Trade, Conflict, and Strategy

Not long after President Donald Trump announced “Liberation Day” on April 2, 2025, reactions at home and abroad ranged from protracted stock market volatility to suspense and speculation about megadeals to come. But one thing was clear: this administration was going to wield tariffs forcefully and frequently on the rest of the world at a far greater scale than before, against friend and foe alike, the subsequent rollbacks and temporary suspensions notwithstanding. Whether they remain in effect at any given time or on any given country, what Treasury Secretary Scott Bessent has called the “tariff gun” remains on the table for all to see. 

Whether there is actual trade war or not, the United States has long been inhibited in linking broader economic concerns to national security ones. In Robert Lighthizer’s No Trade Is Free (2023), he demonstrates how contemporary trade structures, exemplified by the World Trade Organization (WTO), have actively hampered the ability of the United States and other countries to create economic strategies that are in sync with its own economic interests.¹

One can go even further: neoliberal economics positively discourages the incorporation of economic thinking into a nation’s grand strategic calculations and dissuades its meaningful incorporation into national security strategy. After all, there is the most telling and transcendent neoliberal argument of them all, Montesquieu’s notion of doux commerce transposed into our time: free trade—trade uninhibited by state action—is not only more efficient but benevolent and necessary to achieve a peaceful world.

After decades of reductive thinking on global trade and market integration, there have been stabs at creating a larger “geoeconomic” narrative from the likes of David Baldwin and Robert Gilpin.² In more recent years, aside from Lighthizer, there have been more: for instance, War by Other Means: Geoeconomics and Statecraft (2016), by Robert Blackwill and Jennifer Harris.³ And two of the entries featured in the essay collection New Makers of Modern Strategy (2023) focus on Alexander Hamilton’s economic grand strategy for the United States and the possible grand strategic implications of Hamilton, Adam Smith, Frederich List and others thinkers of the neomercantilist school.⁴ 

But such conceptualization is still fairly threadbare. Instead, typical national security strategy studies either gloss over economics entirely or have brief sections on the “economic instrument of power”⁵ that list reactive policy measures such as foreign aid and sanctions.  Most studies of defense acquisition policies tend to be nuts-and-bolts treatments of requirements, budgeting, and acquisition methods. Beyond that, most acquisition writing is either devoted to some proposal toward acquisition reform or studies that employ public choice and similar theories to unpack bureaucratic politics.

There is little sophisticated discussion of an “internal” national security strategy that is firmly economically grounded and related to production or even mobilization. One might find a text that asserts that “In its broadest definition,” economic strategizing does include the “sheer size of the U.S. economy as having an influence on the rest of the world.”⁶ But the recognition that production itself both requires a strategy and is a component of national security is typically not examined further. What is needed, therefore, is to tie these conceptual threads together from across academic and policy conversations as a means to developing a more comprehensive, nuanced, and realistic understanding of how economic interest and grand strategy should intersect: the following analysis will be dedicated to doing just that.

Trade and Strategy

Back in the 1960s, strategic thinker Kenneth Boulding sought to create an economically oriented national security strategy discourse along grand strategic lines. In his book Conflict and Defense, he posits long-term strategic considerations: if the economy is an external economy—that is, one in which the expansion of any domestic industry via some form of protectionism, such as a duty or tariff, makes that economy ultimately more efficient and thereby reduces costs by units—then in the long run, the benefits of protectionism are indeed positive. They eventually will lead to lower prices, more productivity, more jobs, fewer social pathologies, and with accordant national security consequences. But the problem in strategizing economically is precisely that the short run allows for a simple allocation of gains and losses, whereas long-term gains as described are much more obscure and difficult to determine. Simply put, the short run is readily quantifiable and tends to be what many economists fixate on.⁷  

The insight is a variation on Clausewitz: strategy is harder than tactics, notes the Prussian general, because you have more time to act and therefore more time to doubt; furthermore, in tactics you generally can see what is happening, whereas in strategy, you have to guess.⁸

It’s hardly fair to blame the rarity of economic thinking in national security strategy on economists themselves. Economic power is far less “vertical” and far more diffuse than military power—different branches of the U.S. government own various parts of the economic instrument. As economic historian Douglas Irwin notes, Congress essentially controlled trade policy until it ceded large parts of that policy to the executive with the passage of the Reciprocal Trade Agreement Act of 1934.⁹ The Federal Reserve runs monetary policy, is not a branch at all, and has been largely uninterfered with since FDR’s banking reforms of the 1930s.  

