How the world moved on after Trump’s trade war
Despite the most aggressive tariff assault the world has ever seen, the global trading system did not collapse, argues Richard Baldwin in this commentary. Foreign countries, for the most part, chose not to retaliate forcefully, a reaction that defies the logic of a conventional trade war.
Baldwin argues that Trump’s tariffs were never really about economic goals (efficiency, competitiveness, balanced trade). They were organized around the “Grievance Doctrine,” a performing strength for an angry American middle class that felt victimized. The tariffs were designed to generate “happy headlines” and fulfil campaign promises, not to reshape the global economy. This changed everything about how the tariff war unfolded.
Why retaliation didn’t spread: two reasons
1. The US repeatedly backed down itself. Because tariffs were theatre, the administration was always ready to hollow them out with exemptions the moment they caused domestic pain. Baldwin calls these retreats TACOs (Trump Announces, Caves & Omits). He identifies four:
- Rust Belt TACO: Auto sector exemptions under USMCA covered 85% of Canadian/Mexican imports by July 2025.
- Market TACO: Financial market turmoil on April 9, 2025 forced a massive rollback of the “reciprocal” Rose Garden tariffs.
- China TACO: When US shelves began emptying in May 2025 and Walmart/Target/Home Depot CEOs warned of shortages, Trump cut tariffs on China from 125% to 10% at Geneva.
- Affordability TACO: Tariffs hurt Trump’s own political base. US effective tariff rates have been falling since October 2025, further constrained by a Supreme Court ruling on IEEPA powers.
2. Retaliation didn’t work with Trump. In a normal trade war, foreign retaliation hurts US exporters and forces Washington to negotiate. Under the Grievance Doctrine, retaliation stoked the victimhood narrative and could lead to more tariffs as China discovered. Most countries therefore chose restraint. They viewed the WTO-centered trading system as “the goose that laid the golden eggs” and refused to throw firebombs back.
The China episode — A special case
China was the one country that did retaliate seriously. Trump initially expected China to “blink first” because the US import/export asymmetry gave Washington the upper hand, but Chinese exporters found alternative customers while US manufacturers discovered their deep dependence on Chinese inputs. According to Baldwin, China established “escalation dominance” i.e. the ability to absorb more pain and hold out longer. After the Geneva talks, US tariffs on China have moved in only one direction: downward. Trump neither won nor lost, and simply changed the subject.
Why Didn’t Trumpian Tariffs Wreck the World Trade System?
By: Richard Baldwin – IMD Business School
Trump’s tariffs and Europe’s best response
In this commentary, Daniel Gros argues that Trump’s 2025 tariffs have not led to a collapse of global trade because of their discriminatory nature: the fact that each trading partner faces a different rate reroutes trade rather than suppresses it. As a matter of fact, global trade hit record levels in 2025 despite the tariff shock.
Four core arguments
- Trade volumes held up, but efficiency losses are real. Rather than a reversal of globalization, the world experienced “slowbalization” i.e. trade grew, but supply chains lengthened and became more costly. Gros warns: the absence of a fall in aggregate trade volumes does not mean no welfare loss.
- Discriminatory tariffs divert, not destroy, trade. When US tariffs targeted China, production was relocated through Vietnam, Mexico, and other third countries. China’s intermediate inputs flowed to those countries and then into the US market. Global volumes stayed robust; the system just became less efficient.
- The country imposing discriminatory tariffs bears most of the cost. Because foreign exporters can reroute production and find other buyers, the US has limited ability to force price concessions. Retaliation by others therefore mostly hurts the retaliator, not the target, which explains why most countries chose restraint.
- Europe’s position is stronger than it looks. Despite the optics of “capitulation” in the July 2025 Turnberry deal, the EU’s effective average tariff rate in the US has actually fallen to around 6%, compared to 36% for China. The EU secured better US market access than Japan, Korea, or China, partly because the US depends on EU industrial goods (machines, equipment) for which European suppliers dominate more than 50% of US import categories.
The 1930s warning
Gros draws the key historical lesson directly: it was not the initial Smoot-Hawley tariffs that caused the Great Trade Collapse of the 1930s, instead it was second-round protectionism, when other countries erected barriers against diverted exports. If Europe now raises walls against Chinese goods flooding its market, it risks triggering exactly that spiral.
Trump’s Tariffs, Global Trade and Europe’s Strategic Choice
By: Daniel Gross – Bocconi University
The view from Asia
In this commentary, Danny Quah argues that the US and China are pulling the world apart but the other 190 nations are not passive bystanders as “third nations” have both the incentive and the collective economic weight to reconstruct a functioning world order around the two competing superpowers.
Key points
- The world economy is bigger than the US-China rivalry. Third nations together represent the majority of global trade and GDP. They do not need to choose sides instead they can organize among themselves in ways that preserve rules-based exchange and open markets.
- “Pathfinder multilateralism” as the way forward. Rather than waiting for the US to return to multilateral leadership, smaller and middle powers should proactively build incentive-compatible coalitions and agreements where all members benefit enough so that no one has reason to defect. Bodies like ASEAN, the CPTPP, and the African Continental Free Trade Area are examples of this logic already in motion.
- A “G-minus” world is functional, not doomed. Quah’s distinctive claim is that the world order can operate at a high level even with the US partially absent (“G-minus”). History shows that international institutions and trade networks develop their own momentum independent of the hegemon.
- The rupture is an opportunity, not only a crisis. The US retreat from multilateralism creates a governance vacuum that third nations can fill by setting new norms on digital trade, green standards, investment rules, and supply chain transparency, rather than simply mourning the old order.
Third Nations Can Piece Together a Ruptured World Order
By: Danny Quah – National University of Singapore
