OPINION:
President Trump is redefining the bargain between America and its allies by radically altering post-World War II Western security arrangements and the conditions that fostered market-driven globalization.
He has successfully secured commitments from Europe and Japan to contribute their necessary shares to the common defense against Russia, China and their axis allies and imposed asymmetrical deals that raise U.S. tariffs.
Regardless of how the Supreme Court rules on the legality of those tariffs, the president’s new arrangements are inherently unstable.
Among the accomplishments in creating the 1995 World Trade Organization was the extension of rules governing trade in services, similar to those governing trade in goods under the 1948 General Agreement on Tariffs and Trade.
The 1995 General Agreement on Trade in Services was anticipated to permit America’s most competitive sectors — finance, high tech and the creative media — to thrive without border taxes similar to tariffs on goods.
That expectation has been violated by arbitrary European Union regulations that target U.S. high-tech companies.
Governments across Europe, Canada, India and elsewhere have imposed digital services taxes that apply primarily to the largest global companies, American businesses such as Alphabet and Microsoft, on products created in their countries and exported into their markets.
By targeting primarily American high tech, those taxes effectively become import tariffs on U.S. services.
Canada, seeking to remove the Trump tariffs on goods, has abandoned its digital services tax; however, the trade deals reached with Britain and the EU don’t require similar action.
Mr. Trump may be threatening and bullying our partners into accepting what most call uneven economic bargains by imposing tariffs of 10% to 20% while demanding that they lower their taxes on our goods exports. However, by allowing them to retain their taxes on our most competitive services, these deals are hardly one-sided.
Karin Karlsbro, a Swedish member of the European Parliament, lamented recently, “The free trade principles that have underpinned trans-Atlantic prosperity since the end of World War II are being systematically dismantled,” and German Chancellor Friedrich Merz moaned, “The German economy will suffer significant damage.”
In looking for blame, Europeans, Canadians and others should consult their makeup and shaving mirrors. The bottom line is that Mr. Trump hardly started this trade war. The fire has been smoldering for years.
U.S. presidents, including John F. Kennedy, Ronald Reagan and Bill Clinton, ate at the margins of free trade by negotiating deals to protect textiles, automobiles and chip fabrication.
Economic statecraft, the use of industrial policies and various protective regulations, has been on the rise globally for decades.
President Biden’s program to reshore semiconductor fabrication and the production of critical materials was merely America acknowledging forces we could no longer resist.
The defense spending side of Mr. Trump’s strategic order is essential.
We are not going to reach economic or security detent with China or Russia.
The vulnerability of our economy to an export embargo of Chinese rare earth minerals and to losing access to fabrication in Taiwan for high-end semiconductors are not threats any reasonable calculus of American security interests can ignore.
With Russia rearming, Iran still able to manufacture lots of drones and other arms to supply a new generation of terrorists, and China’s naval buildup, we simply can’t afford to carry the burdens of securing Europe, the Middle East and the Pacific alone.
Once the Europeans have rearmed, an important lever in the recent trade negotiations Mr. Trump enjoyed — threatening to withdraw American support for Ukraine and more broadly the American commitment to defend Europe — will be gone.
Mr. Trump and his successor will face angry partners who feel justified in renegotiating the tariffs and broader terms of our trading relationships.
If we don’t renegotiate, they will feel empowered and impelled to impose taxes on American exports unilaterally.
Given the significant disparities in wealth and population between NATO Europe and Russia, the Russians are likely to face a challenging time trying to keep pace in a rearmament contest if the Europeans truly allocate 5% of their gross domestic product to defense and supporting infrastructure.
Achieving these goals would require NATO Europe to scale back its welfare states, raise taxes or start running continentalwide American-style national budget deficits.
The nature of most European parliamentary governments, multiparty coalitions, makes it virtually impossible to reduce social spending, and Europeans already pay extremely burdensome taxes.
Lacking the American exorbitant privilege of issuing the reserve currency, they can’t finance the kinds of deficits we do.
The logical choice, then, will be to raise taxes on the United States by imposing new tariffs or devising creative schemes, such as the digital services taxes, to burden American businesses but not their own.
Believing we wrecked the postwar trading system, they will feel justified.
Faced with these conflicting forces, the Trump economic security brain trust has not articulated a clear plan for what should come next.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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