Regardless of blame, “serious” writing about national security strategy remains militarily and diplomatically inflected. “National economic strategy” still has the whiff of “low politics” in contrast to the “high politics” of diplomatic (and as needed) military strategy.¹⁰ Colin Gray, one of the most prominent strategic thinkers of our era, illustrates this in his “twenty-three dicta” of grand strategic theory, which he defines as “the direction and use of any and all of the assets of a security community, including its military instrument, for the purposes of policy as decided by politics.” Reviewing the dicta, it is obvious that such strategy is dominated by military power—Gray explains how strategy consists of ends that are achieved by ways that are resourced by military means.¹¹

This lack of theory and concept has played out in policy. Blackwill and Harris point out that economic statecraft appeared slight during the Cold War era relative to the robust use of military and diplomatic tools and methods.¹² The Cold War was full of grand geopolitical strategies and strategizing: Kennan’s containment, Eisenhower’s Project Solarium, and Kissinger’s triangular diplomacy are prime examples. But there was a decided lack of sophistication regarding the dismal science. Kennan and Kissinger typified this, as neither had much of an understanding of global economics (Ike, on the other hand, had perhaps the most astute grasp of economic power of any Cold War president—evidenced by his “Great Equation” calculus.¹³) Attendant economic strategic action was sporadic and, most of all, reactive: Nixon’s withdrawal from the gold standard in 1971, in response to the recovering postwar economies’ runs on the gold window; Carter’s economic sanctioning of the Soviet Union in 1979, after its invasion of Afghanistan; Reagan’s Plaza Accords in 1986, in response to Japan Inc.’s seeming takeover of major market sectors. 

The end of the Cold War didn’t usher in a serious policy rethink, inviting instead the further relegation of economic interest before newly fashionable neoliberal globalization discourse. Richard Baldwin notes, for example, how Harvard economist (and adviser to George W. Bush) N. Gregory Mankiw insisted that the U.S. Congress should grant authority to pass the Trans-Pacific Partnership (TPP) on the grounds that the “economic argument for free trade dates back to Adam Smith.” With little awareness of changing geopolitical realities (such as the rise of China as a peer strategic competitor), he simply declared that “Americans should work in those industries in which we have an advantage compared with other nations, and we should import from abroad those goods that can be produced more cheaply there.”¹⁴ 

Mankiw and others of his stripe characterize the TPP as involving simply an “exchange of players.” But the forms of global integration that have occurred since the 1990s, something that Baldwin has noted so aptly that it is sometimes referred to as the “Baldwin Shift,” is profoundly different than what occurred during the Wealth of Nations era, or even in the years right after World War II. In the new globalization, goods, workers, capital, supervisors, technology, and innovation capacity have all become globally mobile in ways that would have been inconceivable at the height of the Cold War. Not only can physical capital be arbitraged, but so too can previous advantages, especially intellectual ones, exclusively held in higher-tech countries. Comparative advantage, classically understood, has lost its meaning.¹⁵

Furthermore, all this has occurred when trade has essentially lost its American regional constituencies. Consider that in America’s early days, trade was dominated by agricultural concerns (hence why Southern interests so often prevailed and tariffs were largely there to generate revenue), and in its middle industrial period, trade was bound up with manufacturing issues (hence why Northern interests so often prevailed and tariffs where there to protect those industries); in its late postwar phase, however, no region had dominance. Indeed, the dramatic economic and social decimation of the industrial Midwest showed just how politically weak the pro-manufacturing constituency had become. What mattered in a post-manufacturing age was the flow of capital, something neoliberal principles were ideally suited to enable.¹⁶

