trade operations, much like the economic rise of emerging markets is challenging traditional powers in the WTO. These innovations are not only altering the landscape of financial services but are also streamlining global trade processes. The fintech industry is striving to create a unified medium of exchange and comprehensive apps for global transactions, aiming to simplify and expedite trade operations worldwide. This transformation is particularly significant as it parallels the shifts in economic power dynamics seen with the modernization and market reforms in countries like China and India.

Additionally, fintech’s influence extends to optimizing supply chain finance (SCF), introducing new business models that improve operational performance and efficiency, which is crucial for maintaining competitiveness in a rapidly changing global market. As fintech continues to evolve, it presents both challenges and opportunities, necessitating strategic adaptations by global trade stakeholders to harness its full potential and maintain a competitive edge.

What influence is AI having on supply chain management?

In the complex framework of global supply chain management, AI emerges as a pivotal force in enhancing operational resilience and efficiency. The integration of AI into supply chains has been particularly influential in managing disruptions, a vital capability underscored by the recent challenges posed by the Covid-19 pandemic. AI not only bolsters supply chain resilience by improving visibility and transparency across various phases but also enhances readiness, response, recovery, and adaptability, thereby ensuring a robust continuity of operations. Furthermore, AI contributes significantly to optimizing sourcing and distribution capabilities, which are crucial for maintaining uninterrupted supply chain activities, especially in volatile market conditions.

This technological advancement aids firms in mitigating risks by providing real-time insights and facilitating agile decision-making processes, thus reducing the risk of disruptions. Ultimately, the strategic incorporation of AI within supply chains not only fortifies them against unforeseen disturbances but also fosters dynamic capabilities that are essential for long-term sustainability and growth. Such advancements highlight the need for continuous innovation and collaboration among supply chain networks to fully leverage AI’s potential, ensuring that businesses remain competitive and resilient in an ever-evolving global market.

Challenges and Opportunities in a Multipolar Trade World

How do geopolitical tensions affect global trade dynamics?

Geopolitical tensions have introduced significant complexity into global trade dynamics, with profound implications for multilateral trade policies and economic alliances. The EU, for instance, finds itself at a crossroads, grappling with the intricacies of formulating and implementing effective trade policies amid a backdrop of escalating geopolitical strains. The challenges faced by the EU in this regard are not merely superficial but are fundamental and potentially enduring, as these tensions continue to evolve and influence global trade landscapes. A critical aspect of addressing these challenges lies in maintaining unity within the EU’s trade policy framework, which acts as a shield against the destabilizing effects of geopolitical tensions. This need for cohesion is underscored by the shifting geopolitical landscape, where major powers such as China are asserting greater influence, thereby introducing new challenges and necessitating a reevaluation of existing multilateral trade agreements.

Additionally, the increasing trend towards unilateralism and protectionism, particularly by influential players like the U.S., further complicates the global trade environment, necessitating adaptive strategies to safeguard international trade and investment frameworks. To navigate these turbulent waters effectively, it is imperative that global trade policies evolve to enhance resilience and adaptability, ensuring that they are robust enough to withstand the multifaceted challenges posed by ongoing geopolitical tensions.

What strategies can smaller economies employ to thrive in this environment?

Considering the shifting global trade dynamics dominated by major players like China, India, and Brazil, smaller economies must adopt a multi-faceted strategy to ensure their survival and growth. A critical approach involves forming strategic partnerships and entering into trade agreements, which can enhance their market access and competitiveness on the global stage. These partnerships not only allow smaller economies to tap into larger markets but also help in diversifying their economic dependencies, thereby reducing vulnerability to external shocks. Concurrently, engaging in dialogue with larger economies and international organizations is imperative to clearly articulate their unique needs and challenges within the global trade context.

This dialogue can pave the way for technical assistance and capacity-building support, enabling smaller economies to better adapt to the rapidly changing trade environment. Furthermore, building coalitions and alliances is vital for amplifying their voices during negotiations, thereby gaining a stronger influence over trade policies that affect them. Such coalitions can act as a counterbalance to the dominance of larger economies, fostering a more equitable trading system. Ultimately, these strategies not only empower smaller economies to thrive in a competitive global market but also contribute to a more balanced and inclusive international trade regime.

How might protectionism and economic fragmentation impact future trade relationships?

The evolving landscape of global trade, marked by protectionism and economic fragmentation, poses significant challenges to future trade relationships. As globalization shows signs of retreat, there is an increased likelihood of protectionist measures reshaping international trade dynamics. This shift is not only influenced by economic considerations but is also deeply intertwined with geopolitical factors leading to economic disintegration. Such fragmentation could result in a transition from prioritizing efficiency in global value chains to ensuring their resilience, thus altering the structure and nature of future trade relationships. For instance, the slowing growth of international trade is likely to lead to more fragmented trade relationships, complicating global economic interactions, and making it more difficult to establish cohesive trade policies. Understanding these dynamics is crucial for anticipating and navigating the potential impacts of protectionism on future trade policies, thereby ensuring that countries can adapt to the changing global economic environment. This necessitates a strategic approach that balances protectionist tendencies with the need for international cooperation and integration to maintain a stable global trade system.

Impact of the Second Trump Presidency on Global Trade

How might “America First” policies affect bilateral trade deals?

Donald Trump’s return to the presidency signals a renewed emphasis on his signature “America First” policy, which reshaped global trade in his first term. With Trump’s re-election, many anticipate a further retreat from multilateral trade agreements and an even greater focus on protecting American industries and jobs. In a multipolar world, where economic influence is increasingly shared among countries like the U.S., China, India, and the EU, a second Trump presidency could lead the U.S. to prioritize bilateral deals and protective measures such as tariff barriers and quotas. Proposed policies include a baseline tariff of 10-20% on all imports, with targeted tariffs reaching up to 60% on Chinese goods, 100% on electric vehicles from China, and 50% on semiconductors and solar panels. Additionally, Trump has suggested a 100% tariff on cars manufactured in Mexico, aimed at curbing efforts by Chinese automakers to use Mexico as a hub to bypass U.S. tariffs. These measures reflect a continuation of the unilateral trade strategies seen in his first term, signaling heightened protectionism and potential trade tensions in the years ahead.

