Larry Brainard looks beyond the relentless march of President Trump’s escalating trade war. He explains why market forces will reshape world trade. The world will fracture into distinct trading blocs. The pattern is already beginning to take shape.
While President Trump thinks he can turn the clock back on several decades of globalization, he cannot eliminate market forces. We argue that these market forces will adapt to the new US barriers on trade and technology transfer by reassembling global trade into new trading blocs, in particular an Asian bloc centred on China. Market forces will drive the coming changes, not political initiatives, as was the case for NAFTA. However, the political preconditions for the success of such a trading bloc, namely political support in China for an open, rules-based world trading system, are already in place. They will likely become even more favourable as China seeks to recruit friends to its side in its economic disputes with the US.
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