The World That Tariffs Will Make

Summary

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The Foreign Affairs Interview

Episode: The World That Tariffs Will Make
Date: September 11, 2025
Host: Daniel Kurtz-Phelan
Guest: Michael Froman, President of the Council on Foreign Relations and former U.S. Trade Representative

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Overview of the Episode

This episode tackles the seismic global changes unleashed by the United States’ recent sweeping tariffs under President Trump’s second term. Host Daniel Kurtz-Phelan sits down with Michael Froman (former USTR, now CFR president) to explore the end of the old global trading order, the roots of protectionist backlash, and what a future "beyond nostalgia" for globalization might look like. With sharp analysis, Froman calls for realism: the rules-based system as we knew it is gone, and only serious political, economic, and multilateral adaptation will keep chaos at bay.

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Key Discussion Points & Insights

1. The Death of the Old Order: No Going Back

• Froman’s main thesis: the global trading system of the post-WWII era has been “fatally compromised”—there’s “no going back.” The “toothpaste is out of the tube.” ([00:05], [48:19])
• Trump’s tariffs and China’s assertiveness are symptoms and causes of this rupture. Even if elements of the old order survive, the system is now fragmented.
• Nostalgia is not a strategy—what’s required is inventing a new set of rules for a changed global reality ([00:05]).

Quote:

“I think there's no going back. The toothpaste is out of the tube.”
— Michael Froman [00:05], [48:19]

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2. How We Got Here: Technology, Policy, and Over-Burdened Trade Debates

• Trade policy has received both “more credit and more blame than it deserves.” Technological innovation—like shipping containers and broadband—drove globalization far more than trade agreements themselves ([01:58], [02:49]).
• Many ills attributed to trade policy (job loss, regional decline) are actually the results of technological change and global integration, not just “bad trade deals” ([02:49], [05:35]).

Quote:

“A lot of the things that people associate with trade is really about technology and the dynamism of globalization, which by the way continues.”
— Michael Froman [02:49]

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3. Trade as Scapegoat: The Real Failures

• Froman concedes the old trading system did not adequately cushion those adversely impacted by globalization—e.g., factory and manufacturing worker displacement ([05:35]).
• The U.S. failed to pair trade policy with robust domestic measures for retraining and lifelong learning, leaving many workers vulnerable to disruption ([05:35]).

Quote:

“We never accompanied trade policy with a sufficiently robust set of domestic policies designed to ensure that American workers would be able to survive and thrive in a rapidly changing economy.”
— Michael Froman [05:35]

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4. China and the Collapse of WTO Assumptions

• The existing trade system was not designed for a player as large, state-directed, and non-convergent as China ([10:41]).
• Early optimism that China would fully embrace market reforms proved unfounded, especially under Xi Jinping ([10:41], [13:19]).
• U.S. attempts to press China for reform were consistently rebuffed. China benefited immensely from a benign global environment but didn’t reciprocate with reciprocal openness ([13:19], [16:36]).

Quote:

“There were several areas where I don't think the global system anticipated the nature of the China challenge… One thing we did not anticipate was that trajectory would not necessarily be linear.”
— Michael Froman [10:41]

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5. Adopting China’s Playbook: Protectionism, Industrial Policy and State Capitalism

• The U.S. is “now operating largely in accordance with Beijing standards”—industrial policy, subsidies, and state intervention ([17:49], [18:43]).
• Froman supports some targeted interventions in sectors tied to national security—like semiconductors—but warns against an endless, unstrategic expansion of government role in the economy, which can become a slippery slope ([18:43], [23:20]).

Quote:

“It's a bit of a Pandora's box. Once you say, okay, the government is going to begin to play this role in the economy, where do you stop?”
— Michael Froman [18:43]

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6. National Security and Economics: A Shifting Center of Gravity

• Froman notes a tectonic shift where national security frameworks increasingly determine economic policy; this is symbolized by the Biden administration’s National Security Advisor delivering the top economic policy speech ([21:15]).
• The challenge: defining national security tightly enough to avoid “endless expansion of the yard.” ([22:57], [23:20])

Quote:

“We need to think through national security through an economic lens. We need to think through economic policy through a national security lens.”
— Michael Froman [21:45]

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7. Trump’s Tariff Revolution: Global and Market Responses

• The world has been surprised by how markets and other nations have absorbed sharply higher U.S. tariffs; the average tariff is now about 16–17%, up from 2.5% ([29:56]).
• So far, inflation and job loss have not been catastrophic, but Froman cautions that time lags may still reveal harsher effects ([29:56], [32:25]).
• Other countries have been less retaliatory than expected, partly due to Trump’s threats of escalation, and partly because of targeted leverage by China ([33:58]).

Quote:

“We are five, six times the tariff levels we were before. And I think that surprises me that the markets have absorbed that… The market impact has been positively complacent and we'll see how that plays out over time.”
— Michael Froman [29:56]

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8. Risks of Contagion and Systemic Breakdown

• If the U.S. and China pursue a “two-player system,” the risk is global contagion: other countries will abandon multilateralism and embrace ad hoc, self-interested barriers ([37:46], [38:23]).
• Froman warns this could lead to a “downward spiral” toward chaos and possibly conflict, reminiscent of the unstable interwar decades ([38:23], [39:59]).

Quote:

“The darkest scenario is that we end up back in sort of a Hobbesian state of nature where every country is doing their own thing at the expense of the others, driven by domestic pressures and politics.”
— Michael Froman [38:23]

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9. A New Mercantilist Order? Trump’s Strategic Vision and Its Limits

• Trump’s advisors see tariffs as a way to force manufacturing back to the U.S. because of the market’s size ([43:15]).
• Froman doubts tariffs alone can deliver this outcome, referencing limited steel job growth and greater downstream job losses from past tariffs ([46:41]).
• The cost of tariffs is immediate and widespread, while any manufacturing recovery is lagged and limited to certain sectors ([43:15]).