This approach may further disrupt established global trade frameworks, favoring direct, one-on-one trade agreements over large, multilateral deals. By prioritizing American economic independence and reducing reliance on international supply chains, Trump’s second term may catalyze a shift toward a fragmented, regionalized trade environment where alliances shift to adapt to a complex global landscape of competing powers.

The “America First” policy has significant implications for the negotiation and sustainability of bilateral trade deals, primarily due to their emphasis on prioritizing American interests, which may lead to complex challenges in reaching mutually beneficial agreements. For instance, these policies often focus on unilateral actions, such as raising tariff barriers, which can disrupt trade dynamics and compel other nations to retaliate against the U.S. As an outcome, trade partners might seek alternative relationships, potentially forming new alliances to mitigate the risks associated with these policies.

This shift in global trade priorities not only affects the negotiation process but also diminishes trust among partners, further complicating both current and future bilateral trade agreements. Consequently, there is a pressing need for the U.S. to balance its national interests with collaborative approaches to maintain its position in global trade networks and ensure the efficacy and longevity of bilateral trade deals.

What are the potential consequences for traditional multilateral trade frameworks?

The potential consequences for traditional multilateral trade frameworks are vast and interconnected, primarily revolving around the erosion of established mechanisms that have historically promoted global economic cooperation. A significant concern is the rise of protectionist policies, as exemplified by the Trump Administration’s approach, which could challenge the foundational aspects of the U.S-led liberal economic order built on cooperation and shared governance since the end of World War II. This shift toward protectionism and unilateralism threatens to undermine traditional multilateral trade frameworks, leading to increased economic competition among nations, as countries may prioritize national gains over cooperative trade.

Additionally, developing countries, which often depend on multilateral frameworks like the WTO for mediating trade disputes, could find themselves particularly vulnerable if these frameworks lose their influence. The retreat from multilateralism could also exacerbate global inequality, as it may undermine efforts to establish equitable trade and development frameworks. Moreover, the shift towards bilateral agreements and regional economic blocs could fragment the global trading system, further weakening institutions like the WTO and creating an unpredictable environment for international trade. To counter these challenges, there is an urgent need for traditional multilateral trade frameworks to adapt, ensuring they can address the pressures of protectionism, protect vulnerable economies, and maintain pathways for international cooperation.

In what ways could emerging powers like China, India, and the EU influence trade norms in response?

Emerging powers such as China, India, and the EU are poised to play significant roles in shaping global trade norms, particularly in light of shifting economic landscapes. The EU, with its robust and diverse economy, can influence trade norms by leveraging its strong internal market as a buffer against external economic shocks. This resilience allows the EU to adopt a strategic approach to trade tensions, particularly by taking measured responses to proposed tariffs. Such measured responses are crucial to limiting exposure and preventing overreactions that could destabilize its economy. However, the interaction between China and the EU, especially through reciprocal measures such as symmetric tariff increases, highlights the potential for counterproductive outcomes. These actions could inadvertently escalate tensions, leading to broader economic repercussions for all involved parties. Similarly, India, alongside other emerging economies like Indonesia and Brazil, is expected to experience impacts similar to those of the established economies, further illustrating the interconnectedness of global economies and the importance of cohesive trade strategies. Therefore, it is vital for these emerging powers to navigate trade relations thoughtfully, employing targeted protective measures where necessary, rather than broad retaliations, to avoid provoking a full-scale trade war that could be detrimental to global economic stability. By doing so, these powers can contribute to the creation of balanced and stable trade norms that accommodate the diverse needs of the global economy.

The global trade landscape is undergoing a profound transformation as emerging economic powers like China, India, and Brazil reshape trade patterns, challenging traditional Western dominance. This shift from a unipolar to a multipolar framework signals a crucial evolution in trade relations, with new alliances such as BRICS+ and RCEP fostering cooperation among developing nations and enhancing their influence on global trade rules. Simultaneously, technological advancements, including digital trade, fintech, and AI, are fundamentally altering how goods and services are exchanged, prompting strategic adaptations in global value chains.

However, this transition is not without challenges. Geopolitical tensions, rising protectionism, and the risk of economic fragmentation raise concerns about the stability of international commerce, posing a significant threat to cohesive trade policies. Smaller economies may face both obstacles and opportunities, as they can leverage these shifts to navigate new trade alliances and enhance their positions within the global market.

This research highlights the need for innovative approaches to cooperation and multilateral frameworks that accommodate the diverse interests of a multipolar world. Ensuring a sustainable and resilient global trade system will require continuous dialogue, adaptability, and inclusiveness, allowing all nations to participate effectively in an increasingly complex economic environment. Future research should explore how emerging alliances, and technological innovations can contribute to a more balanced, equitable, and sustainable global trade system in the years to come.

To read the insight as it was published by Trends Research & Advisory, click here.

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There is persuasive force in calls for reform that are framed around a return to the past. The appeal to Bretton Woods conjures a period of sustained economic prosperity and relative political stability—at least among the liberal democracies of the West. More generally, embracing the authority of history anchors reform proposals on seemingly firm ground during a time of mounting international turbulence. But the call for a new Bretton Woods elides considerable disagreement. There are many competing views of the post-1945 international economic order, and each generates alternative understanding of how Bretton Woods should guide today’s proposed reforms.

This paper presents an historical-analytical review of Bretton Woods, based on the assumption that a better understanding of the postwar order can inform today’s efforts to restructure governance of the global economy. The paper first looks at the goals of those who evoke Bretton Woods in their calls for reform, focusing especially on the way leading U.S. officials link their ambitions to the history of the postwar settlement. It then shows that today’s calls for reform reflect four attitudes toward Bretton Woods that have been present in analysis since its inception. The next section explains how these attitudes are attributable to different understandings of Bretton Woods and its core features. The final section offers a periodization of the global economy since the end of the Second World War, showing that each understanding of Bretton Woods explains important developments over the following decades. The paper concludes by drawing on these insights to show how a new Bretton Woods moment can deliver on reformers’ ambitions for a renewed economic multilateralism—one that attempts to manage geopolitical change and to establish a clear role for the state in addressing today’s many economic governance challenges.