And when it came to China especially, national security considerations were certainly subordinated to neoliberal logic. For instance, the 1974 Trade Act’s Jackson-Vanik Amendment established the granting of permanent normal trade relations (PNTR). It was intended to be used as a geopolitical cudgel against the USSR and other communist nations because of their refusals to allow Jews and dissidents to emigrate.¹⁷ When PNTR was granted to China in 2001, it was wholly a free market calculation devoid of geopolitical content and inextricably linked to China’s WTO accession: if China was not granted PNTR, so the story went, the United States would in turn be compelled to invoke Article XIII of the WTO Uruguay Round so as not to apply WTO rules to China. China would in turn almost certainly invoke the similar Article XIII rules that would thereby deprive U.S. firms from participating in various liberalizing reforms that China promised in a variety of areas. Furthermore, the United States could not use the WTO’s processes to resolve any trade disputes with China.¹⁸ 

A granular and disaggregated economic strategy inexorably followed from such thinking. After being granted PNTR status, China remained in Column 1 of the Harmonized Schedule of the United States (HSTUS), with negligible tariff rates (as compared to other countries) for years, even after China’s depredations became widely known. PNTR status totally removed China from being subject to HSTUS review. Trade strategy, in essence, had devolved to trade schedule.¹⁹ 

Far from seeking to abolish economic controls, the neoliberal project seeks to buffer the market from outside forces through a series of controls that would forbid state interference. Tariffs and protectionism, for instance, are especially anathema.²⁰ Neoliberal thinkers have been over time quite successful in converting, in historian Quin Slobodian’s words, “metaphors into economic policy,” powerful tropes and mental schemas that showed the dangers of nation-state interference. Examples of such “metaphors” would include Clive Morrison-Bell’s map of Europe with actual 3D tariff “walls” circling each country to reveal the dangers of “protectionist” policy, or Austrian economist Oskar Morgenstern’s doom-laden, downward spiraling diagram of world trade in the 1930s.²¹

Trade and Conflict

The idea that trade, especially free trade, promotes peace has long preceded neoliberalism and goes back to the fourth century AD, though perhaps its most famous proponent is Montesquieu who claimed in The Spirit of the Laws that “it almost a general rule that wherever the ways of man are gentle, there is commerce.”²² The notion gained special traction during the Victorian era among the great British fathers of classical economics. In his Principles of Political Economy, for example, John Stuart Mill goes as far as to say that the free flow of commerce will eventually make war obsolete.²³ 

The central conceit of “economic pacificism,” as it is sometimes called, is simple enough. From a purely economic calculation, nations that exhibit “the most mutual international trade should exhibit the least conflict” because the greater the amount that nations trade with each other, the higher the costs to break that economic relationship and go to war.²⁴ The post–Waterloo “Long Peace” seemed to give this credence. Mercantilism was on the wane and nations’ welfares focused far more on mutual benefits, especially the benefits of trade. Of course, this was essentially confined to a set of European states; therefore, exceptions to the Long Peace, such as the Crimean War, were appropriately rationalized. France and England joined forces in that war as representatives of Western civilization fighting the backward, unenlightened Russian empire.²⁵

In truth, the era’s free trade was only part of a larger matrix of interconnections that brought nations together. Reduced transportation times via steamships and railroads, the invention of the telegraph cable, and events such as the establishment of the Olympic Games all seemingly contributed to global harmony.²⁶ And the Long Peace argument had its notable dissenters. In Friedrich List’s The National System of Political Economy (1841), he argues that free trade can be quite dangerous in a world of asymmetrical nation-states. It can very easily endanger a weaker state by making it dependent upon a more powerful one and rendering it unable to build up a self-sufficient defense industrial base.²⁷ 

