The architects of the neoliberal economic order promised that it would usher in a new age of global wealth, economic security, and democracy. Yet over the past 30 years, the system established by the World Trade Organization and free-trade agreements has led to the opposite. Economic inequality and insecurity have worsened in most countries, with dangerous effects on democratic rule. Monopolistic and multinational megacorporations have concentrated the production of key goods and services in too few locations, creating vulnerabilities in the world’s most important supply chains.
Now, two forces are colliding to finish off this trade system entirely. China’s $1 trillion-plus annual trade surpluses, built on mercantilist policies unaddressed by the neoliberal regime, are forcing deindustrialization and creating political shocks in both developed and developing countries. And U.S. President Donald Trump’s chaotic and often misdirected tariffs have neither delivered the promised American manufacturing renaissance nor coalesced into an effective new model for trade other countries might adopt.
Neither the neoliberal order nor Trump’s second-term pandemonium offers a way forward. But a new approach could yet capture the considerable benefits of trade—if the rules were designed explicitly to promote balanced trade, fair and competitive markets, and a floor of labor and environmental standards. It will not happen under the current administration. But the U.S. global trade deficit will outlast Trump’s presidency, and so will Washington’s leverage over countries reliant on access to the U.S. market. The next administration should use this leverage to build a fairer and more flexible trade paradigm, one that will unshackle countries and better enable them to address the most pressing economic, social, and climate challenges of the twenty-first century.
THE PURPOSE OF A SYSTEM IS WHAT IT DOES
The trade regime that began in the early 1990s was designed for (and often by) large retailers, low-wage-seeking manufacturers, and the world’s largest pharmaceutical, financial, and agribusiness companies. Although branded by its proponents as “free trade,” the regime implemented by the World Trade Organization and free-trade agreements such as the North American Free Trade Agreement in fact represented a radical departure from earlier pacts. Whereas postwar agreements such as the global General Agreement on Tariffs and Trade were limited to setting tariff and quota levels for trade in goods and forbidding discriminatory treatment based on a good’s national origin, the WTO, NAFTA, and other agreements of the late twentieth and early twenty-first century were far more expansive, requiring signatory countries to conform their domestic policies to one-size-fits-all rules governing service-sector regulation, intellectual property, government procurement, food and product safety, and other policies unrelated to trade.
They also required countries to adopt pro-monopoly policies. The WTO’s General Agreement on Trade in Services, along with the rules of many free-trade agreements, forbids signatory countries from regulating companies based on firm size or the number of services any one firm is allowed to offer. The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights requires what many economists dub classic rent-seeking monopoly licensing by mandating that countries provide 20-year monopoly patents on medicines. Intellectual property chapters in free-trade agreements include yet more protections that empower pharmaceutical corporations to charge higher prices. The WTO’s Sanitary and Phytosanitary Measures and Technical Barriers to Trade chapters cap countries’ ability to enact or maintain strong environmental and food safety standards. Most recently, pacts including the Trans-Pacific Partnership and the U.S.-Mexico-Canada Agreement have added “digital trade” rules that undercut the ability of countries to enforce their own laws regulating Big Tech competition, data privacy and security, and AI oversight.
The WTO and free-trade agreements also ban most capital controls and other forms of financial regulation that could help counter financialization and rebalance trade. Procurement chapters forbid preferential treatment for domestically-made goods, an industrial policy used in many countries to reinvest tax dollars locally and spur demand to expand domestic production capacity. By contrast, most free-trade agreements include extraordinary privileges and rights for foreign investors and establish extrajudicial investor-state tribunals that can order governments to compensate investors if changes in domestic policies conflict with their expectations. In effect, countries are punished for seeking to raise wages or standards and rewarded for lowering their standards to attract foreign investment.
This global trade architecture was sold as more efficient, promising lower prices for consumers. But what really lowered consumer prices were labor abuses, lax environmental regulations that permitted the dumping of toxins into the air and water, and trade-distorting mercantilist tools the system failed to prohibit, including currency manipulation and massive multilayered subsidies.
DELAYED FUSE
A few governments navigated these rules—and more important, the gaps between them—to generate huge chronic global trade surpluses. China has led the field. Beijing has devalued its currency, propped up the dollar’s value by holding excessive reserves, used forced labor, suppressed wages, repressed consumption, pushed its citizens to save excessively by providing a weak social safety net, and heavily subsidized the production of goods. As of 2025, China’s trade surplus stood at $1.2 trillion, the world’s largest.
U.S. presidents in both parties championed the global commerce regime that made China’s surplus possible. President Bill Clinton advanced WTO negotiations, pushed the pact through Congress in 1994, and convinced Congress to greenlight China’s entry into the WTO in 2000. The following year, President George W. Bush signed the proclamation that finalized China’s WTO admission; pushed through Congress free-trade agreements or permanent “most favored nation status” determinations for a dozen countries including Singapore and Vietnam, which China was already using as export platforms into the United States; and rejected numerous petitions for trade relief as Chinese imports began to flatten U.S. manufacturers.