Renewing Economic Multilateralism: Expectations and Aspirations
Several factors animate growing calls for a new system of international economic governance. A shift in the composition of global power is changing the scope and aims of international cooperation. Many states now view preexisting forms of multilateralism as a source of unacceptable risks. Some also seek to reorganize the rules governing international economic relations around an updated set of goals.

The suspension of the Appellate Body of the World Trade Organization (WTO) is a prominent example of these parallel trends. Ever since the Trump administration first blocked the appointment of new Appellate Body judges in 2019, an approach maintained by the Biden administration, the WTO has been prevented from addressing disputes relating to membership. This move reflects a choice by the United States, alongside many other states, to protect its perceived strategic interests by sidelining the existing international trade regime. States are increasingly intervening in markets to hedge against vulnerabilities that arise from economic interdependence in an uncertain geopolitical context. They seek to ensure that inputs to produce essential technologies (such as for defense and the green transition) will neither be weaponized nor withdrawn from their country’s markets. This logic guides the U.S. CHIPS Act of 2022, which aims to jump-start a domestic semiconductor industry, as well as many efforts to reorganize key global supply chains.

Meanwhile, states are departing from a longstanding emphasis on the efficiency-enhancing effects of a multilateral trading regime. Prominent among their new priorities are efforts to require trading partners to adjust their production processes to meet higher environmental standards. This is the case with the European Union’s carbon border-adjustment mechanism and with the attempt to strike an agreement on steel production between the European Union and the United States through the General Agreement on Sustainable Steel and Aluminum. Shifting goals for economic multilateralism can also be seen in efforts to build greater labor protections into the United States-Mexico-Canada Agreement, which limited the potential for weaker labor laws in Mexico to maintain its competitive advantage. These emerging priorities mean that core features of the existing trade regime, like equal treatment and nondiscrimination, now face significant strain.

Change in the international trade regime is but one example of how geopolitical dynamics increasingly shape international economic relations. This is a far cry from past visions that aimed to use the rules of international economic governance to promote peaceful relations among states. Instead, there is now pressure to adjust the rules, norms, and institutions that manage the global economy to competing ambitions between states, so as to ensure they do not lose their coordination function altogether.

At much the same time, a decades-long rise in inequality has shaken preexisting consensus as to the irrefutable benefits of free trade and financial flows, as well as the general presumption against state intervention in the economy. This is seen in the United States, where both Democrats and Republicans now embrace industrial policy and reject efforts to further liberalize trade. As part of this broader change, governments increasingly see the need to adjust international economic relations to address challenges outside the traditional purview of the Bretton Woods institutions, such as tax policy, public health, technological regulation, and climate change. Paradoxically, as space for global cooperation appears to recede, demand grows to restructure the global economy in order to manage shared challenges that are straining politics and reshaping governance across the world.

Against the background of these trends, there are intensified calls to overhaul international economic governance, which are often guided by perceptions about the history of Bretton Woods. For example, leading U.S. officials treat Bretton Woods as a source of justifications, principles, and strategies for reform. In their telling, history shows that a new Bretton Woods moment can manage geopolitical change and also transform the role of the state in the economy.

Secretary of the Treasury Janet Yellen has emphasized the potential for a renewed economic multilateralism to stabilize geopolitical relations. This formed a key part of her invocation of Bretton Woods to legitimize the United States’ response to Russia’s invasion of Ukraine. Beyond forcefully criticizing Russia for “having flaunted the rules, norms and values that underpin the international economy,” she said that the war demonstrated a need to “address the gaps in our international financial system” during a moment of geopolitical disorder. In Yellen’s interpretation, the history of Bretton Woods showed that restructuring international economic relations could generate the enabling conditions for sustained peace and stability. As she put it, a new Bretton Woods moment offers to turn global “problems into opportunities.” It is poised to secure a volatile international order even as rules first agreed with the initial post-1945 settlement still grounded the Biden administration’s response to the crisis.

Meanwhile, Trade Representative Katherine Tai has cited the Atlantic Charter of 1941—which set out principles that guided the Bretton Woods negotiations—to argue that economic multilateralism should be reorganized to underwrite a “new social contract.” In her interpretation, the Atlantic Charter’s vision for an open world order was predicated on a more expansive role for the state in managing the domestic economy to ensure “improved labor standards, economic advancement and social security.” Tai emphasized that during the Second World War the leading powers created new norms for economic governance and an international structure that supported states in maintaining them. She suggested that a new relationship between the state and international order is necessary to manage contemporary economic governance challenges. If an alternative paradigm for economic policy is to meaningfully take root within the United States, Tai stressed that there must be a complementary set of reforms in the rules that govern the global economy and delineate the proper role of the state in the market.

In his keynote speech on the Biden administration’s international economic policy, National Security Advisor Jake Sullivan cited both these ostensible lessons of Bretton Woods. He argued that a restructured international economic order could simultaneously respond to geopolitical dynamics and shape a new paradigm for domestic economic governance. Sullivan framed the administration’s policy as an effort to return to fundamental Bretton Woods principles. He described it as a plan to repair the “cracks” that have appeared in the foundation of the international economic order since 1945. Beyond advancing the United States’ national security through the restructuring of international economic relations, Sullivan said that the administration was “returning to the core belief…that America should be at the heart of a vibrant international financial system that enables partners around the world to reduce poverty and enhance shared prosperity.” Sullivan suggested that the U.S.-led international economic order needed not only to secure the country’s interests, but also to enable a paradigm for economic governance that generates positive outcomes for partners in a shared multilateral system.

