Trump Trade Negotiations: Embrace Strategic Trade, Not Autarky

U.S. trade policy lacks nuance and strategy. Free traders want free trade for everything. Protectionists want protection for everything. Free traders are happy for other countries to subsidize their exports, and if those countries are dumb enough to subsidize American consumption, let ‘em. Protectionists, meanwhile, get riled up if any imports are subsidized.

It’s time to apply a strategic lens to U.S. trade policy. If nations want to subsidize their exports of commodity goods like minerals, lumber, and dairy products—have at it. We’ll take the discount. In contrast, if they want to subsidize exports of advanced goods like semiconductors, steel, and autos—no way. These are predatory moves designed to destroy U.S. capabilities in critical industries permanently.

This Manichaeism runs deep. During the Obama administration, I met with a top White House economist. He had just come from a high-level meeting where an even more senior economist successfully argued that if China wanted to dump solar panels (i.e., sell below costs), they were the dumb ones. The United States should allow it because our consumers would benefit. (That economist’s initials might have been L.S.) He advocated for this because he believed no industry was more important than any other. And so, we lost our solar panel industry.

Now we have a White House that decries all foreign export subsidies and sees all goods-producing industries as equally important.

Neither protectionists nor orthodox free traders fully grasp the essential political economy of international trade. This critical blind spot has profound consequences for policy. It is time to embrace a Hirschmann-oriented trade policy.

Albert O. Hirschmann, in his seminal work National Power and the Structure of Foreign Trade, articulated what many economists overlook: Trade creates power relationships and dependencies between nations that extend far beyond simple economic efficiency. Trade patterns shape geopolitical leverage, vulnerability, and autonomy in ways standard economic models simply cannot capture. And advanced industries play a key role in shaping that power.

Orthodox free traders—steeped in the economic frameworks of Keynes, Hayek, and traditional neoclassical models—often treat trade as a purely economic phenomenon, divorced from political reality. They analyze tariffs and subsidies solely through the lens of efficiency, ignoring how trade dependencies can become geopolitical weapons. This explains why free traders consistently underestimate the strategic implications of becoming reliant on potential adversaries for critical inputs or technologies.

While protectionists intuitively grasp that economic dependencies matter, they typically lack a systematic framework for distinguishing genuine strategic vulnerabilities from special interest pleading. As a result, groups like the Coalition for a Prosperous America push to protect American ranchers and farmers, even though foreign trade barriers will never eliminate these industries in the United States. We have too much fertile land for that. This leads to blanket protections that undermine competitiveness without addressing core national interests.

The key is that advanced industry goods and services are fundamentally different from commodity industries. When a nation positions itself as a leading provider of high-value goods and services, it captures premium margins that fuel growth and innovation. Focusing on advanced sectors creates virtuous cycles in which expertise, capital, and talent converge, spurring further innovation and maintaining competitive advantages, including military capabilities. Nations that lead in critical technologies and services also gain diplomatic leverage and influence global standards, securing long-term market advantages.

Finally, unlike commodity goods, producing advanced goods takes considerable effort: capital, skills, R&D, learning, and scale economies. Once a nation’s competitive position is weakened by subsidized imports, the outcome is usually preordained—erosion of domestic capabilities with the ultimate result of near-total loss. These industries face high fixed development costs and require access to large markets to bring average revenues below average costs.

For example, it is highly unlikely that Boeing could have afforded to design and build the 787 jet if it could only sell in the United States. And if Boeing loses market share due to foreign subsidies (as it has in China and the EU) its revenue, and therefore its R&D investment, will decline, making it less competitive relative to COMAC and Airbus. The reality may not just be a decline in production, but the loss of the firm itself. America has already seen this in many industries, including telecom equipment, machine tools, and solar panels. It is highly unlikely that we will ever get them back, absent a CHIPS Act-like policy response.

President Trump rightly complains about foreign subsidies of commodity imports to the United States. But even with the threat of massive tariffs on foreign nations, he is unlikely to get everything he wants. He will have to decide which issues are the most important to press our trading partners on and which we can live with. We can live with Canadian tariffs on dairy imports. The result is a smaller U.S. dairy industry, but no meaningful decline in America’s techno-economic power. If those Canadian barriers were ever lifted, there is no reason U.S. dairy producers couldn’t simply expand production. This means it is time for U.S. trade policy to prioritize advanced goods and services over commodity-based, low-value-added sectors.

President Trump has said these negotiations will be win-win. That presumably means the United States will have to make some concessions. So, when the president and his team sit down with the roughly 70 countries that have asked to negotiate, the U.S. shouldn’t go to the mattresses over domestic protection or foreign dumping of commodity products. Who cares? Sure, in an ideal world, these products would be based on total free trade. But that world doesn’t exist—and few nations are going to give up everything. Better to let them keep these protections while we focus on eliminating the policies that harm America’s advanced industries.

Take the EU, for example. The USTR’s 2025 National Trade Estimate devotes 33 pages to EU trade barriers. The Trump administration should be willing to compromise on those barriers that don’t significantly affect American techno-economic power, such as food tariffs, wine and alcohol labeling, and professional services restrictions. In contrast, it should not give in on issues that matter, holding firm on eliminating barriers to cloud services, pharmaceutical products, and government support for Airbus. (See table 1.)

Table 1: How the Trump administration should approach certain EU trade barriers

The Trump administration will have to make a choice: Demand the removal of all barriers or be strategic and focus on eliminating those critical to America’s future. If it chooses the former, there will likely be no deals and tariff walls on both sides. That’s not a good outcome unless you are a protectionist. But President Trump has the opportunity to chart a bold new course for U.S. trade policy. Doing so will require making tough political choices and putting America’s long-term interests ahead of parochial ones.