Quote:

“The cost of tariffs are going to be felt by everybody… And the benefits, if they're right, that by putting up a wall of tariffs, we're going to increase manufacturing in the United States. That benefit is going to be felt four, five, eight years from now by a relatively small number of workers in a relatively small number of sectors.”
— Michael Froman [43:15]

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10. The Survival of Rules: Beyond Nostalgia and Toward Plurilateralism

• Froman asserts it is crucial to maintain some form of predictable rules, even if multilateralism in its old form is gone ([49:20]).
• Suggests future systems may rely on “plurilateral” agreements—smaller groups of countries with shared standards and open frameworks ([50:39]).
• This system may not be as economically optimal in textbook terms, but could be more resilient and politically sustainable ([51:09]).

Quote:

“Some degree of rules… even if you can’t get rules that apply to everybody… groups of countries can come together plurilaterally and agree to rules that they’re willing to live by… That may be a second best, but still a better solution than chaos and anarchy.”
— Michael Froman [49:44], [50:39]

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Notable Memorable Moments & Quotes

• “Nostalgia is not a strategy.” — Michael Froman [00:05], [48:19]
• “Trade policy has gotten both more credit and more blame than it deserves…” — Daniel Kurtz-Phelan quoting Froman [01:58]
• “We never accompanied trade policy with a sufficiently robust set of domestic policies designed to ensure that American workers would be able to survive and thrive in a rapidly changing economy.” — Michael Froman [05:35]
• “We're now at about 16, 17% [tariffs]. And we'll have to see where this lands because there are a lot of other trade cases currently going through the system which could raise tariffs in particular sectors even further.” — Michael Froman [29:56]
• “The risk is that Europe turns inward. The major emerging economies… turn inward. And suddenly you see sort of a downward spiral of disintegration, of deintegration of the global economy.” — Michael Froman [38:23]
• “Even if the rest of the world continues to try and support the system, it’s going to affect a smaller and smaller portion of global trade.” — Michael Froman [48:19]
• “That may be a second best, but still a better solution than chaos and anarchy.” — Michael Froman [50:39]

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Timestamps for Important Segments

• Introduction & Old Order’s Demise: [00:05]–[02:49]
• The Limits/Blame of Trade Policy: [05:10]–[08:35]
• System Design Flaws with China: [09:45]–[13:19]
• China’s Intransigence & the Global Response: [16:26]–[18:43]
• Industrial Policy & National Security: [21:15]–[23:20]
• Trump’s Tariffs — Market Response & Complacency: [29:56]–[32:25]
• Lack of Retaliation and Global Contagion Risk: [33:58]–[39:59]
• Trump’s New System — Can It Work?: [43:15]–[46:41]
• Plurilateralism as the Next Best Hope: [49:20]–[52:39]

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Conclusion

Froman and Kurtz-Phelan offer a sweeping, candid assessment of the collapse of the old global trading order and the uncertainty of what will replace it. While acknowledging both the failures of the old system and the impracticality of going back, Froman warns against both nostalgia and chaos—urging instead for adaptive, realistic cooperation centered around rules, even if less universal, and persistent U.S. engagement and leadership to prevent a world sliding toward destructive economic fragmentation.

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Transcript

[A]

Dan I'm Dan Kurtz Phelan, and this is the Foreign affairs interview.

[B]

I think the natural inclination is to look back with nostalgia and say, okay, when this administration's over, we're going to go back to the way things were before. I don't think that's going to happen. I think there's no going back. The toothpaste is out of the tube. And I think what we need to do is think through, okay, what are the elements of the old system that should be preserved in some other form? Where do we need to reform the system and where do we need to come up with new rules or new mechanisms altogether to take into account the lessons of the last 80 years and the lessons of this grand experiment?

[A]

Donald Trump has been railing against the global economic order from the start of his political career. But in his second term as president, he has turned that critique into blistering action. In just five months, the trade war that started with his April tariffs has completely reshaped the global economy and struck at the very heart of the trade system that emerged after the end of the Cold War. To Michael Frohman, the diagnosis is terminal. Frohman, now the president of the Council on Foreign Relations, which publishes Foreign affairs, served as U.S. trade representative in the Obama administration. Even if pieces of the old order managed to survive, he writes in the new issue of Foreign affairs, the damage is done. There is no going back. Trump's America first trade policy and China's analogous strategy herald a new order of protectionism, unilateralism and mercantilism. Fromman warns that economic anarchy could ensue, but as he sees it, any hope of resurrecting the corpse of the old order is delusional. Nostalgia, he argues, is not a strategy. Rather, the task at hand is to build a new global economy shaped by rules, even without a global rules based system. Mike, thank you for joining me today. The proximate reason for this conversation is your essay and our new issue after the trade war, but it's been a long time coming.

[B]

Well, thanks for having me.

[A]

Before we get consumed with trying to understand both the drivers and consequences in the ongoing trade war that really started with Donald Trump's Liberation Day tariffs in April, I think it's worth stepping back and trying to understand not just how we got here, but also more fundamentally, what, what we're talking about when we talk about global trade, there's a line in your new essay that has stuck with me quoting you here. Trade policy has gotten both more credit and more blame than it deserves. In the economic debates of recent decades. Trade, as you know, can be deployed as a kind of damning metonym for globalization and economic change more broadly over the last few decades. And the essay's stark opening line is that the global trading system as we know it is dead. But to start, what was the global trading system as we knew it? What were those essential components? And how much of when we look at the economic change of these past few decades, decades was really about trade versus other things?