As the above attests, those seeking to reform the international order often draw on the history of Bretton Woods. They do so to suggest that reform should serve two ends: to stabilize geopolitical change and to facilitate a new role for the state in managing urgent economic governance challenges. At the same time, they often fail to detail how the post-1945 order achieved these purported accomplishments or to explain whether its lessons might still be applicable today.

Appeals to the lessons of Bretton Woods are hardly unique to U.S. officials. Others around the world make frequent, if selective use of the same history. UN Secretary-General António Guterres and IMF Managing Director Kristalina Georgieva, for instance, have both called for a “new Bretton Woods moment.” A recent report by a global consortium of leading think tanks identified the 1944 Bretton Woods negotiations as an “unprecedented moment of collective action.” These think tanks—hailing primarily from developing countries—argued that the world needs a similarly monumental instance of cooperation to address today’s challenges, while also correcting the global “hierarchies” that persisted as other core elements of the postwar arrangement “withered.” The analysis presents Bretton Woods as a model of broad cooperation to instruct the present and as a cause of global inequalities to be overcome.

However, not all invocations of Bretton Woods treat it as a useful guide. A recent report by the Chinese Communist Party casts the settlement as one in need of replacement rather than renewal. Stressing China’s opposition to “unilateralism and protectionism” in international economic relations, it depicts the goal of modernization as a “brand-new option” for organizing the international economy. The report endorses an international principle rooted in a strict idea of economic self-determination: namely, that “every country’s effort to independently explore the path to modernization in line with its national conditions should be respected.” (This is ironic, considering this was also a formative principle for Bretton Woods’ leading architects.) This framing depicts Bretton Woods as an antiquated regime featuring a set of impositions that a few powerful states foisted on the rest of the world. The Chinese Communist Party seeks to start anew and to present a meaningful rival—notwithstanding the benefits that current global economic arrangements brought to China.

These comparisons underscore the growing competition, within and among states, to redefine the priorities, principles, and rules for international economic governance. Much of this contestation is waged through different interpretations of the history of Bretton Woods and varied conceptions of the type of international system that it created. In fact, there is even disagreement as to whether the postwar system still exists. Such disparate understandings of the past shape discussion of what reforms are possible and desirable today. Closer attention to the history of Bretton Woods—and to the different interpretations of its role in the postwar economy—can inform these contemporary debates. It deepens appreciation of shifting geopolitical pressures and the novel governance challenges that are closely related to today’s global economy, but it also shows how similar developments have previously been managed through economic multilateralism. Reviewing the history of Bretton Woods thus helps to evaluate various approaches to reforming international economic order.

Four Attitudes Toward Bretton Woods
There is a recurrent tension in today’s invocations of Bretton Woods: must it be recovered or is it now being supplanted? A closer look reveals four long-standing attitudes toward it in scholarship and commentary—attitudes which mirror those evident in today’s calls for reform.

A first tradition looks to Bretton Woods with nostalgia. This view is reflected in the recent pronouncements by Biden administration officials. It is also prominent in academia, notably in the political science literature on “embedded liberalism.” This tradition interprets Bretton Woods as the basis for “a form of multilateralism…compatible with the requirements of domestic stability.” It stresses that the system’s main aim was to prevent a repeat of the economic nationalism and escalatory beggar-thy-neighbor policies that led up to the Second World War. This legacy of providing countries with sufficient room to structure domestic economic policy so as to preserve the multilateral system is viewed by its champions as a primary source of stability throughout the second half of the twentieth century. Many sense that this principle for economic multilateralism has been lost, and with it the stabilizing function of the international economic order.

A contrasting tradition charges Bretton Woods with responsibility for global economic inequality. This critique peaked with the calls for a New International Economic Order (NIEO) in the 1970s. As one leading international lawyer explained at the movement’s onset, the calls for a NIEO were due “first and foremost to the determination of the new States that emerged from decolonization to participate effectively in international life and, if not to discredit, at least to radically overhaul the global economic system put in place in the aftermath of the Second World War.”

From this perspective, Bretton Woods preserved an old world instead of delivering a new one. It constrained postcolonial states rather than facilitating their ambitions for economic transformation. (That is in spite of the fact that one of the major efforts in negotiating Bretton Woods was to diminish the likelihood of a return to an international economic system organized around imperial preference.) Proponents of a NIEO asserted that full membership in the international community—and, in turn, the legitimacy and continued stability of the international system—hinged on delivering a fairer share of the benefits from international economic cooperation to postcolonial and developing countries. In this view, the gains from economic multilateralism did not matter as much as their distribution. The view that Bretton Woods is responsible for sustained inequality and global instability persists today. Many critics, particularly from the Global South, blast the IMF, the World Bank, and other international institutions for their failure to respect different national pathways to development or to ensure fair access to international capital. These institutions are also seen as sclerotic in addressing climate change and other global collective-action problems that disproportionately hurt states that are already most disadvantaged in the global economy. This is why calls for a NIEO persist.

A third tradition treats Bretton Woods as in need of an update, which is manifest in several attempts to revitalize its core institutions to solve urgent challenges. The Bridgetown Initiative, one of the most prominent reform efforts, seeks to make the existing Bretton Woods institutions fit for purpose in a world of climate change by ensuring that vulnerable countries can access financing to manage the effects of a fast-changing environment. Recent reform efforts led by the G20 also set out to drastically expand the capacity of the World Bank and other multilateral development institutions to mobilize financing for sustainable development. These initiatives treat Bretton Woods as an institutional infrastructure that remains uniquely positioned to address global challenges, provided that it can be reinforced. They echo long-standing efforts to boost the capacities of international financial institutions, such as through the creation and expansion of the IMF’s Special Drawing Rights.