And there is also Marx and his interpreter Lenin. The Marxist-Leninist variation is that so-called free trade is simply an effect of capitalist depredation, whether in the form of underconsumption generated by plutocrats creating the necessity for foreign markets, or in the form of monopoly power goading governments into war to maintain advantageous trade patterns.²⁸ 

Marxist-Leninist notions have, in turn, their dissidents. For instance, British economist Lionel Robbins argues that economic motives were not the source of the 1905 Russo-Japanese War, but quite the reverse: economic motives were mere smokescreens for the “operations of mystical Russian imperialism.”²⁹ To Robbins, a founding member of the Mont Pelerin Society, the source of so much neoliberal thinking on global economies, the cause of war is not capitalism. But free trade itself cannot bring peace: “Not capitalism but the anarchic political organization of the world is the root disease of our civilization.”³⁰ Per Robbins and other forerunners of neoliberal globalized thinking, trade must be buffered, insulated, and protected from nation-state interference, and only a globalized economic order can accomplish this. 

The 1990s all but realized that view: that decade saw renewed economic globalization and the creation of numerous transnational economic linkages, underwritten by transnational rules and organizations.³¹ Thomas Friedman’s ideas about economic globalization serve as a near locus classicus of the thinking of the era. Friedman contended that government must allow the private sector to be the primary engine of economic growth and that governments should be constrained in their abilities to alter outcomes via a “Golden Straitjacket” of aforementioned rules and organizations. In 1999’s, The Lexus and the Olive Tree, he wrote “on the political front, the Golden Straitjacket narrows the political and economic policy choices of those in power to relatively tight parameters . . . political choices get reduced to Pepsi or Coke—to slight nuances of taste, slight nuances of policy.”³² Economic interdependence follows.  The “Golden Arches Theory,” his famous notion that countries with McDonald’s don’t fight, brings both peace and inevitable democratization. China, for example, is “going to have a free press . . . China’s leaders don’t know it yet, but they are being pushed in that direction.”³³

And yet speculations about the decline of the nation-state and the decline of violence have been roundly criticized even during the peak globalization years. Predictions of economic interdependence engendering a diminishment of global violence even in the 1990s look overstated: the nation-state has proven to be remarkably adaptable and has retained its power in economic and military domains. China, far from being the liberalized exemplar imagined by Friedman, served as the preeminent example of a polity that retained its sovereign political decision-making capabilities even as it reaped the greatest rewards from global integration.³⁴ 

And what about the idea that the world is not only globalizing via more free trade, but also becoming less violent?  This is the argument Steven Pinker makes in his 2011 book, The Better Angels of our Nature: Why Violence has Declined.³⁵ But are Pinker’s findings true, or are they wishcasting? Even prior to the outbreak of the Russia-Ukraine war or the current Israel-Gaza conflict, Pinker’s conclusions have been significantly challenged.

According to Frank Hoffman and Richard Neuhard, using the widely regarded Correlates of War database, the data show that, overall, armed conflicts have actually risen in the post–World War II era. They did seem to peak around 1990, but they have declined to a plateau that is still higher than the 1945–55 period. Specifically, interstate conflicts similarly increased and peaked around 1990. They did dramatically fall in the new millennium, but in the 2020s, they are beginning to rise once more. And even the low levels of conflict of recent years match up to similar periods in the 1850s and 1930s. What appeared to be an inevitable arc of history is very possibly just a temporary lull.³⁶

And what of the economic arguments that supposedly undergird the relationship between trade and peace? Can they hold up? The arguments can be divided into two types. The first starts from a deduced premise; it may, for example, draw its principles from some economic axiom such as price inelasticity (a concept that is common, but not confined, to neoliberal economics). When a good is price inelastic, consumers will continue to buy it even if prices rise; the demand curve does not dramatically shift, presumably because this sort of good is not substitutable and meets an important need. Commonly touted examples of price inelastic goods are gas (“we’ll pay more since we need it to get around”) and pharmaceuticals (“we’ll pay more since we want to be healthy and stay alive”). According to this line of thinking, conflict is less likely between nations when such difficult-to-replace goods and services are traded; they are too important to risk engaging in armed conflict, which would presumably cut off the goods possibly completely. Variations of such an argument are supported deductively via formulae and a variety of supply and demand curves; data then is brought out to support the argument.  