[B]

Well, first, I think if you look back over the last 80 years, since the end of the Second World War, through successive rounds of negotiations, we've seen the creation of a rules based system that more and more countries and a larger and larger part of the global economy adhered to or signed up to. And so it started with tariffs and trade in goods, primarily manufactured goods. It expanded over time to agriculture. Agriculture is more complicated than goods because there are a lot of inherent subsidies that countries have. Really all countries have subsidies for agriculture in one form or another. And some are more distortive of trade than others. It expanded to services, so that's a big part of our economy now. It's about 80% of the U.S. economy is in the services sector. And then it also expanded into other areas like labor and environment. How to make sure there's a level playing field among countries so that if one country has high labor standards and is competing against one with low labor standards, that that doesn't adversely affect the first one. So it dealt with a number of expanded issues. And as it expanded, the network of rules grew further and stronger. But also it probably impinged more on domestic policy in some regards. And that also led to, in some ways, a counterreaction. The reason why I say trade gets more credit and blame than it probably deserves is that a lot of what people associate with trade in a negative fashion is really the globalization and the integration of global economy. And that has very little to do with trade policy, has much more to do with technology, with the fact that there was the invention of the container, the shipping container, which made it possible for companies to put their supply chains anywhere in the world, because they could reliably ship from one place to another. Or when it came to services, the spread of broadband. When you had broadband around the rest of the world, you could put your call center in the Philippines or in India, it didn't need to be in the Midwest. And so a lot of the things that people associate with trade is really about technology and the dynamism of globalization, which by the way continues. And even if we take a step back from free trade per se, the ongoing momentum of technology integration is still there.

[A]

I have in my head a line in the piece that self flagellation has become a kind of necessary price of admission for any discussion of global trade. So I don't want to ask you to engage in soft flagellation, but I think it's worth lingering on the blame side of the ledger for a bit. When you look at the flaws of the old system, where do you think the critiques are accurate? The kind of critique that I think is fairly conventional at this point. And where is that critique? Totally off base.

[B]

So where I think it's accurate is that there is insufficient attention paid to the fact that whenever there is economic interaction, there are winners and losers. And the benefits of globalization are not equally shared. And so when you have an integrated economy, it will, under the economic rules of comparative advantage, it may make more sense to move your factory to a lower wage economy to produce. And that's going to affect workers. That's going to affect workers in the United States. Now the US Is an incredibly dynamic economy and has reinvented itself. There was a time when 30% of the American workforce worked on a farm and produced agriculture. Now it's less than 3%. And those workers who no longer are needed on the farm because there's been technological enhancements went to the cities or went to the towns and took on different jobs and got trained for different jobs and were at near full employment. And economies tend to absorb people. But there's a certain nostalgia, and I don't mean that in a pejorative way. I think people remember back when somebody could have a factory job, probably a unionized factory job, and have sufficient salary and benefits to support a family. And as those jobs tended to move to other countries and they took on maybe a services job that wasn't unionized, that didn't have the same benefits, it became harder and harder to maintain the American dream and the middle class standard of living. And I think that's a real issue. And I think that one of the big failures and I cited in the piece is that we never accompanied trade policy with a sufficiently robust set of domestic policies designed to ensure that American workers would be able to survive and thrive in a rapidly changing economy. Wherever that change came from, whether it was from globalization, whether it was from immigration or whether it was from technology, whatever the impact of globalization was. And the estimates are, for example, that when China came into the World Trade Organization, became fully integrated into the global economy. It probably had an effect on 2 to 3 million manufacturing jobs. In the United States we have 330 million people. We have a workforce of of about 150 million people. But over a 10 to 12 year period, 2 to 3 million manufacturing workers were affected. If you think about the potential impact of artificial intelligence and robotics and the combination of those two things, we could see a much greater impact than 2 to 3 million jobs. And yet we still don't have the domestic policies. Neither the Republican or the Democratic administrations or Congresses have really paid enough attention in my view, to what's necessary to ensure that people can live through transitions, get lifelong learning, take on new skills and have good high paying jobs to support their families and their communities going forward.

[A]

You were in senior government positions through the Clinton and Obama administrations at the White House and Treasury Department and then you were U.S. trade representative for the second half of Obama. Just to make this concrete, if you could go back to those jobs, what would you do differently if you knew what was going to happen and how the politics of this were going to shift over time?

[B]

Well, one, I think first I would pay a lot more attention or get people who are better than I am at this to pay a lot more attention to the politics, period. I think we saw the politics changing. We saw the declining support for trade as people were feeling alienated by the economic system and there wasn't a sufficient political or policy response. And so I would certainly do a lot more around that. And part of that is about communication and explaining to people better and making it more real for people what the benefits of trade are, what the costs and benefits are of going down different pathways. But part of it is very much the substance of policy, as I said, to make sure we have policies that are not just designed to optimize for those who are going to win from globalization, but are there to ensure that those who may be adversely affected are taken care of as well.

[A]

Focus in on the China dimension of this. So much of the dissatisfaction with the international order in the US and other capitals, I think comes down to shock of China's entry both into the global economy into real geopolitical position that threatens a lot of the core pillars of the system as it existed. You noted in the new piece and in pieces you've written in the past that the multilateral trading system, quoting you here, suffered from design flaws that proved to be particularly salient with the rise of China and consequently planted the seeds of the system's demise. I think some of that is about the assumption that China would converge with us over time that become more like us, both economically and politically. But also certain economic practices that were central to China's rise that just weren't things that the system had focused on or the system wasn't set up to address them. What were those and where were those specific failures from? The global trading system as you saw it?

[B]

So I think when the WTO, World Trade Organization was created in the mid-90s, so this is before China had sort of demonstrated it was on this path of market reform. It was just at the early stages of that and certainly before they, they joined the international trading system, the rules that were created didn't really anticipate an economy as big and as important and as integrated into the global economy like China. That was following a very different playbook. So state owned enterprises, the distortive effect that state owned enterprises had. Now lots of countries have state owned enterprises. Europe has Airbus, which is effectively owned by several governments in Europe. But the portion of the Chinese economy that was controlled by state owned enterprises and the distortive effect they had across several sectors was not something that the system fully anticipated. And similarly, the subsidization that the Chinese government was willing to put into one sector after another in order to gain prominence or dominance in it over time, whether it was solar panels or now electric vehicles, machinery generally, that was not anticipated. How to put constraints on subsidization. China's practice frankly of intellectual property rights infringement was not fully integrated into the system. There were rules on intellectual property rights, but it was not the strongest part of the WTO compared to many of the other disciplines. So there were several areas where I don't think the global system anticipated the nature of the China challenge. And that wasn't an oversight. I think it was in part that there was a view that China was on and inexorable path towards greater market opening, greater liberalization. Jiang Zemin and Zhu renji in the 90s very much laid out their model for that. I think one thing we did not anticipate was that trajectory would not necessarily be linear. It didn't go as far, didn't go as fast as we anticipated. And President Xi in many respects prevented it from continuing and in some places reversed it. And that's, I think, a cause of a lot of the tensions that we see now between not just China and the United States, but China and the rest of the global economy.