As critics at the time predicted, the U.S. trade deficit exploded, reaching a high of $960 billion in 2022. This deficit contributed to the shuttering of 70,000 American factories from the mid-1990s to 2023 and the loss of at least five million manufacturing jobs between China’s admission to the WTO in 2001 and 2020, according to the Economic Policy Institute.
Meanwhile, as the dollars spent by U.S. wholesalers, retailers, and ultimately consumers to buy imports sloshed back into the U.S. economy, foreign firms and oligarchs, sovereign wealth funds, and state-owned enterprises seeking high returns channeled them into high-yield speculative financial instruments, hedge funds, buy-and-hold real estate speculation, and other nonproductive investments. The result was less financing available for the real economy and a sharp increase in politically destabilizing income inequality.
Presidents in both parties championed the commerce regime that made China’s surplus possible.
For years, U.S. policymakers largely ignored both these dynamics and the simmering discontent they were breeding within parts of the American workforce until the rage of those suffering culminated in Trump’s first election. The supply shocks of the COVID-19 pandemic then revealed what U.S. military planners and critics of neoliberalism alike had long warned: the United States had become dangerously reliant on other countries for essential goods.
Today, world trade has become so imbalanced and production so concentrated that fewer than 20 economies, mainly in Asia and Europe, have large chronic trade surpluses that do not rely on exports of oil or other natural resources. China’s surplus is by far the largest, but Beijing is not alone: over the past decade, Germany’s average current-account surplus has been the equivalent of seven percent of GDP, the Netherlands 7.7 percent, and Switzerland’s 6.3 percent. Japan and South Korea’s trade surpluses stand at 3.6 percent and 4.2 percent, respectively. Taiwan’s has averaged 13.4 percent.
Governments have built these surpluses by deploying policies designed to boost industrial capacity and exports. South Korea has regularly devalued the won. Taiwan provides various subsidies and intervenes in currency markets to keep the Taiwan dollar from appreciating. Germany gains a currency advantage by trading in euros rather than what would be a stronger national currency and has suppressed wage levels through labor law changes that expanded low-wage employment and rolled back workers’ rights. All of these governments’ policies have allowed firms to overproduce goods and sell them at artificially reduced prices—prices with which unsubsidized firms in target countries cannot compete—while making imports artificially expensive.
On the other side of the ledger, more countries have joined the United States in having chronic global trade deficits in the past decade. Large middle-income countries face deindustrialization pressures and have enacted tariffs against Chinese imports. Brazil, India, and Turkey, for example, have levied tariffs on a number of Chinese imports, including steel, chemicals, furniture, plastics, electric vehicles, and industrial machinery.
In the European Union, a flood of Chinese imports redirected by U.S. tariffs is creating a wave of deindustrialization, job loss, and political turmoil. Even Germany, which has the world’s second-largest chronic global trade surplus, is now losing 10,000 industrial jobs per month because its companies cannot compete with the Chinese goods whose low prices are made possible by government subsidies.
RULES OF ENGAGEMENT
As fewer countries and their workers, consumers, and businesses benefit from the current trade regime, more may be willing to consider change. To provide economic security to more people, post-neoliberal trade arrangements must be designed to prioritize balanced trade, establish a floor of labor, environmental, and antimonopoly standards, and give participating countries the freedom to manage their domestic economies as they please by ending the one-size-fits-all nontrade rules imposed by neoliberal trade agreements. Countries willing to accept such terms would agree to impose lower tariffs on one another and high external tariffs on imports from nonparticipating countries.
Balanced trade would not mean that each participating country must have equal exports and imports with every other participant, but that overall trade within the group is balanced. (Making this determination based on multiyear averages would allow for some year-to-year variation.) Some exceptions related to natural resource exports and flexibility for developing countries would be allowed, provided that their exports do not generate destabilizing imbalances. Developing countries would qualify based on not on the nebulous self-designation process allowed under the WTO, but on objective criteria such as World Bank income classification or weight in global trade.
If destabilizing surpluses were to arise, governments of other participating countries would be required to raise tariffs on the goods of countries that fail to allow their currencies to appreciate or take other actions to balance trade. Given the dollar’s role as the world’s reserve currency, for the United States to do its part within such arrangements, Washington would likely have to use tools on the capital account side of the ledger, such as capital controls on some foreign inflows, to achieve and sustain balance.
Although it is unlikely that Beijing would commit to such terms, other countries could still use this approach to reduce the global imbalances that China’s surplus causes. If Chinese goods faced significantly higher tariffs in many countries, Beijing might have no choice but to accommodate more domestic consumption to sustain its economy. Such a correction would benefit workers not just in countries that have been flooded with Chinese imports or whose exports have been squeezed out of third markets; as a surprisingly candid declaration from the June 2026 G-7 summit affirmed, extreme trade imbalances harm workers in deficit and surplus countries alike.