There is the possibility of confirmation bias in such analysis. It is at least plausible that if you start with the proposition that price inelasticity reduces conflict, then your findings may very possibly support this proposition. More fundamentally, there is the problem of extrapolating a notion such as price elasticity—which is oriented at individual consumers with attendant consumer time horizons—to entire nation-states that typically have much longer strategic spans. Defense budgets and acquisitions, for example, are often planned out over the course of decades.  Furthermore, nation-states often have options that individual consumers typically don’t. For instance, a nation-state cans seek an appropriate substitute to a price inelastic good, and depending upon its resources, it can even create such substitutes; these are the conditions that forced the Germans to develop synthetic fuels during the World Wars, and that are now compelling the Chinese to develop electronics self-sufficiency after U.S. chip export restrictions.   

The second type of argument is more frequently made by political scientists who do not start with such positions, and who instead posit a concept such as trade as an independent variable and then determine whether the dependent variable is a form of conflict, in a more straightforward cause-and-effect analysis. There is no antecedent theory and no presupposition made about whether trade promotes and dissuades conflict. 

This latter approach is the one political scientist Katherine Barbieri takes. Barbieri herself is highly skeptical of those who accept economic assumptions regarding trade as “theoretically neutral” and as a result, “often treat economic theories as if they were laws.”³⁷ And Barbieri challenges the notion that close relations, to include those furthered by trade, lead to peace with a rather common sense rejoinder: if this is true, how does one explain the frequency and brutality of civil wars and any variety of intrastate conflicts, which, after all, are as frequent if not more frequent than interstate ones?³⁸ 

Barbieri’s analysis uses typologies and terms not from neoliberal economics, but from other sources, particularly from Robert Keohane and Joseph Nye’s work, Power and Interdependence (1977).³⁹ Barbieri employs their vocabulary to map out international economic relations and their possible consequences: “independence” indicates zero to vanishingly minimal economic relations (expressed typically if not wholly by trade in goods and services); “interconnectedness” represents “weak linkages” between states: states that are only interconnected have weak economic ties; “interdependence” implies relations of “mutual need and, by extension, mutual vulnerability between actors”; and finally, there is “dependence,” which denotes a significant asymmetrical economic relationship between nations. ⁴⁰ 

Barbieri’s employment of Keohane and Nye’s terminology entails a broad continuum and indicates that the question is less about trade per se and more about the nature and extent of the trade. Does trade exist at all (independent)?  If so, is it at arms-length and relatively de minimus (interconnected)? Is it mutually dependent or near so (interdependent)?  Or is it asymmetrical and involving dominance (dependent)? This methodology is, of course, a heuristic tool, just as neoliberal propositions are. But it allows for greater nuance and carries less normative baggage: free trade is not, for example, assumed to be per se superior, and it is more suited to be filled in with specific facts and circumstances.

Gauging levels of interdependent economic relations may well be a more sensible and practical way to evaluate bilateral and multilateral economic ties. Neoliberal propositions about trade tend to focus predominantly on “joint” gains, such as the “win-win” scenarios of comparative advantage, for example. But doing so can very easily obscure what could be the more essential issues of how gains are distributed among the countries, to include whether such gains are maldistributed. Comparatively speaking, while both nations may gain, one nation may gain far more than the other.⁴¹