[A]

And my sense is that the Obama years was the moment when people in the US Government really started to run up against some of these central features of the Chinese system and become frustrated with the inability of both Washington and the global system more broadly to really do anything about them. Is that fair?

[B]

I think that is fair. I think when the Obama administration came in, for example, there was a big multilateral negotiation going on under the World Trade Organization called the Doha Round and it was designated to be the Development Round. And if you go back and read the documents of the Doha Round, it's really quite astounding because it was basically saying countries like China shouldn't be asked to do as much as countries like the United states and the U.S. europeans. Other developed countries should have strong disciplines on their behavior. But developing countries, and China was very much defined as a developing country, should have much freer reign. Well, that just wasn't in 2009, as we're looking at what China had become in over a relatively short period of time over the previous eight or nine years, that just was not palatable. You couldn't imagine locking that in. And the Obama administration, this is just one example. I remember President Obama going to some of these summits, the G20 summit, and saying to his counterpart, this is not going to happen. Like this Doha Round is not going to get completed on the trajectory it's on. This is not an acceptable outcome. And we need to take a hard look at this. And that was a shock to the system. And it was the first time, I think any country, and certainly the first time the United States had stood up and said we need to take this into account. The rise of China, a very different model as we think about this going forward. That was one element of it. And then in the whole, the bilateral negotiations and consultations with China, there were lots and lots of conferences between US officials and Chinese officials and we would lay out over and over again, sort of the bill of particulars of what China was doing that was distorting trade, that was creating tension. And we would warn the Chinese that we would remind them that their incredible success in alleviating poverty in their country was dependent and was in many respects aided by a very benign international environment. The fact that the rest of the world was willing to rely on China as its manufacturing floor and to open its markets to Chinese imports. And if that benign international environment changed, that would put pressure on China, would create problems for it, that China needed to address these issues. And I think we made some modest progress. But on the whole, I think China basically stiff armed the rest of the world. And that's exactly what's happened happen now. Now the benign international environment is largely gone and the US economy is closing to China. Europe is becoming more protectionist, notwithstanding recent summit meetings. India, Brazil, other major emerging markets are very worried about Chinese imports undermining their own aspirations to develop a manufacturing sector. And it's going to, I think over time require China to look inward at the kind of reforms that we've been encouraging them them to do for several years now to focus more on their domestic economy, domestic demand led growth, consumer demand led growth, as opposed to relying on subsidizing exports as a way towards growth.

[A]

Do you see any sign that this new response to China's intransigence on that front will be more effective than the kinds of messages you tried to send a decade ago?

[B]

Yeah, I think a couple of different factors are coming together. One, the rest of the world is beginning to articulate this to China. There's more coherent, I think, among the rest of the world than there has been before in terms of the nature of the China challenge. And then China, for its own reasons has laid out its strategy of dual circulation, or however you want to put it, that focuses more on being more self reliant and looking internally for some of its growth as well. Now, it has not stopped China from producing way too many factories of electric vehicles and excess capacity for steel and solar panels and a variety of other products that they've got to find a market for. And it has not yet led China to do the kinds of reforms like putting in place a real social safety net so that people, consumers are not saving so much of their earnings but are actually spending it and driving demand at home. But that I think is the next step. And hopefully through this process, while it's more painful now than it had to be, hopefully China will go down that path and that will, I think, relieve some of the tensions with the rest of the world.

[A]

You wrote a piece in the spring called China Has Already Made Remade the International System, arguing that after years of complaining about some of these features of Chinese economic policy, the United States and a lot of other countries had essentially decided to adopt them for ourselves. I'm quoting the piece here. The United States is now operating largely in accordance with Beijing standards, with a new economic model characterized by protectionism, constraints on foreign investment, subsidies and industrial policy, essentially nationalist state capitalism. That seems even more true with a few more months on the record given the government taking stakes in intel and.

[B]

Sampling a golden share.

[A]

Right. So that piece certainly stands up. But I'm curious as you look at the ways in which the US has tried to learn from Chinese economic Success. Do you see anything in there that is a wise policy change, or is that all kind of imitation that we'll pay for over time?

[B]

So I do think there is a rationale for some of these measures, particularly where national security is at stake. The Biden administration, I think, was quite focused and judicious in how they use some of these tools. So the CHIPS and Science act, for example, and we became, this is more of a reliance on Taiwan rather than China. But, you know, being overly dependent on any one country for something that is so critical to our economy but also so critical to our national security, I think is dangerous. And so we became overly complacent because it was so attractive to produce in China, not just the cost of labor, because actually the cost of labor went up over time, but the whole infrastructure and the management there that made China the obvious place to put your next factory. If you were in a boardroom deciding on behalf of a company, became very complacent about it. And the number one rule of risk management in anything is diversification. You don't want to have all your eggs in one basket. And that's precisely what we did. So I think there is a case in select areas to say, okay, we need to have some production of advanced semiconductors in the United States. And by the way, if we can't do it in the United States, then let's at least do it in partnership with some trusted allies and partners around the world. We can't be totally reliant on our chief competitor and potential adversary of China for something that's so critical to our national security and that could lead you down the path of targeted export controls, targeted foreign investment constraints, and targeted industrial policy. I think the challenge is when it's a bit of a Pandora's box. Once you say, okay, the government is going to begin to play this role in the economy, where do you stop? Is it just semiconductors? Is it semiconductors in electric vehicles and batteries? Does it spill over into the protective clothing that we. That we didn't have during COVID How about the ingredients that goes into pharmaceuticals? We're almost completely dependent. Something like 70 to 80% of all the active ingredients for our drugs come from China. Is that a national security issue? Should we do whatever is necessary, including government intervention in the economy, to ensure that we've got not production here in the United States? Is it sufficient to say we can buy it from Switzerland, Canada, Ireland, elsewhere? Those are the kinds of questions I think we need to deal with on a sector by sector basis.

