The global economic system that the United States has shaped and steered for more than three-quarters of a century was animated by a powerful guiding vision: that trade and finance would be based on cooperation and consent rather than coercion.
That system, for all its faults, entrenched the United States as the world’s richest nation and its sole financial superpower. The rule of law and the stability and trust that this approach generated helped make the dollar the world’s go-to currency for transactions and America a center of global investment.
By provoking a worldwide trade war, President Trump risks abandoning that vision of shared interests and replacing it with one that assumes sharp economic conflicts are unavoidable.
Gone are appeals to a larger purpose, mutual agreements or shared values. In this new order, the strongest powers determine the rules and enforce them through intimidation and bare-knuckled power.
“This is a completely different vision,” said Greg Grandin, a historian at Yale, “one in which the first principle is that nations don’t have shared interests; they have inherent conflicts of interests.”
That view is behind the president’s decision to slap sweeping tariffs on Wednesday including a 10 percent tax on nearly every import to the United States.
Mr. Trump’s trade policies after a little over two months in office have prompted a sharp drop in the stock market and in business and consumer confidence. Wall Street analysts have been projecting higher inflation rates and slower growth in the United States and around the world.
But quarterly gains and losses are trivial, many economists and political leaders said, compared with the potential long-term damage to the unique power and privileges that the United States has built up in the postwar global order. At stake are the country’s unmatched influence over the world’s financial system, the advantages its businesses enjoy and a reputation that attracts investors and innovators.
Mr. Trump’s turn away from cooperation, said Abraham Newman, a professor at Georgetown University, “will undermine U.S. economic security in the long term.”
The dollar’s perks and power
Consider the pre-eminent role of the dollar as the world’s reserve currency, the one that virtually every nation uses for everyday commerce and stows for rainy days. Because global trade and transactions are conducted in dollars, everyone needs them. That demand means the United States can pay less interest when it sells Treasury bonds, which lowers borrowing costs.
In addition, American businesses are free from many of the worries that stem from the ups-and-downs of foreign exchange markets or capital flight. When unrest and uncertainty roil the global economy, the dollar is seen as a safe haven — even when the United States is responsible for the turmoil.
American dominance of the global financial system has also enabled Washington to shape the world’s economy around its own security concerns. After the Sept. 11, 2001, attacks revealed how terrorists were using the global financial system to send money across borders, the United States was in a position to tighten controls.
Republican and Democratic administrations have expanded their use of sanctions and export controls to cement U.S. dominance over global finance and, later, over technology like artificial intelligence and semiconductors.
Such power is what enabled the United States to restrict the export of advanced computing equipment to China and freeze Russian-owned foreign currency reserves after Ukraine was invaded.
Yet every time the Trump administration says it wants to push down the dollar’s value on the foreign exchange market or threatens tariffs and other consequences, trust in the dollar takes a hit, said Barry Eichengreen, the author of “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System.”
A weaker dollar means foreign holders of it lose money. “In that sense,” Mr. Eichengreen said, “the full faith and credit of the U.S. government, which is trying to depreciate away its external obligations, is impaired.”
The downsides of winner takes all
The failure to account for mutual interests can undermine longer-term goals, said Joseph S. Nye Jr., a professor at Harvard. In his eyes, the administration’s transactional attitude reflects Mr. Trump’s background as a real estate developer in New York and New Jersey, where bullying can be common and each deal is a one-and-done.
That approach made Mr. Trump money but also resulted in his having to declare his properties bankrupt multiple times.
What it does not achieve, Mr. Nye said, are the growth, credibility and influence that accrue from being a reliable partner over years and decades.
When White House officials discussed plans to strike Houthi militants in Yemen who have been attacking ships in the Suez Canal, they complained about “European freeloading” and considered extracting some kind of payment “in return.”
But keeping the canal open was not just a favor for Europe. It discourages other countries, militias and pirates from interfering with the passage of trade. “In the long run, it is in our interests to have freedom of navigation of the seas and not have a group like the Houthis destroy it,” Mr. Nye said.
Similarly, it was in the United States’ interest to organize a $50 billion bailout for Mexico after a financial crisis hit in 1994. Washington was worried that a devastated economy would encourage half a million Mexicans to illegally migrate across the border.
And keeping the world supplied with dollars during crises is also what keeps the global financial system’s plumbing working.
At the same time, American deposits in the favor bank build up credit. The United States has been able to successfully pressure allies like the Netherlands and Japan to limit the sale of advanced semiconductor equipment — and their domestic manufacturers’ profits — to China.
Successive administrations, including Mr. Trump’s, have worried about military uses of the technology as well as the possibility that China could eventually create its own version of products it now buys from American businesses.
The reliance on coercion instead of cooperation was standard after World War I. And it eventually spurred Germany’s Nazification, Japanese imperialism and a ruinous tariff war.
That grim history prompted the United States and other nations after World War II to adopt an approach that focused on mutual interests. Seizing the lead position, Washington provided enormous economic support through the Marshall Plan because it believed a stronger Europe would be in America’s long-term interest.
The guiding principle was that commercial ties would bind countries together and mitigate military conflict. It was an idea that won its primary proponent at the time, the former Secretary of State Cordell Hull, a Nobel Peace Prize in 1945.
Mr. Trump, though, has turned this theory on its head. Instead of focusing on the shared interests that economic ties create, he is seeking to exploit the vulnerabilities they generate.
Indeed, Mr. Trump is the first president since the end of World War II to pursue American interests by regularly violating international agreements, turning on allies and scorning tools of soft power like economic and humanitarian aid.
“What we’re seeing is so dramatic,” said Mr. Newman, the Georgetown political scientist.
Among America’s allies, he said, a deep fear is developing that the Trump administration is looking to create a new global order narrowly focused on American self-aggrandizement.
The approach may produce immediate gains. When Colombia’s president turned away U.S. military planes carrying deportees, Mr. Trump’s threat to impose financial sanctions and 50 percent tariffs on all Colombian products forced a policy reversal.
But if countries believe the global order is dominated by a capricious leader, they will look for alternatives. Over time, that could downgrade the dollar’s status and reduce allies’ reliance on American weapons, technology and products. It could also strengthen China’s hand at the expense of the United States.
On Sunday, trade ministers for Japan and South Korea, America’s economic partners in efforts to counter China, met with Chinese representatives in Seoul for the first time in five years to discuss expanding regional trade ties. Any closer commercial ties they might forge with China could significantly undermine Washington’s goal of slowing the breakout advancements in technology by China.
And that, said Mr. Newman, is “the opposite of what the U.S. would hope to achieve.”