What is most interesting about Barbieri’s use of Keohane and Nye’s vocabulary—and what perhaps demonstrates its relative neutrality—is that she comes to different conclusions about the efficacious nature of interdependent trade than they do. She references data taken from the Correlates of War database largely from the years 1870–1992, involving trading patterns between major powers.⁴² And she concludes, based upon an inspection of the historical data, that extensiveness of trade ties actually can very often increase the probability that two trading partners will end in conflict. “Interdependence” may be both conflictual and cooperative: conflict or cooperation may follow from close trade ties. At the least, trade “does not appear to prevent dyads [two countries in a bilateral trade relationship] from engaging in the most serious conflicts.  In fact, serious conflicts appear to be more likely for highly interdependent states.”⁴³ 

Barbieri further concludes that, rather than simply assuming trade, and by extension open and free trade, are pacifying and beneficent, one should address the “nature and context of economic linkages” using the Keohane and Nye terminology in a much more granular way.⁴⁴ That might sound to some like a trivial insight and unworthy of further mathematical modeling, though it more truthfully reveals the limits of deducted models used to explain the welter of human experience. The conclusions provided by Barbieri’s use of Keohane and Nye’s typologies enter us into the world of strategic choice. The strategic analysis begins with, say, determining the advantages of becoming interdependent. It continues with a determination of whether a nation should become so, and it further leads to other questions, such as: What are the trade-offs involved? How critical to national security are the goods and services traded?  Where does interdependence end and dependence begin? 

A Grand Strategy of Trade

Generalized deductions in neoliberal economics have created schema, models and chains of reasoning that have inhibited the incorporation of economics into national security strategy.  There can be virtue in simplification. Humans, after all, are cognitive misers; we can only process so much, and we can only translate so much information into meaningful modes of action.⁴⁵ Yet, while simplification may be necessary, the sort provided by neoliberal economics has been found wanting. It has not allowed for the United States to engage in meaningful economic statecraft. Rivals such as China have not been so inhibited.   

What then should we do? Some fundamental rethinking is required. For example, the notion that uninhibited trade is a sure conduit to peace is empirically questionable, even dubious. Rather, economic and military activity should be regarded as distinct modalities of state strategic action. The distinction is quite important: war and forms of military aggression that involve kinetic violence between states and people is different from economic activity. Military and strategic historian Donald Stoker goes so far to say that “economic warfare” is bad terminology.⁴⁶ A nation-state’s use of economic statecraft can certainly have strategic ramifications, but such statecraft is not war, nor does it, in and of itself, lead to war. Making this distinction clear should not make us reckless about the use of economic statecraft, but it should allow for the robust use of it without a reflexive concern about it escalating into armed conflict.

Kinetic violence operates as one extreme point of nation-state behavior. Much of the ordinary commercial intercourse that takes place in the world today does in fact operate in a realm which does not require direct nation-state involvement: a reduced, scaled down version of Hayek’s “catallaxy” (a self-organizing domain where markets are free).⁴⁷ Smithian principles work there with adequate validity. But there is another range among nation-states, a range that is not and does not necessarily lead to kinetic violence, but that does directly involve those nation-states in direct economic competition with one another. This is the domain of economic statecraft that will typically involve the trade of goods and services among nations.⁴⁸  

Such economic statecraft needs appropriate schema, historical contexts, and a more flexible and responsive vocabulary to interpret trade and other macroeconomic functions, unencumbered by abstract neoliberal terminologies that themselves are historically contingent. Barbieri’s use of Keohane and Nye’s terminology allows this. For example, an analysis of most favored nation status and of permanent normal trade relations would be better refracted through Keohane and Nye’s variations of connectedness and dependence. How independent, interconnected, interdependent, or dependent is the United States regarding a particular good or service and what are the national security implications of that relationship? In such circumstances, absolute advantage may well be more relevant than comparative advantage.

Such analysis reinserts strategic thinking into economic statecraft, and it may serve as the missing link that fuses our understandings of the purely economic and the grand strategic facets of U.S. policy. In the emerging postneoliberal world, economic statecraft no longer simply means a set of reactive and crisis-oriented actions, but part of a strategic discourse integrated more fully into American national security strategy. And while this sort of strategic thinking certainly should be defensive, it should not be restricted necessarily to defensive modes only.