[A]

That brings to mind a point you made in yet another piece that you wrote for Foreign Affairs. This was before the election, in which you noted with some surprise that the probably the most important speech on the international economy that was given in the Biden administration was delivered not by the Treasury Secretary or by the U.S. trade Representative or the Commerce Secretary, but by the National Security Advisor, Jake Sullivan. This was a speech given at brookings, unfortunately not CFR, in 2023. What was so striking about the fact that it was the national Security advisor delivering that speech?

[B]

Well, I think it really does mark the ultimate convergence of economics and national security, the notion of economic security, where when you've got the National Security advisor focused on what is it we need to do domestically to have a strong economy to support our national security, and what is it we need to do internationally, whether it's through export controls or foreign investment constraints, to ensure that we remain a leader in these critical technologies. I think it really demonstrated that at these two worlds, which for a long time had been quite separate, quite separate in terms of sort of intellectual framework as well as organizationally. You know, at the White House, you had the National Security Council, you had the National Economic Council. I mean, I worked in two administrations at the nexus of those two organizations. But that was the only effort, really, to try and bring those two worlds together. I think this was really reflecting what Jake Sullivan laid out, was reflecting the next phase of that, which is that these two worlds really are one. And we need to think through national security through an economic lens. We need to think through economic policy through a national security lens.

[A]

You stressed how difficult it is to really define national security in a way that doesn't become kind of endlessly expansive. The Biden administration's phrase here was that you need a small yard and a high fence, and that yard seemed to kind of grow week by week. Do you have a kind of framework in mind that would allow us to settle on a clear definition and prevent that endless expansion of the yard?

[B]

So I think it starts with national security. So what are the technologies that are critical to war fighting, to intelligence, to the core elements of national security? So it's a sort of concentric circles. The next circle is economic competitiveness. You know, what is it that we need to be the most competitive, the leading economy in the world? And I think it's the jump from national security to economic competitiveness, which can make that yard much, much bigger. And we just need to be careful. It doesn't mean there aren't certain issues like artificial intelligence, where we think it's such a general purpose technology that's going to have such broad impact on national security, on intelligence, on war fighting capabilities, but also on the capacity of our economy to lead and across any number of sectors that we need to have the capacity and play a critical role in leading that sector. I think there are cases to be made, but I think just one has to be really rigorous about what does it mean and where do you draw that line and then what tools do you use? Do we need industrial policy to do artificial intelligence when the private sector is pouring literally hundreds of billions of dollars every year into it? Perhaps not. Maybe we don't need taxpayer dollars to build data centers. Do we need it to support the basic science and research and development that's necessary to lead to some of these major technologies where the private sector may not have the incentive to do so? Well, perhaps. And so I think again, looking what the technologies are, why we need them, and then what tools are most appropriate to use. And then I'll just emphasize again, what do we have to do ourselves, what has to be done within our borders and what can be done in partnership with allies around the world. And I don't think enough attention has been paid to that. You know, I'll take one example, shipbuilding. We're clearly way behind in shipbuilding. We have very little capacity to build naval ships, submarines, ourself compared to China, but Japan, South Korea, both, both are pretty advanced in shipbuilding, are able to churn them out faster than we can. Maybe we should be investing in shipbuilding in the United States, but in the meantime, shouldn't we be partnering with our allies to build our ships over there? There's some legal obstacles to that. We should be addressing those.

[A]

The broader decline in manufacturing in the United States is one of the kind of chief complaints you hear from both people in the Trump administration, but also critics of the previous global trading system. On the left and really across the political spectrum, there's kind of a debate between trade policy experts, economists, about whether having manufacturing capacity in the United States, to what extent that is important on its own, rather than addressing the national security concerns with allies and others. Can you, if you kind of look at those arguments, can you, with apologies for the bad pun here, kind of steel man, the argument for reshoring US Manufacturing that is made by some of those critics, where do we need manufacturing capacity here? Whether that's because of jobs or security currents or anything else.

[B]

So I think we need to take a hard look at this. And you mentioned jobs there at the end because my sense is that manufacturing in the future, it may well be the case that we need to produce more manufactured products, particularly in particular sectors that are relevant to national security or broad economic competitiveness in the United States. But we're likely to do so with fewer workers than we did in the past, and we should be clear eyed about that. What we see in China going on now and other countries, Japan, South Korea, elsewhere, the factories of the future, they may produce more manufactured products, but our manufacturing job numbers may not go up that much. Those are, I think, two separate issues and sometimes they get conflated. I would start with the first, which is really what products do we need to make here to be a serious real economy? And yeah, economists will say, well, it doesn't really matter. I get it that there are benefits to being a manufacturing country, particularly when it comes to products that are central to our national security. I also think we need to further explore integration with allies and partners. Again, I'm just sort of ringing that bell again because I think we haven't paid much attention to that and in fact we've sort of pushed a lot of our partners away who could be diverse sources of some of this material that we don't have to produce or where it doesn't make sense to produce it in the United States alone.

[A]

We'll be back after a short break.

[C]

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[A]

And now back to my conversation with Michael Froman. So let's focus in on the Trump dimension of this. We've avoided that for the first stretch of this conversation, but I do want to get your sense of how things have played out in the last five or so months since the tariffs really started to escalate. As you look back at the international reaction over those months and the economic reaction, what has surprised you, if anything, about their response to Trump's tariffs?

