US Grand Strategy: Global Trading Federation

America should create a tiered global trading system

Jan 21, 2024

This is the second installment in Ad Astra’s American grand strategy for a multipolar world. The series contains 7 white papers: 2 global policies and 5 country-level strategies.

1. Introduction

2. Global trading alliance network

3. China

4. Russia

5. Middle East

6. Mexico

7. India

The primary question of our time is if a free and open society can compete with state-led autocracy. It can but only by achieving its economic potential through the utilization of a global alliance network. Economic strength is the most important element of national power in the 21st century. The US is the largest market in the world and firms around the globe clamor to gain access to it. However, in the 21^st century, American manufacturing capacity has migrated overseas where the cost of labor is lower. This deindustrialization has taken American jobs, devastated communities, and seriously impaired national security. To rebuild domestic industry, America should create a tiered global trading system. This white paper outlines what such a system would look like.

Free trade’s failures

Over the last forty years, the industrial heart has been ripped out of America. The causes and negative impacts of deindustrialization have been well documented (see “American Deindustrialization”). Left to a free market, other nations can, and have, enacted mercantilist trade policy that advantage their economy at the expense of American workers. This is especially true in Asia, where countries have manipulated their currencies, subsidized local firms, and have engaged in other “unfree” trade practices. This has led to the unemployment, wage suppression, and disaffection of large numbers of US workers. The laid off coal miner who should “learn to code” is a cartoonish example of how the problem can be solved through reskilling, but it is entirely off the mark. Beyond jobs, the US needs a substantial industrial base to be a great power.

Historical US trade policy

Perfectly free trade and the categorical wrongness of government intervention in the economy is a relatively recent bipartisan myth. Alexander Hamilton advocated for and got tariffs to protect nascent US manufacturing from European rivals shortly after 1776. Tariffs of varying amounts existed throughout the 19^th century and up until WW2. In fact, the post-war free trade era is a historical abnormality for America. Government investment in canals, railroads, and land (the Homestead Acts) dramatically increased the industrial capacity of the US. In the 20^th century, its not hyperbole to say the US government invented the internet.

Global Trading Federation

The US should create the Global Trading Federation (GTF), a network of tiered trade alliances that will secure strategic supply chains, create American jobs, and enhance US foreign policy. In each tier, goods can only be traded amongst other members. Tier 1 will be comprised of goods that are strategic to US national security and must be produced inside the United States. Tier 2 goods can only be traded with military allies and tier 3 goods can only be traded amongst economic allies. Goods can be traded by any tier below their classification (e.g. a tier 3 good can be traded with a tier 2 partner). Commodities^[i] (raw materials such as agricultural goods, energy, and unrefined metals) are exempt from this system. Access to America’s massive market will serve as an enticing carrot in future diplomacy. If a country isn’t on the GTF list, they can still trade with the US but will be subject to separate bilateral trade terms.

Over the long-term, a “free-world” network of trade alliances will provide a self-sufficient, geoeconomic counterweight to the China-Russia axis. In the 21^st century, military power is derived from productive capacity. By leading a global trade alliance network, the US will be able to outproduce its foes.

Tier 1

Goods in this category are considered strategic to US national security and must be produced inside the US. They may include, but are not limited to, PPE, semiconductors, certain pharmaceuticals, refined steel and aluminum, shipyards, casting and forging facilities, certain processed rare-earth metals and minerals, and the defense industry.

Tier 2

Goods in this category may be produced by US military allies, which are the NATO countries, New Zealand, Australia, Japan, South Korea, the Philippines, Thailand and Taiwan. Formal US allies are included in this tier because they have robust history of bilateral relations with the US and are able to manufacture sensitive, dual-use technologies. As an example, Japan produces high precision machinery, like Mitsubishi machine tools, that America imports. Under the GTF, this type of trade would continue as Japan is a formal US military ally.

Tier 3

Goods in this broad category may be produced by US economic allies, which should include, but not be limited to, Mexico, India, Brazil, Saudi Arabia, Vietnam and Turkey. For example, goods made in Brazil, like Embraer aircraft, would continue to be imported into the US. For Canada and Mexico, major US trading partners, the terms of the USMCA would supersede the GTF.

4th Industrial Revolution

The application of AI, 5G, the Internet of Things (IoT), and other technologies applied to industrial processes has been branded the 4^th industrial revolution. The first industrial revolution was about mechanization like the steam engine in the early-19^th century, the 2^nd industrial revolution was about railroads and chemical processes in the late-19^th century, and the 3rd industrial revolution was about information technology in the late-20^thcentury. AI, IoT, and 5G have not yet been adopted widely into American manufacturing but their potential is real. One criticism of the US is that there aren’t enough qualified workers and that labor costs are too high. That is the perfect environment to incubate the 4^th industrial revolution.

Labor saving technologies will increase labor productivity and make US goods more competitive than from anywhere else in the world. Far from taking workers jobs, no technological advance in history has permanently reduced human employment. The opposite is true: they have all been net job creators. Furthermore, government policy has played a role in the last 3 industrial revolutions. The US had generally protectionist trade policy throughout the 19^th century and the buildout of railroads featured massive public-private partnerships. A Department of Defense program spawned the internet. Perfectly free trade and markets are a relatively recent myth in America. The US should create a tiered global trading system to create domestic jobs, spur technological innovation, and augment its foreign policy.