If you have power over somebody, you can almost always gain a short-term benefit from exploiting that power. For example, if you employ someone who is desperate for money and needs the job, you can mistreat them, overwork them, yell at them, and aggressively punish them for real or perceived errors.
You’ll likely get away with it in the short term.
In the long term, your gain will turn to loss as a poor reputation spreads, others refuse to work for you, and competitors benefit by treating their workers better.
This is why treating people respectfully and having a compassionate outlook is not just ethically sound, but is generally in our best interest. This doesn’t mean being naive; rather, it means recognizing that a strong reputation makes it easier to build connections with others, and stronger connections lead to more opportunity and more wealth.
This holds for both individuals and countries. The wealthiest countries tend to be those with the most open trade policies, the widest array of personal freedoms, a respect for property rights, protections against overcentralization and exploitation, and legal frameworks that make long-term investment and long-term trade partnerships possible.
By contrast, autarkic nations, nations that seek to do everything themselves, generally have a lower standard of living.
We also tested out these ‘autarkic vs open’ ethical approaches twice in the 20th century. The Axis powers sought autarky, and when they couldn’t find the resources they needed within their territory, they decided to slaughter millions to steal resources and territory, rather than trade for it.
During the Cold War, the Soviet Union was far more restrictive and autarkic than the democratic capitalist powers, and ultimately fell behind in the economic and technological race.
The United States emerged as the world’s greatest superpower in large part because of its openness to trade, and openness that helped American brands, American culture, and American dollars to flow around the world, turning the U.S. into the dominant engine of global commerce. Unsurprisingly, American power is enhanced, rather than diminished, by the fact that its allies welcome US troops, planes, and ships onto their territory, and by the fact that American companies are a ubiquitous part of the daily lives of people around the world.
Thus, it’s also unsurprising that of all the countries with a population above 200 million people, America has by far the largest per capita GDP.
America has managed to acheive a position past ’empires’ could only have dreamt of: They are the centre of a massive collective defence organization, trading system, and cultural empire that is largely voluntary, meaning they don’t have to occupy other countries to enforce their power, but instead have that power enhanced through voluntary buy-in and cooperation. They get all the economic and military benefits of an ’empire,’ without the downsides of ongoing occupation costs and massive resistance.
Now, however, all of that is at risk.
And it’s at risk because the Trump Administration has decided to extract as much short-term wealth and power from its global-spanning alliance and trade network as it can, with no regard for the long-term consequences.
This is a tragic move, and many are missing why it is such an unforced error on America’s part. The reason this is being missed is that the benefits of such an approach are all front-loaded, while the costs emerge later.
America is in the ‘sugar-high’ phase of its shift from mutually beneficial trade relationships to economic extortion, and these approaches appear successful in the short term. Because America is more powerful than its allies, and because many of those allies are dependent on trade with the United States, the US does have significant leverage. They can make outrageous demands, and many of their trade partners will try to satisfy those demands to avoid short-term economic damage. This means some countries will accept humiliating concessions.
But this isn’t the end of the story.
Every country threatened by U.S. tariffs is now running a dual-track strategy: Survive the short-term, escape U.S. dependence in the medium to long-term. This is what Canada is doing, by making concessions like removing the Digital Services Tax while also deepening trade partnerships with Europe and Asia, Canada is seeking to get the ‘least harmful’ tariff deal now, so we can buy time and reduce our trade dependence on the U.S. This is also why there is such a focus on strengthen internal trade, as more trade between provinces means less dependence on trade with a nation led by someone who cannot be relied upon.
In the long run, the U.S. will have fewer strong trading partners, and their existing trade partners will be less likely to trust the U.S. and less likely to risk dependence on the U.S. At first, the shift will be subtle, as the inertia of U.S. economic power makes any rapid shift unlikely. But bit by bit, countries will seek to trade less with the U.S., and more with each other, and U.S. economic influence will erode.
Further, trust in the U.S. Dollar will erode, given the erratic nature of the U.S. President and his opposition to the independence of the Federal Reserve. That will make it more difficult for the U.S. to service its immense and rapidly ballooning debt. And of course, the idea that tariff revenue will address that challenge is fanciful. Trump wants tariffs to both bring in revenue and cut imports, but doing one obviates the other. If tariffs bring in ongoing revenue, it means imports aren’t going down. If imports go down, tariff revenue goes down.
The U.S. is rejecting many of the ideas that led to its rise. Free trade, central bank independence, adhering to its word, and respect for allies are all falling by the wayside. In return, the U.S. is getting a one-time surge in tariff revenue, attention, and power, a surge that is not even close to being worth it given the reputational damage and long-term economic impact of such a contemptuous approach to those who saw the U.S. as a trustworthy partner.
Spencer Fernando
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