This way of thinking is especially relevant when examining the trade and tariff policies conducted since April 2025. The contemporary commentary on the current administration’s tariff regime has been almost entirely focused on its legal basis or its economic consequences, with many lamenting the possible outcomes. And apart from Stephen Miran’s prognosis about a potential tariff system, published in late 2024, relatively little has been written recently about the tariff regime as a manifestation of national strategy.⁴⁹ 

But what if we examine this new tariff and trade policy in strategic, and not simply legal or economic terms? What if the current emphasis on “negotiated,” as opposed to “free,” trade should not be simply seen as “war by other means” or as some actual prelude to armed conflict? What if it approaches trade with other nations in language that is not part of the common neoliberal economic discourse?

Viewing the tariffs in such strategic fashion helps us better understand the ambitious and controversial trade policies of the current administration. Its tariff regime, a mixture of baseline tariffs as well as mostly Section 232 national security and 301 unfair trade practice tariffs, has baffled many who view tariffs as governmental-induced distortions within the free trade neoliberal order. Indeed, the very language of tariffs’ employment—the requirement of a declaration of a national emergency to invoke the International Emergency Economic Powers Act (IEEPA), the predicate  of unfair trade practices to trigger Section 232 tariffs, or the threat to national security to launch Section 301 tariffs—are all manifestations of a neoliberal order that, as Slobodian demonstrates, was essentially formulated by neoliberal economists to buffer trade from governmental intrusion. And because these new tariffs operate in a way that do not acquiesce to that order’s rules, it has led many to conclude, as Warren Buffett has, that the tariffs are “acts of war, to some degree.”⁵⁰

But such tariffs are, in fact, better viewed as manifestations of what Alexander George has termed an “operational code” for a strategic worldview.⁵¹  These tariffs instead should be seen not as episodic warnings or punishments, but as strategic signals of economic intent and part of a larger grand strategy that systematically utilizes geoeconomic instruments and not simply, or even primarily, military ones. Seeing the current trade policies in such a strategic light recontextualizes the current courtroom arguments about the tariffs.

There is a “national emergency,” of which the current account deficit is a manifestation, that justifies them, but it goes even beyond the balance of payments problem: America’s deindustrialization and the hollowing of its defense industrial base are part of the crisis too, something that the “tactical” approaches of labeling singular or sectoral threats to national security (or unfair trade practices by revisionist states) cannot fully address. What is required—and at least arguably, what the current tariff and trade regime attempts—is a broadly gauged strategic approach to address the crisis, one that uses tariffs not merely to warn or punish, but to express national priorities, to shape global behavior, and to help reshape and redefine the world’s economic rules.

Reconceived as primarily a modality of geoeconomic grand strategy, today’s tariff policy takes on a different look. At the core of the policy are the initial 10 percent baseline tariffs placed in April 2025. Many critics contend that they should have been implemented on a case-by-case approach, which is the standard legal-economic approach, but the baseline tariffs are, in fact, a strategic stroke. They are unitary and clear, and in an instant, by laying down the baseline, the United States has gained major strategic first-mover advantage; the United States has set the conditions, and other nations, therefore, have had to choose to respond either by matching, retaliating, or coming to the table to work om a bilateral deal at which America has significant cards to play. It is here that employing language such as Keohane and Nye’s helps clarify.  Where is interconnectedness, independence, dependence, or interdependence in trading relations, and how can the United States leverage any of those modes to its strategic advantage?  