[B]

Well, look, I think one thing that surprised me is that if you had asked people a year ago, what would the world look like, will you accept a world in which tariffs, at a minimum, from the US are 10% and may go up to 50%? I think most of what would have said, that's crazy. It would be disastrous. It'd be catastrophic. I think the president has successfully, in his negotiating approach, laid out very high demands and then ratcheted back from those demands to something that is still very high. Historically, before the first Trump administration, the average applied tariff was about 2.5%. We're now at about 16, 17%. And we'll have to see where this lands because there are a lot of other trade cases currently going through the system which could raise tariffs in particular sectors even further. Of course, on the other hand, some of the tariffs that the president's put on have been challenged in court, and we'll have to see how the court decisions ultimately play out as well. But we are five, six times the tariff levels we were before. And I think that surprises me that the markets have sort of absorbed that. Other countries have basically been forced to accept that. It shows the leverage that the president has been able to use with other countries. Now, it comes at a cost over time, I think, in terms of our relations with these other countries. But the reality is they've come to the table and they've been eager to sign agreements to get off the front pages of the newspaper. So I think that surprises me. I think so far the economic impact of the tariffs, and I say so far because I think we shouldn't be complacent about this. Some of these impacts may come in the coming quarters. So far, the impact has not been catastrophic. There are lots of anecdotes of companies have had to close down because they were reliant on particular inputs that were coming in from abroad that are now subject to high tariffs, no longer afford to produce. We see the ticking up of inflation, but not as high as many would have expected. At this point, we have not seen the impact on growth necessarily, although obviously some of these recent job numbers are of concern and there are various explanations for that. So I'd say the economic impact so far has not been catastrophic. The market impact has been positively complacent and we'll see how that plays out over time. My sense is we have not seen the end of this story yet.

[A]

What is your explanation for the complacency of the markets? Is that kind of mass delusion and we're all kind of headed for a fall, or is there some real signal there?

[B]

Well, look, a lot of people put too much faith in the markets. Remember, markets tend to go to extremes and that's why we have bubbles and that why we have crashes. And we've had the great global financial crisis, we had the dot com bubble, we've had real estate bubbles. So every 10 years or so we have a major economic crisis because of a market reaction. And so I don't put too much weight on certainly the equity markets. I think the equity markets, and I'm no expert in this equity markets, look for any piece of good news. And when it comes to the tariffs and President Trump, they have expressed relief that we're only at 10, 15, 20% tariffs, not 50 or 100. At one point, 140% tariffs on China. Again, had you said to market participants a year ago, what do you think the reaction will be to 15, 20% tariffs, I think they would have expected something much more significant.

[A]

What about the lack of serious response from other countries? I think really only China and Canada have responded in any meaningful way with economic measures of their own. Plenty of other powers, including the eu, talked a lot about what they were going to do in response, but when it came down to it didn't really do much. I think people in the Trump administration would say, look, we've extracted lots of pretty significant concessions from other governments when it comes to access for U.S. goods and U.S. companies and not seen a lot of meaningful reaction and response. What is your explanation for that again? Do you think there's kind of more coming that we're missing, or does this say something about the ability of the United States to get away with this?

[B]

Well, I am surprised that there hasn't been more traditional retaliation. I think again, President Trump made it clear that if a country retaliates, he's just going to keep on increasing the tariffs. At some point, the tariffs become prohibitive. So it doesn't matter if it's 50% or 100%. At some point, you're just not going to buy a product from that country. So it doesn't really matter. But he's made it clear that he would increase the tariffs, assuming he's got the authority to do so. And that's what's being currently litigated in the courts. So we'll have to see again how that plays out. I think what you do see, you mentioned China. China has spent the last few years preparing for this moment and discovering where they have leverage over the United States. And they have leverage over access to critical minerals, to magnets, to a number of products. I mean, even some of the semiconductors that we want to produce here end up going back to China for processing in one form or another. So they've got a lot of leverage over us. And they, in my view, they've played it very well to demonstrate in a targeted way that they are prepared to use that leverage. And that has forced the Trump administration to back down. And so China will continue to do that. They will continue to use leverage as necessary to get the US to come to a more reasonable position. I think the other countries haven't used that kind of leverage with the U.S. we're completely dependent, as I understand it, on Canada for potash, which is a chemical or a product that goes into fertilizer and a variety of other things. I haven't seen the Canadians say they're going to cut off our supply of potash. So there are things that other countries can do. I think one question will be, Dan, what happens when we want another country to work with us on another issue, export controls, for example? We control a number of these products, but in some sectors, it requires allied cooperation. And it's painful for an allied country to say to its company, the US has requested that you not sell this product to China, you know, out of our relationship with the United States. We are asking you not to do that, and we're forcing you not to do that. Whether we'll have the goodwill to get other countries to do that kind of thing going forward, I think remains to be seen.

[A]

Let me just linger on that. The legal case that you mentioned, the litigation over whether Trump is even allowed to impose these tariffs under the authority that he is invoking, the International Emergency Economic Powers Act. I believe ipa, you spent plenty of time looking at the kinds of tools that a president has to engage in negotiations and use American economic power. Do you believe that Trump is doing this legally?

[B]

So he's using a number of different authorities. The one that's been challenged has been ipa, as you said, and he's declared that we were in an economic emergency that allowed him to use it. That's a novel use of ieepa. I can't tell where the Supreme Court's going to come down on that particular question. I do think whether or not he can use IIPA for these tariffs, he has plenty of authority that's been delegated to the executive over decades to impose tariffs. They take more time. AIPA was his shortcut to be able to declare an emergency and immediately do it. But he has. There's something called section 301 and section 232 and section 122. There are all these other authorities that the President can use, the US Trade Representative can use and the Department of Commerce can use to impose tariffs on other countries if they're determined to do so. And so my sense is, one way or the other, the President's going to find a way to impose tariffs if that's what he wants to do. If his exercise of authority under AIPA is overturned, then he may just be required to jump through a few more hoops.