A fourth tradition frames Bretton Woods as something that must be recovered. Instead of calling for its institutions to be revitalized, proponents suggest that its animating purpose has been lost. Commentators with this perspective interpret Bretton Woods as a set of ideas for managing the postwar international system that were superseded by other arrangements. The scholars Michael Pettis and Robert Hockett, for example, seek to recover the initial vision of John Maynard Keynes, one of the architects of Bretton Woods. They stress how Keynes sought to create an International Clearing Union that featured an automatic mechanism to correct global economic imbalances and smooth the burdens of adjustment between surplus and deficit states. Appeals to recover Bretton Woods’ foundational ideas bring together the other three attitudes: nostalgia for what has been lost, criticism of the outcomes that global governance institutions produce today, and confidence that the original vision for the postwar order can make existing institutions fit for purpose.

The above shows that there has long been a mix of inspiration and dismissal with respect to Bretton Woods. Some celebrate it for stabilizing the post-1945 world; others disparage it for deepening global inequality. Many treat it as uniquely positioned to meet today’s challenges; others as something lost to the past. Each attitude reflects a different historical interpretation. When some cite Bretton Woods, they are referencing the institutions that have been at the center of managing the international economic order since the end of the Second World War. Others refer to the ideas that shaped initial plans for these institutions rather than subsequent practice. Still others suggest that the ideas and institutions overlapped at some point, even if they no longer do so today. Some also view the terms Bretton Woods II and Bretton Woods III as analytic descriptions of dynamics in the global economy rather than of the system that governs it.

Four Definitions of Bretton Woods
The first major study of the conference and its aftermath declared Bretton Woods dead by 1949, when the demands of economic recovery in Europe led to a very different set of responses than those envisioned during wartime negotiations. By contrast, one of today’s leading scholars of Bretton Woods says that the system did not begin until the late 1950s, when the restoration of current-account convertibility across Western Europe brought many states in line with commitments they had undertaken in the IMF Articles of Agreement. Others date the collapse of the Bretton Woods system to the Nixon administration’s decision to end the dollar’s convertibility to gold, and inaugurate floating exchange rates. Still another view suggests that Bretton Woods lasted longer, insofar as it represented an international system rooted in principles for structuring economic multilateralism around a common purpose, rather than any one mechanism for managing international monetary and trade relations. Other commentators claim that Bretton Woods primarily served to ratify the hegemony of the dollar in the global economy, which suggests that the regime remains in place today.

This shows there is little agreement as to when Bretton Woods existed, let alone on its core features. This lack of consensus helps to explain the varied attitudes taken toward Bretton Woods—both throughout its history, and in today’s calls for reform. At least four plausible definitions of Bretton Woods are on offer:

• As the institutional arrangement that managed interstate economic relations following the Second World War;
• As a regime of international economic governance built around a particular understanding of the interaction between international trade and finance in structuring the global economy;
• As a set of ideas about the proper relationship between international economic order and the role of the state in managing the economy;
• As an ambitious vision for international economic governance that failed to organize international economic relations.

The first definition takes Bretton Woods as a specific configuration of institutions established to manage the global economy and “win the peace” after the Second World War—namely the IMF and the International Bank of Recovery and Development (the precursor to the World Bank). This appears to be the most straightforward definition, but things become complicated upon reflection. The liberal trading regime is often considered essential to post-1945 economic multilateralism, yet its origin cannot be traced directly to the Bretton Woods Conference. The initial agreement focused on the international financial architecture as well as issues of recovery and reconstruction. Discussions of international trade were deferred to separate negotiations over the Havana Charter and its ambitious vision to create an International Trade Organization. Opposition in the U.S. Congress and the British parliament upended this plan, meaning that trade liberalization occurred under the auspices of the less comprehensive General Agreement on Trade and Tariffs (GATT). Nevertheless, many continue to see the GATT/WTO regime, alongside the IMF and the World Bank, as part of the Bretton Woods regime and as byproducts of an international economic bargain forged under U.S. hegemony. Viewing Bretton Woods through the prism of institutions created at the onset of the postwar period makes it possible to treat it as something that remains largely intact.

The second definition treats Bretton Woods as a consensus regarding the proper relationship between international trade and finance in structuring the global economy. For example, the political scientist Eric Helleiner stresses that the initial agreement secured the renewal of a liberal trade regime by allowing states to limit international capital flows. From this perspective, Bretton Woods enshrined a rare point of consensus between Keynes and its other leading architect, Harry Dexter White. It granted states an “explicit right to control all capital movements” as a way of ensuring the efficacy of their domestic economic policies. Fear of footloose capital, alongside the early postwar experience with the Marshall Plan, solidified a transatlantic consensus as to the need for public management of international capital movements. Limits on capital flows allowed states to effectively pursue full employment policies, and the resultant macroeconomic stability promised to reinforce their commitment to the multilateral trading system. The architects of Bretton Woods anticipated that a stable and steadily expanding international trade regime would secure broadly distributed economic benefits as well as a peace dividend. On this definition, the arrangement continued until a persistent shortage of dollars generated pressure in the late 1960s and early 1970s to lift capital controls and accelerate financialization of the world economy. This led to the emergence of the eurodollar market and eventually to a much different set of prescriptions to liberalize cross-border financial flows. It also prompted the Nixon administration’s decision on the dollar’s convertibility to gold. According to this understanding, Bretton Woods lasted as long as the consensus held to limit flows of capital to rebuild a viable liberal system among trading partners.

The third definition treats Bretton Woods as a set of ideas about the proper relationship between the international economic order, the state, and the market—suggesting it is a norm-governed consensus rather than any particular institutional arrangement. From this perspective, Bretton Woods’ core consisted of an international economic order in which social democracies retained a significant degree of autonomy in their domestic economic governance, thus guaranteeing their ability to enact policies in pursuit of full employment, macroeconomic stability, and essential regulatory goals. At the same time, the consensus ensured coordination to manage market pressures, like flows of hot money, and potential backlashes to expanding markets, like the risk of spiraling protectionism—neither of which could be addressed successfully through unilateral means. In this view, Bretton Woods and postwar social democracy were mutually constitutive. It produced an international economic framework that prioritized the efficacy of social democratic governance by ensuring that the state could manage various market dislocations. At the same time, well-functioning social democracies were expected to maintain support for economic multilateralism and give clear direction to adaptations in the Bretton Woods institutions as new circumstances arose. This offered to secure the continued benefits of international trade for members of the multilateral system as well as the durability of a common economic bloc among like-minded states. According to this understanding, the Bretton Woods era lasted as long as the international economic regime legitimized social democratic forms of governance (and vice versa).