In fact, other countries are dependent, or at least interdependent, on critical facets of the American economy that can be strategically leveraged. The first point of interdependency is America’s consumption economy.  The most common complaint from economists about tariffs is that they create significant inflation, though no significant inflation was reported after the first round of China tariffs in 2018–19. As of this writing (October 2025), inflation, according to the PCE index, remains modest at around 2.7 to 2.8 percent.⁵² Why is this? It is because America is the epicenter of the global marketplace. Countries want to continue to send goods to its high personal income economy, and Americans themselves therefore have a great variety of substitutable products. Nations’ businesses will continue to send products and will continue to absorb the pass-through costs. This absorbed cost may diminish the growth in those nations’ economies, but it won’t necessarily increase, at least in the aggregate, overall inflation in America. In other words, America’s seeming liability, a heavily consumption-oriented economy, has been translated into a strategic lever.  

The second is America’s dollar, the world’s reserve currency. It is precisely this status that has kept the trade imbalance from correcting. In ordinary neoliberal logic, trade deficits equalize over time because the deficit nation’s currency devalues as it floods the global market. This is turn makes the deficit nation’s products more competitive. Its exports surge, and self-correction occurs—except that it doesn’t when the dominant currency is the currency of the deficit nation. The flood of dollars makes no difference because other countries and their firms do business in dollars and want the dollars strong, and so the deficits persist. But this very persistence keeps the dollar strong, which is good for the United States. It also continues to entice imports, and therefore the tariff revenues from those imports, though admittedly, over time that import flow could fade if sufficient domestic alternatives are found.⁵³ 

Furthermore, the tariffs themselves are presumably part of a larger kit of geoeconomic strategy tools. The singular and more sectoral 232 and 301 tariffs remain available as devices either for punishment because of unfair trade practices, or for protection because of national security rationales.

The entirety of the post-April tariffs has so far generated about $200 billion in tax revenue. Of course, this is not enough in itself to dent the approximately $30 trillion public national debt, though, over time, it is conceivable that some trillions of dollars generated from the tariffs could reduce the debt by single digit percentage points, which is not insignificant. More importantly, they are linked with a presumably forthcoming vigorous deregulation regime, a requirement for defense sharing costs from allies, and a Western Hemispheric national security reset, which in their totality will potentially reduce discretionary government costs, spur growth, and reduce the debt-to-GDP burden to more manageable levels. The tariffs, in other words, if taken together with these policy moves, form a coherent albeit controversial geoeconomic grand strategy.

It’s apt to contrast this tariff regime with the one imposed by the 1930 Smoot-Hawley Act, perhaps the most infamous from the past century. And the contrast is stark. Rather than a unitary Hamiltonian vision—President Hoover was indifferent to the Smoot-Hawley legislation—the Smoot-Hawley tariffs were classic illustrations of congressional mission creep. The original plan to establish purely agricultural tariffs descended, via successive bouts of legislative logrolling, into a morass of specified tariffs for hundreds of nonagricultural products, with little seeming purpose or overall direction. Yet unlike today, during the Smoot-Hawley period, there were few strategic cards for the United States to play.

In Keohane and Nye’s terms, America was merely interconnected to the global markets. It certainly could not operationalize American consumption in the wake of the 1929 Crash and the ensuing Great Depression, and it did not possess the world’s reserve currency, a status which then belonged to the British pound sterling. American strategic leverage, in other words, was nil. At any rate, Smoot-Hawley certainly did trigger retaliatory tariffs from a number of other countries. (Ironically, the biggest retaliator after Smoot-Hawley was not a fascist or communist state, but Canada, which, pace Friedman, did not seek war with its southern neighbor.)⁵⁴

None of this is to say that the current trade and tariff strategy is flawless. It shows elements of coherence, creativity, and a willingness to think beyond neoliberal strictures.  But even good strategies can fail, confounded, as Clausewitz reminds us, by the future and its required guesswork. It is telling that some of the critics who shouted loudest when the baseline tariffs were imposed in April have moderated their tone, partly out of an acknowledgement that disaster has not ensued, and partly because what they are seeing is new. It is a view of tariffs and trade as geoeconomic strategic discourse, and as an integral part, even a cornerstone of a new sort of U.S. grand strategy. 

This article is an American Affairs online exclusive, published November 20, 2025.

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Notes