BLOC PARTY
This web of arrangements would in some ways resemble a customs union. But it would differ in one critical respect. Whereas customs union members enjoy duty-free trade within the bloc and levy a shared external tariff on those outside it, under a post-neoliberal paradigm countries would be able to set their own tariff rates that apply to fellow participants, giving them the flexibility to enact industrial policies. They would collectively negotiate a maximum trade-weighted internal tariff rate and a top rate to which all participants would be bound. But below the caps, countries would be free to adjust their current WTO tariff commitments and to employ tariff-rate quotas, which reserve a portion of domestic markets behind a higher tariff to create demand for domestic production, in order to promote growth in specific industries.
Arrangements must also incorporate nondiscrimination principles. Among participating countries, tariffs would apply on a most-favored-nation basis, meaning the same rate would apply to all. Participating countries would be required to apply the national treatment principle, which subjects foreign goods, firms, and services to the same regulatory standards as domestic ones.
As under the WTO, not all subsidies would be banned under these arrangements. But unlike the WTO’s cumbersome redress rules, with their lengthy timelines and methodological limitations, post-neoliberal trade arrangements would allow participants to quickly and effectively countervail against subsidies that harm their domestic industries, so that remedies come in time to save those industries.
To prevent goods from outside the bloc from leaking in and undercutting members’ efforts to lift wages and increase domestic manufacturing capacity, it is essential that rule following be rewarded, with participating countries enforcing strict rules of origin. Any new entrants willing to accept the terms would be allowed to participate, as long as they unwound existing free-trade pacts with countries outside the bloc to avoid leakages, a tall order for some countries but a necessary step to ensure balanced trade.
BEYOND BALANCE
If they are to address the harms caused by three decades of neoliberal trade policy, countries will need to do more than just balance trade. To benefit workers, build fair markets in which small businesses can thrive, and allow countries to fight climate change, post-neoliberal trade arrangements must require participants to enforce, as a baseline, the standards established by the International Labor Organization and major multilateral environmental agreements. Banning child and forced labor, prohibiting the dumping of pollutants, and guaranteeing the right to organize independent unions would counter the race-to-the-bottom practices rampant in the current system.
When past trade pacts have included enforceable labor and environmental standards, governments would face fines if they did not follow the relevant rules. This effectively allowed those governments to absorb the cost of the violations as part of their “low-road” strategies to attract foreign investment. A new paradigm must go further to ensure that standards are effectively enforced in letter and in spirit. Existing mechanisms could serve as models. Through the U.S.-Mexico-Canada Agreement’s Rapid Response Mechanism, for example, individual firms can face fines, tariffs, or a loss of market access if they violate labor rules. Enforcement on a global scale would be more difficult than it is among three neighboring countries, but new arrangements could still establish a standardized review process and penalty guidelines to allow individual countries to impose pre-agreed sanctions on firms found to be in violation.
Finally, post-neoliberal trade arrangements must contain antimonopoly rules to support well-functioning markets. These could include enforceable prohibitions on discriminatory pricing and cartelization abuses and rules to prevent corporate concentration. Many countries already have similar competition laws on the books. Although the WTO has imposed anti-antitrust rules, a model for a multilateral antimonopoly framework does exist: the International Trade Organization, the trade body originally proposed at the Bretton Woods Conference in 1945 but never implemented, included a Restrictive Business Practices chapter.
AFTER THE CHAOS
The Trump administration’s haphazard policies have done significant damage to the global perception of the United States as a reliable partner. But the next U.S. administration could nonetheless be well positioned to build transformational new trade arrangements. After all, when Trump leaves office, Washington will still have the world’s largest trade deficit. And as long as much of the world relies on selling to the U.S. market, Washington will have significant leverage to reshape the global economic order.
A new U.S. administration could use that leverage first to lay the groundwork for balanced-trade, fair-market arrangements in the Americas and Africa, where trade is already relatively balanced. Then, it could expand the project to Europe and Asia, where several countries have chronic trade surpluses. Large economies suffering from chronic trade deficits, such as the United Kingdom, would likely be keen to sign on, but even those with large chronic surpluses (such as Germany) and those that rely on mercantilist trade practices (such as Japan, South Korea, and Taiwan) might be persuaded if they saw this initiative as an opportunity to counter China’s predatory trade practices—and if they faced higher tariffs should they decline to join.
Growing bipartisan opposition to the old trade regime could make selling this approach in the United States easier politically than it might have been a generation ago, despite the opposition it is sure to face from the oligarchs and monopolists benefiting from the status quo and from politicians hoping to exploit Trump’s tariff malpractice to revive the existing order. And across much of the world, the experience of neoliberalism’s failure and of Trump’s tariff chaos could be enough to convince policymakers that a new approach is necessary. If U.S. leaders and their global counterparts take the right lessons from the present crisis, the next trade order could benefit far more people than the one that came before.
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