The fourth definition takes Bretton Woods as a set of ambitions for a better functioning and more just international economic order that never took hold. Its proponents point out that wartime negotiations and postwar realities watered down the role of international institutions as envisioned by the architects of Bretton Woods. This meant its seemingly fundamental commitments were never realized. For instance, although Keynes envisioned the creation of an international currency managed by the IMF to facilitate clearing and to ensure sufficient liquidity for all members, the dollar ended up playing this role. Likewise, Keynes’s initial vision assumed that surplus countries would automatically bear some costs of adjustment to correct for global economic imbalances. This plan represented a drastic departure from the gold standard, which had imposed deflationary pressures on deficit countries to maintain stable exchange rates. But these more radical proposals were struck from the plans for the IMF. In a similar manner, the failure to launch an International Trade Organization marked diminished ambitions for the governance of trade. The GATT’s focus on lowering tariffs formed a significant contrast with the Havana Charter’s attempt to organize the rules of trade to promote full employment, macroeconomic stability, and broadly distributed development.

Postwar conditions also turned out to be much different than those anticipated by the Bretton Woods negotiators. With the IMF unwilling and unable to meet the demand for liquidity across Europe, the United States launched the Marshall Plan (formally, the European Recovery Program). This support ensured the continent’s ability to purchase food, capital goods, and other imported necessities to jump-start its recovery. By 1950, the European Payments Union emerged—deepening Western Europe’s economic integration, while instituting a protectionist approach toward the rest of the world to facilitate the continent’s further recovery. From this perspective, ideas at the core of Bretton Woods were never implemented, due to their dilution during negotiations and unanticipated postwar exigencies. From such a view of Bretton Woods, this stillbirth marked the end of its aspirations to guarantee economic stability in order to secure a more just and peaceful world.

Four Periods of the Post-1945 Global Economy
Understanding how Bretton Woods has shaped the global economy since the Second World War clarifies its role in managing geopolitical shifts and securing a new mandate for economic governance—the challenges at the root of today’s calls for a new Bretton Woods moment. The record suggests that each of the four competing definitions of the postwar settlement explains key developments in the global economy and thus sheds light on the possibilities of a revitalized economic multilateralism.

The history of the global economy since 1945 can be divided into four periods. The first extends until around 1960, and featured reconstruction and rapid economic growth across the West. The second lasted from 1960 until the late 1970s—a period of challenge and transition that involved the initial liberalization of global finance, the end of the dollar’s convertibility to gold, the expansion of the GATT’s remit, and the onset of stagflation. A third period from the 1980s to the late 2000s consisted of accelerating globalization alongside shifting geopolitics at the end of the Cold War. A fourth period of reaction and proposed reform began after the 2008 financial crisis and continues today. This came amid a return to geopolitical competition, rising discontent with the experience of rapid globalization and growing appreciation of the need to manage shared challenges such as climate change, inequality, financial instability, pandemic risk, and dislocations resulting from rapid technological change.

At the start of the first period, in the war’s immediate aftermath, the demands of economic recovery upended much of the blueprint agreed at the Bretton Woods Conference. Europe faced a severe balance-of-payments crisis in 1947, but the IMF hesitated to intervene for fear that this would exhaust its resources and prevent it from exercising its primary functions over the longer term. The ensuing crisis affirmed fears that full convertibility and the free flow of capital would lead to destabilizing consequences. Deteriorating conditions across Europe and the onset of the Cold War prompted the United States to launch the Marshall Plan instead. Although the Soviet Union and the Eastern European countries under its control participated in the negotiations, they did not ratify Bretton Woods or accept Marshall Plan aid. Instead, two economic blocs solidified, and largely mirrored the continent’s political split. The academic Richard Gardner suggested that, at this point, the “universalism” at the core of the “spirit of Bretton Woods had suffered a major eclipse.” On this reading, Bretton Woods never came into being; rather, its main features were sidelined as a result of unanticipated developments and new ways of managing them. An alternative view is that postwar circumstances actually cemented the animating purpose of Bretton Woods: it structured the international economic order to strengthen social democratic forms of government in a divided world.

Initial plans for the international economic order underwent significant adjustment in the early postwar years. With the failure of the Havana Charter, efforts to drastically reshape the international trade regime gave way to a far more modest attempt to facilitate lower tariffs through the GATT, while enshrining nondiscrimination and equal treatment in their application (even if the meaning of these principles changed significantly over time). The European Payments Union was launched in 1950 to bring about currency convertibility in Europe, and also to protect the continent from international competition that might otherwise undercut its industrial reconstruction. Meanwhile, Japan adopted its own regime for control of foreign exchange, which remained in place until 1980, to facilitate its recovery and development. As Helleiner details, the early postwar moment set the stage for an international economic order that sanctioned limits on financial liberalization to ensure states retained the capacity to pursue full employment and other key economic policies. This, in turn, offered to maintain the multilateral trade regime and secure its anticipated economic and political benefits. These developments show how different adaptations in the early postwar period upheld one purported core element of Bretton Woods: the restoration of multilateral trade and its expected benefits through managed financial flows.

This first period is now associated with les Trente Glorieuses—an approximately thirty-year period of rapid recovery from total war, sustained economic growth, and falling inequality across major Western economies. However, economic trends elsewhere, including in some members of Bretton Woods were far more mixed. During these decades, the Bretton Woods institutions enjoyed significant economic tailwinds. Their early development also unfolded alongside that of the Cold War. Economic multilateralism became part of the growing geopolitical contest, rather than serving as a means of avoiding it. Geopolitical pressures strengthened support for a postwar international economic order built around symbiosis between economic multilateralism and the furtherance of social democracy as a bulwark against communism. The multilateral system’s institutions solidified in tandem with the development of NATO and deeper security alliances between its leading economies. Thus, following another view of Bretton Woods, a shared economic system deepened a political-security alliance that maintained social democracy throughout the Cold War.

