The Era of Global Free Trade Is Over: Time for the Era of Strategic Partnerships

The long-standing U.S. aspiration for fully integrated global free trade was so strong and widely shared that the possibility that it is neither feasible nor the appropriate doctrine for today comes, for most globalists, as a bitter pill to swallow. But the reality is that global free trade was contingent upon the end of the Cold War and the assumed uniform spread of market economies.

Most American policymakers and experts called for global free trade before the fall of the Berlin Wall and, later, the Soviet Union. With their collapse, this dream finally seemed possible. The so-called “end of history” meant the beginning of global integration.

As author Francis Fukuyama wrote in his influential book The End of History and the Last Man, “Privatization and free trade have become the new watchwords in place of nationalization and import substitution.” He went on to discuss China, stating:

The Chinese leadership has accepted the need for markets and decentralized economic decision making, as well as close integration into the global capitalist division of labor, and has shown itself willing to accept greater social stratification accompanying the rise of a technocratic elite.

Alas, his hope for freedom, coupled with American hubris, clouded his judgment. The reality is that Cold War–style competition and a major state-directed socialist market economy are back, this time led by the Chinese Communist Party and the People’s Republic of China. As such, it is time to acknowledge that the vision of global free trade must be put on hold—at least until China transitions to a democracy, if and when that happens.

The United States has long pushed for global free trade, often seeing it as its destiny to spread freedom through markets. This effort began after World War II, with many leaders championing a rules-based trading system to support recovery, stability, and U.S. strategic interests.

In 1946, the United States helped initiate negotiations for an International Trade Organization, culminating in the 1948 Havana Charter. The ITO was never approved. President Truman ultimately withdrew it from congressional consideration in 1950 amid growing domestic opposition and concerns about ceding U.S. sovereignty.

In the meantime, governments concluded the General Agreement on Tariffs and Trade (GATT), which was signed in 1947. The agreement entered into force on a provisional basis on January 1, 1948, with 23 signatories, aiming to reduce tariffs and other trade barriers on a mutually advantageous basis. GATT survived numerous subsequent negotiating rounds, expanding to more than 100 contracting nations by the end of 1994.

However, the Soviet Union was not a participant in GATT because it was fundamentally a non-market economy. But that did not stop globalists in the State Department from pushing in that direction.

In the summer of 1963, the State Department’s Policy Planning Staff prepared a report in response to a request by President Kennedy for a review of existing U.S. policies. The paper came as close as it could to calling for free trade with the Soviets, stating, “For a number of years now, we have attempted to maintain, virtually in isolation, a posture tantamount to economic warfare.”

The report went on to argue:

Less important but nevertheless real reasons for Soviet dissatisfaction can be found in: the Soviet belief that without U.S. restrictive policies, large-scale trade based upon credit financing and highly beneficial to USSR could be developed; in the Soviet desire to be sure of ‘the best’ in its technological imports; and in Soviet faith that the expansion of trade would give it important leverage, through the American business community, over U.S. policies.

Sound familiar? Chinese officials made nearly identical arguments prior to China’s accession to the World Trade Organization.

The Policy Planning Staff report went on to say:

At the same time, once a new start had been made on trade, the U.S. for the first time since the war’s end would be able to employ on a continuing basis the potentialities of trade as an instrument for political bargaining and for meaningful communication with the USSR.

Thankfully, nothing came of this memo. In part, this was because the Kennedy administration knew there would be widespread opposition in Congress and in other parts of the government, including the defense and intelligence establishments. And, of course, with JFK’s assassination in November of that year, the issue was shelved entirely.

A little over a decade later, Russia expert and trade scholar Harold J. Berman wrote in The Interaction of Law and Politics in Trade Relations between the United States and the Soviet Union:

The planned character of Soviet foreign trade is designed to insure that the Soviet economy as a whole benefits from each trade transaction. The success of the individual Soviet foreign trade organizations which export and import is measured by the extent to which they fulfill plans and goals set by the Soviet state. In contrast, individual American business firms which trade with Soviet organizations measure their success by the extent to which they fulfill their own individual plans and goals. By this system the public interest, it is assumed, is served indirectly in the long run; nevertheless, any given transaction, though profitable to the parties involved, may result in a net economic, political or military loss to the state. Also, the bargaining power of an individual U.S. firm vis-a-vis its Soviet trading partner is affected by the fact that the Soviet foreign trade organizations exercise a monopolistic trading power within the Soviet system, and in addition, have the backing of the Soviet state.

He continued:

Thus in order to protect both the national interests of the United States and the individual interests of U.S. firms, it is necessary for the U.S. government to play a much more positive role in conducting trade relations with the Soviet Union and other planned economies than it is accustomed to playing in conducting trade relations with market economies.

This was the dominant view in America. There was simply no way the United States would allow the Soviets into GATT. Notably, this same logic should have been applied to China’s CCP-led, state-directed market economy. It was not.