[A]

So in the new essay, one of the really scary scenarios that you lay out is contagion. And I'll read one line from the piece here which I think makes it very clear. You write, quote, the risk of the United States and China playing by their own rules with power. The only real constraint is contagion. If the two largest economies in the world operate outside the rules based system, other countries will increasingly do the same, leading to rising uncertainty, drags on productivity, and lower overall growth. As you look at those fears now in the months after Trump imposed these tariffs, what would real contagion look like? And if that does spin out of control in the way you worry about, where does that take us?

[B]

Trade in every country is controversial and there's a politics of trade in every country. And so if the US And China go their own way, which they are doing, you could see other countries saying, well, why should we live by these constraints? Why should we be bound by these tariffs? We'll increase tariffs too, or we'll increase subsidization, or we'll prevent foreign companies from doing business in our country, which we committed to allow before because it undermines our domestic constituencies. And so that's the risk is that Europe turns inward. The major emerging economies, India, Brazil, Indonesia, South Africa, et cetera, they turn, turn inward. And suddenly you see sort of a downward spiral of disintegration, of deintegration of the global economy. And that takes us back to the interwar period. This is before the global rules based system was really created when trade was used as a weapon among countries and it led to, in many respects, from trade, it became quite easy to slip into military conflict. And so that's the risk is that, I mean, the darkest scenario is that we end up back in sort of a Hobbesian state of nature where every country is doing their own thing at the expense of the others, driven by domestic pressures and politics. But the permission structure has been created by the two largest economies of the world, the United States and China, following their own set of rules. And us being back in a world where countries take actions with each other that could ultimately lead to conflict, how.

[A]

Far down that path are we right now?

[B]

I don't think we're terribly far down that path. I mean, I think what you're going to see. I'll give you an example. The first Trump administration started using something called Section 232 in novel ways that Section 232 says you can restrict trade if it's in the national security interest. And so the Trump administration first did it on steel and aluminum. They threatened to do it on autos, including autos coming from Germany, which again, it was very much a stretch to say how an auto coming from Germany is a national security threat to the United States. But that opened the Pandora's box. Now there are 92 filings at the World Trade Organization. The last time I saw it was about 92 of countries doing everything from foodstuffs to consumer goods, saying these are now national security issues issues. And it's transparently just an effort by countries to protect their domestic producers of one product or another. But following the example of the United States who use section 232 in this way. So that, I think is the risk that other countries follow our example in one thing after another. And so far I'd say it's been relatively modest. The system hasn't fallen apart. And a lot of countries, particularly smaller countries, they really look to the WTO as their only way of engaging with the global economy in a constructive fashion. They don't have market power like the United States does or like China has or the EU or Japan. And so they rely on the rules based system to create some stability in their economic relations. And I think they'll be reluctant. They will only do this if they absolutely have to. And similarly, Europe, Europe, which as you mentioned, threatened to retaliate against the United States. But the whole European project, the whole notion of the European Union, has been defined around integration, economic integration. There's almost an ideological commitment to free trade there. Now, they're not free traders. They have lots of protectionism, but they articulate a commitment to free trade that is much stronger than ever has been the case in United States or many other places. And I think they'll be reluctant to abandon the system as well. I think what you'll see at the margins is that countries will take actions to protect domestic industries and constituencies, and it'll become just a less efficient, slower growth economy, and that's a downward spiral.

[A]

Any attempt to divine some kind of strategic logic in Trump's mind is, I think, met justifiably with some degree of skepticism. So I'm not, not asking you in this next question to tell me what's in Trump's head, but I do think that there are policymakers in the administration and policy thinkers around Trump who see in those impulses an opportunity for building a new kind of global economic system. There are various components of this and various different visions. If you look at what Bob Lighthizer, your successor as USTR might say, or I think Jameson Greer, the current ustr, probably has a theory of his own on what should come next if they do succeed, if they do succeed in building a new system, what would that vision look like? Can you imagine a reasonably positive scenario that would come out of that?

[B]

So, look, I think they do have a theory of the case, and the theory is, given the size and the importance of the US Economy, which continues to be the most dynamic, the most resilient economy in the world, that if they put up a wall of tariffs around the economy, companies from all over the world will be forced to move their production, move their supply chains to the United States if they want access to the US Economy. It is a big experiment. And one question will be, will tariffs alone do it or not? And what level will they do it? Or if they really want to build manufacture in the United States, is it going to have to be some combination of tariffs and industrial policy and subsidization and, you know, regulatory preference and, and the like, some ways becoming, as we talked about earlier, more, more Chinese than, than American per se, at least in terms of our tradition. That's a big open question. And I think the really interesting challenge, the politically interesting challenge for the Trump administration is that by imposing this wall of tariffs on one hand, by the way, it is bringing in revenue. And that has been a goal of the Trump administration and is succeeding in bringing in revenue, I think a couple hundred billion dollars so far this year of revenue, or as anticipated, for the year. But I think the challenge is if you look back at globalization, the benefits of globalization were broadly felt by everybody as a consumer or as an importer of inputs. I mentioned this in the piece. Nobody walked out of a Walmart and said thank goodness for the World Trade Organization. But the reality was is that the global system, the rules based system, allowed American consumers, particularly low income consumers, to spend a smaller portion of their disposable income on the critical goods for their family, whether it was clothing, footwear or food, et cetera. But it was sort of invisible. And the cost of globalization were very acute, very visible. And it was the factory in Lordstown, Ohio, Youngstown, Ohio, that closed down and moved to Mexico or moves to China. The jobs lost in those communities and the impact that that had in those communities on the social fabric and sort of again, the downward spiral because investment didn't come in right away to replace those jobs with other good jobs. There was a lag or it didn't happen at all. It happened elsewhere in the country. Now the Trump administration is engaging in a grand experiment where the cost of tariffs are going to be felt by everybody and be quite visible because there's so much attention paid to them. And the benefits, if they're right, that by putting up a wall of tariffs, we're going to increase manufacturing in the United States. That benefit is going to be felt four, five, eight years from now by a relatively small number of workers in a relatively small number of sectors, in a relatively small number of geographies. That's a politically really interesting challenge to manage where everyone feels the cost now but is saying it will be worth it if it succeeds in the long run. And we just don't know whether it's going to succeed.