But this period also created the conditions for key elements of the Bretton Woods institutions to come undone. The lack of an international system for clearing led to the dollar’s rise as the global reserve currency. Due to the United States’ massive postwar surplus, persistent shortfalls in global liquidity and limited access to reserve assets proved a feature of the early postwar global economy. The eurodollar market developed to circumvent this dynamic, and the balance between a liberal trading order and capital controls began to unravel. Insufficient multilateral arrangements between like-minded countries—specifically, the failure to adhere to the initial ambitions to ensure liquidity, share burdens of adjustment, and give countries space to enact key economic policies—eventually placed significant strain on the Bretton Woods order. This supports the view that Bretton Woods was never properly equipped to ensure its initial vision.

At a minimum, it soon became clear that the IMF, the World Bank, and the GATT were insufficient to uphold many of their foundational commitments on their own, and significant other arrangements were made for managing the global economy. The Marshall Plan injected substantial liquidity into Western Europe’s economies to prevent their collapse. The European Payments Union deepened economic coordination across the continent and facilitated protection against the rest of the world, sustaining the continent’s recovery for some time thereafter. These institutions were not just postwar stopgaps; they reflected the deeper limitations of the main Bretton Woods organs. Over time, important commitments in the Bretton Woods settlement would be secured by many other institutions—including domestic legal regimes, regional forms of cooperation, and governance bodies such as central banks, the G10, and the Bank of International Settlements. However, these additional institutions eventually advanced goals other than those that animated the initial Bretton Woods settlement.

The second period in the evolution of the global economy began around 1960, when some key parts of the Bretton Woods agreements came into force. The restoration of current-account convertibility brought major economies into alignment with their obligations as members of the IMF. For this reason, many regard this as the one period when the Bretton Woods system functioned as intended. At the same time, ad hoc responses were increasingly needed to ensure that the international monetary system did not recreate deflationary pressures, beginning the shift toward a financialized global economy. As tariffs had also fallen significantly from their wartime highs by 1960, efforts began to repurpose the GATT—namely by expanding its ambit toward the reduction of nontariff barriers to trade. The space for states to pursue their own economic policies—one of the core Bretton Woods principles—started to shrink. Western liberal democracies began to face diminished policy autonomy while states that were peripheral to the system bucked the evolving rules to jump-start their development, such as the East Asian Tigers protecting their infant industries.

With the onset of stagflation in the 1970s, the Keynesian consensus around macroeconomic policy shattered. Alternative economic ideas—from monetarism to neoliberalism—filled the vacuum. Simultaneously, demands for a NIEO gathered momentum. The structure of Bretton Woods thus faced mounting opposition from two directions: from those who perceived it as a basis for continuing economic inequality in a postcolonial world, and from those who regarded its approach to economic governance as vulnerable to demands unleashed by decolonization and thus as ill-equipped to deal with the challenges of stagflation. Some calls for reform viewed the existing system as too susceptible to social democratic pressure; others argued it was not responsive enough to the demands generated by democratic process as it expanded to new parts of the globe.

The third period in the development of the global economy saw neoliberal change and accelerating globalization, alongside the unwinding of the Cold War and the start of momentous economic governance reforms in China. The increasingly dominant Washington Consensus attempted to extend a particular model of neoliberal economic governance across the world, as opposed to supporting social democracy in countries where it was already rooted. Technological advance, including the rapid reduction in shipping costs with the container revolution, spurred dramatic growth in global trade and financial flows. This permitted the rise of development models in which manufacturing and export developed around regulatory arbitrage, rather than comparative advantage in the classical sense used by economists. Geopolitical, technological, and ideational change combined to drive a much more expansive form of economic globalization.

Structural changes were furthered by institutional developments, particularly as the international economic order increasingly turned into a legalized arrangement. The creation of the WTO’s Appellate Body, the proliferation of investor-state arbitration under the International Centre for the Settlement of Investor Disputes regime, and the increased prominence of U.S. and European courts in managing global finance and sovereign debt transformed the multilateral regime into a far more juridical system. The Bretton Woods institutions began to condition their external support to developing states on their further liberalization of capital flows, instead of the other way around. In short, states faced growing limits on their capacity to shape their economic policies. By this point, the international economic order created at Bretton Woods had seemingly turned upside down: states were now pressured by, instead of protected from, the global economy.

By this period, the international economic order diverged from most plausible views of Bretton Woods. Much of what remained were the institutions themselves, but the IMF and the World Bank adopted very different roles than the ones envisioned by their architects or those they played in the first postwar decades. More strikingly, the GATT was transformed into the WTO, which was charged with managing many new dimensions of trade with a view to creating nominally competitive global markets. The international economic order no longer functioned to strengthen social democracies; rather, it set out to extend markets while limiting the way states could intervene in them.

Still, the core ideas of Bretton Woods did not lose all purchase. For example, the European Union emerged during this period, cementing a monetary and customs union that realized one of the first Bretton Woods ideas. In his initial plan, Keynes called for a future of “small political and cultural units, combined into larger, and more or less closely knit, economic units.” This period also led to a configuration of the international monetary system that some economists term as Bretton Woods II. Thus, even as it appeared to have been supplanted, Bretton Woods still cast a long shadow in both shaping and understanding the global economy.

The fourth and still ongoing period in the history of postwar international economic order began after the 2008 financial crisis. Economic downturn kickstarted a rise in populism, protection, and economic nationalism across much of the world. Perhaps paradoxically, this period of turbulence coincided with deepening awareness of the need for international cooperation to address new challenges. The growing rejection of neoliberal globalization elicited two counter-movements: one rejecting nearly any form of international economic cooperation and another for reorganizing economic multilateralism to grapple with issues not traditionally associated with Bretton Woods, such as climate change, artificial intelligence, and the management of various risks associated with heightened interconnections ranging from finance to public health. These shifts thus return us to the question of whether Bretton Woods is being rejected or must be revived. This review of the history of Bretton Woods—and of competing interpretations of it—can sharpen debate as to the right answer.

The New Bretton Woods Moment
In the United States, growing calls for a new Bretton Woods moment often reflect grand ambitions for reform. Senior officials frame this as a means of managing geopolitical change and substantiating a new role for the state in the economy.

There are nevertheless glaring differences between the present and the context out of which Bretton Woods emerged. Today’s calls to restructure the international economic order are intensifying in circumstances of rising geopolitical competition, and amid the growing risk of fragmentation in the global economy. Demand for reform also comes against the backdrop of proliferating challenges that imply novel responsibilities for the state in governing the economy, and in a moment where America is no longer the world’s unrivaled economic hegemon. By contrast, Bretton Woods emerged near the end of the most destructive war in history and at the height of U.S. economic power. It aimed at managing the one overriding economic governance challenge of macroeconomic instability and resulting unemployment, which had been enabled by the prewar international system. Amid the destruction of total war, preventing another spiral of depression and economic nationalism was seen as fundamental to maintaining peace.

Today’s geopolitical and economic challenges are different. The necessary elements of a stable, prosperous, and just world order are far more multidimensional. Efficiency and growth must be balanced against risk and resilience. Demographic shifts complicate prospects for sustained growth in mature economies. Various sectors now operate in ways that depart from assumptions that explained the benefits long associated with more free trade. The most recent period of the international economic order also generated substantial imbalances between countries that are now geopolitical rivals. Bearing in mind these key differences, this review sharpens understanding of what a new Bretton Woods moment should aim to deliver.

First, policymakers should not focus on a particular institutional configuration, but on the common orientation of a range of institutions. A new Bretton Woods moment will not generate a well-defined set of arrangements to manage the global economy and stabilize geopolitics. Even in a moment when much of the world aspired toward universalism, and when the United States’ unrivaled economic power allowed it to dictate many terms of the postwar arrangement, the implementation of Bretton Woods proceeded in a fragmented way. A diverse institutional landscape proved necessary to uphold its basic commitments. Alongside the IMF and the International Bank of Recovery and Development, the GATT substituted for the International Trade Organization, the Marshall Plan and the European Payments Union were necessary mechanisms to sustain recovery, and the G10, the Bank of International Settlements, and the Organization for Economic Cooperation and Development coordinated vital reforms in the international monetary system. Key functions of international economic governance were often delegated to various institutions as new circumstances arose. But, at least for some time, these institutions maintained commitments that were foundational to the original Bretton Woods project of buttressing social democratic governance and, by so doing, maintaining the peace.

Second, the sustainability of economic multilateralism hinged upon the functions that the international economic order left to the state. One of the key features of Bretton Woods was recognition that continued economic cooperation required assurance that states could still chart their domestic economic course. Each member of the system had different needs, circumstances, and demands from its citizens. For cooperation to be positive-sum, it had to remain limited to managing shared challenges, or else the entire system risked unraveling. Preventing destructive economic nationalism required an international order built around guarantees of economic self-determination, not least to maintain the legitimacy of the social democratic governments that were at the core of the multilateral arrangement.

Third, governance of the international economy tracks geopolitical dynamics, just as much as it shapes them. The belief that economic multilateralism can tame world politics through a rigid set of rules intensified in the era of neoliberalism, which turned Bretton Woods upside down. Yet in the early postwar period, when wartime aspirations gave way to Cold War realities, it became clear that Bretton Woods was part of the geopolitical contest rather than an antidote to it. The arrangement strengthened like-minded states, and ensured the legitimacy of a common form of government by spreading the benefits of cooperation, while guaranteeing the capacity for member-states to manage pressing challenges. Both were necessary ingredients for maintaining Bretton Woods’ commitments across time. One ambition associated with a new Bretton Woods moment might thus be slightly refined: rather than seeking to reshape or to stabilize geopolitical relations, restructuring economic multilateralism can be one tool in a broader approach for doing so.

These lessons come with a caveat. The like-minded social democracies at the core of Bretton Woods were principally the large, industrialized economies of the West. The system did not extend its essential commitments to all members, which is why calls for a NIEO emerged. Today, the definition of like-minded states must be expanded beyond advanced Western market democracies if a new Bretton Woods is not to recreate the kind of inequalities that placed significant pressure on the old one. Steps toward this approach are evident in the Biden administration’s Indo-Pacific Economic Framework. Some ideas that first animated Bretton Woods, such as closer forms of economic cooperation within a broader multilateral structure, offer further options for expanding the conception of like-minded states as an organizing principle for a new economic multilateralism.

These lessons lead to a final conclusion: the various ways of interpreting the history of Bretton Woods overlap in a crucial way. They all suggest that the two primary goals for a new Bretton Woods moment are deeply related. If a restructured international economic order is to play a role in responding to a fast-changing geopolitical landscape, then it must legitimate the approach of like-minded states in solving urgent challenges. This means the international economic order needs to assume responsibility over new governance issues, while empowering the state to take on a different role in managing the economy. Reviewing the history of Bretton Woods highlights plausible ways to structure economic multilateralism toward these ends. A subsequent paper will explore one way forward, focusing on how the international economic order can organize cooperation around common challenges that confront like-minded states and, in the process, play a role in stabilizing a turbulent moment in world politics.

To read the paper as it was published on the Carnegie Endowment for International Peace Institute webpage, click here.

To read the full paper, click here.

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The Report underlines that diversifying global value chains, reducing trade costs through digitalization, and transitioning to a low-carbon economy can create new opportunities for low- and middle-income economies. Furthermore, when trade policies are complemented by domestic measures, such as labour, education and competition policies, the gains from trade can more easily flow to workers and consumers. Enhanced WTO cooperation with other international organizations can magnify their combined action to increase inclusiveness across and within economies.

To read the report as it was published on the World Trade Organization webpage, click here.

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