[A]

The early evidence seems to be that it is not bringing back manufacturing jobs from what we can see. And part of that is because so many inputs into manufacturing jobs, United States come from other countries and now are facing high tariffs. Do you see any reason to think that dynamic will change?

[B]

No, I am skeptical that tariffs alone will achieve their objective. And you're absolutely right. I mean, what we're seeing is those anecdotal announcements by a company or by a country that they intend to invest in the United States. Again, we don't know how many jobs will be created by that. But you've seen a pretty steady set of announcements that the administration has highlighted. What's harder to see is exactly what you pointed out, which is that as the costs of steel go up, you know, we've seen We've seen this from the first Trump administration. They put tariffs on Steel in 2018. Seven years later, there are 1,000 more steel workers than there were before, but there's 75,000 fewer workers in manufacturing industries that use steel because their input costs went up. And so again, it's sometimes hard for people to say, okay, that was because of the tariff, because it's downstream. But that, I think is what we risk is that a lot of our manufacturing that is reliant on inputs from other countries are going to see their costs go up, they're going to become less competitive, less productive, and we're going to see, on the whole, fewer manufacturing jobs rather than more so.

[A]

One interesting reaction to your recent piece has been from probably people who you've worked closely with in the trade community who find you sort of too pessimistic about the existing system. They see a bigger role for the WTO going forward than you do. They see more hope that other actors can kind of preserve some of the key rules of a rules based global trading system. Why do you think they're too optimistic? Why do you think their critiques are wrong?

[B]

So, look, part of me hopes that they're right and that I'm wrong, but I think the reality is if you have have the two largest economies not really abiding by the worlds, even if the rest of the world continues to try and support the system, it's going to affect a smaller and smaller portion of global trade. And I think that means we don't really have a multilateral rules based system left. You've got sort of different groups of countries following different sets of rules. I think the natural inclination is to look back with nostalgia and say, okay, when this administration's over, we're going to go back to the way things were before. I don't think that's going to happen. I think there's no going back. The toothpaste is out of the tube. And I think what we need to do is think through, okay, what are the elements of the old system that should be preserved in some other form? Where do we need to reform the system and where do we need to come up with new rules or new mechanisms altogether to take into account the lessons of the last 80 years and the lessons of this grand experiment.

[A]

And as I read you, the kind of most important element of that old system that you want to see preserved in something new is just the existence of rules of some kind.

[B]

Right?

[A]

It almost matters less what exactly the rules are. But some rules that provide a degree of predictability and prevent the system from being defined purely by power in ad hoc transactions. Is that fair way to characterize it?

[B]

Yeah, I think that is fair. I think you want a degree of stability and predictability. You'd rather avoid chaos and anarchy. Because I think in a system that's defined by chaos and anarchy, there's lots of room for conflict and lots of room for suboptimal economic behavior where we're going to find slower growth, lower productivity, and ultimately that is going to hurt precisely the people that the administration is trying to support. So, so yes, I think some degree of rules. And in the piece I argue, even if you can't get rules that apply to everybody in every economy in the world, groups of countries can come together plurilaterally and agree to rules that they're willing to live by. And then if it's open plurilateralism so that other countries can join if they want to adhere to those rules, that may be a second best, but still a better solution than chaos and ethics anarchy.

[A]

And just to try to end this on a relatively optimistic note, if we do see this interlocking network of plurilateral relationships, that countries come together on different sets of issues and there won't be one single unified system, but you'll have lots of cooperation and lots of attempts to settle on common rules that might be less economically efficient but would not, to your view, be disastrous. So it might in some way, ways kind of address some of the weaknesses of the old system in very reasonable ways.

[B]

I think that's right. I mean, that's. I think that's absolutely right. Again, the orthodox economists may not love it. It's not Pareto optimal in their view, but I think it may be more politically sustainable over time and more durable over time as well.

[A]

And what if we look at the next three or four years? What would the key steps to getting to that kind of system look like?

[B]

Look, I think first of all, while other countries will go about it with or without the United States, we've already seen the agreement that used to be known as the Trans Pacific Partnership evolve now to include not Only the other 11 countries that were in it at the beginning, but also the United Kingdom and even the EU is considering some relationship with that. So they're willing to move ahead with trade liberalizing integration agreements, even if the US Is not. Think it still requires, in my view, or it should require US Leadership because we don't want to live in a world where all the rules are being defined by somebody else, particularly China. And so when it comes to technology or AI or the nexus of economics and national security, perhaps we should be leading an effort with our allies and partners to come up with a set of rules. So there's coherence in how we we approach these issues. So that's going to take U.S. engagement and U.S. leadership.

[A]

I really like the framing of this as a grand experiment, and we'll have to pick up the results of that experiment later on. But for now, Mike, thank you for the great piece in our new issue. It's called after the Trade War. And thanks so much for doing this today.

[B]

Thanks for having me.

[A]

Thank you for listening. You can find the articles that we discussed on today's show@foreign affairs.com the Foreign affairs interview is produced by Kanish Tharoor, Molly McEnany, Ben Metzner, Caroline Wilcox, and Ashley Wood, with audio help from Todd Yeager. Our theme music was written and performed by Robin Hilton. Special thanks as well to Arina Hogan. Make sure you subscribe to the show wherever you listen to podcasts and if you like what you've heard, please take a minute to rate and review it. We release a new show every Thursday. Thanks again for in tuning Tuning in.