However, as the Soviet Union and European communism collapsed and the world supposedly reached the “end of history,” elite consensus rapidly shifted. The GATT framework came to be treated as capable of becoming truly global. This belief was institutionalized with the creation of the World Trade Organization in 1995 and with China’s accession just six short years later. After years of negotiation, Russia was admitted in 2012.

After President Clinton signed the China trade bill in 2000, granting permanent normal trade relations and paving the way for WTO membership, he promised:

The WTO agreement will move China in the right direction… China is not simply agreeing to import more of our products; it is agreeing to import one of democracy’s most cherished values: economic freedom. The more China liberalizes its economy, the more fully it will liberate the potential of its people.

The belief was that the WTO system was so powerful that countries joining it would be compelled not only to liberalize trade, something China has never sought to do, but also to integrate into the Western liberal order. Economic liberalization was viewed as a corrosive solvent, dissolving authoritarianism from within and clearing a path for political reforms aligned with democratic values and institutions.

This was foreign policy idealism run amok. As I have explained, U.S. policymakers and members of the trade and foreign policy establishment should have understood why this outcome was unlikely. They did not.

We are now left with the consequences. The question is how to move forward.

Current U.S. thinking on trade and techno-economic competition with China coalesces around three strategic camps, none of which are adequate to meet today’s challenge, as I detail in a recent report.

“Engagers” prioritize maintaining cooperative relations with China. They minimize Chinese malfeasance, accepting CCP predation as the cost of access. Engagers argue that China’s growth benefits global prosperity and that confrontation risks catastrophe. Many U.S. officials and pundits in this camp assume that Chinese cooperation is essential to addressing global challenges such as climate change and want to believe that China will help America shoulder the responsibility for global order. Their fundamental error is treating China as a partner rather than a strategic adversary, despite two decades of contrary evidence.

A version of the Engagers are the “Deniers,” who acknowledge China’s rise but counsel patience, believing the CCP will collapse under its own contradictions. Their “Peak China” thesis is comforting precisely because it demands no policy change to existing economic, trade, or national security approaches. But Deniers often mistake Chinese state capitalism for Soviet command economics, a fatal analytical error given that China has proven remarkably effective at generating growth and technological advancement.

A new variant, the “Partial Globalists,” is emerging. While this group calls for plurilateral trade deals among like-minded nations, it still clings to the outdated assumption that maximizing global allocation efficiency should remain the primary objective and that trade deals should focus on trade and little else.

The Partial Globalist approach is best illustrated by the Foreign Affairs article “After the Trade War,” by Michael Froman, president of the Council on Foreign Relations and former U.S. trade representative during the Obama administration. Froman begins with the obligatory “don’t blame trade” narrative (repeating the popular canard that most U.S. manufacturing job loss stems from technology rather than trade) before arriving at the core of his argument:

Clinging to the old system and pining for its restoration would be deluded and futile. Nostalgia is not a strategy; nor is hope. Looking beyond the existing structures does not mean simply accepting a Hobbesian state of nature. The challenge is to create a system of rules outside the rules-based system of old… But it might well be the most politically sustainable outcome that could—crucially—prevent unilateralism from spinning out of control. It would, in short, allow for a global economy shaped by rules even without a global rules-based system.

He goes on to write:

If an anarchical trade system [he means Trumpism] is undesirable, but a return to the status quo ante is impossible, that leaves one clear task: developing a new system of rules even as the global economy moves away from a fully multilateral rules-based system. The most viable option is to build a new system around open plurilateralism: coalitions of countries that share interests in specific areas and come together to adopt high standards on certain issues, and then remain open to other countries that share similar interests and are prepared to implement those standards.

Froman argues that if we cannot achieve the “first-best” solution, defined as Ricardian allocation efficiency across the entire globe, we should at least pursue a “second-best” outcome: free trade for much of the world, even if other nations develop agreements with China. After all, to him and other Partial Globalists, more free trade is inherently better than less.

But as noted above, this strategic approach remains rooted in the old paradigm that global allocation efficiency should be maximized. It should not.

Moreover, it misses the central lesson of the Soviet era entirely: U.S. trade policy must actively work to weaken adversaries, not engage in free trade that deepens interdependence while waiting for regime collapse.

Froman is right that the “Trumpian protectionism” approach, which often targets allies as much as adversaries, is not the answer. Many of the Trump administration’s key trade officials are autarkic nationalist protectionists who view trade as fundamentally unfair or as something that has hollowed out American manufacturing and the middle class.

They also believe the United States economy is large enough to be self-sufficient in virtually all goods and services, and many see China and regions such as the European Union as equivalent threats. This view not only takes the eye off the ball of the “main enemy,” to use Mao’s term, but also makes forming much-needed strategic alliances against China extremely difficult (as does threatening to invade Greenland).

American leaders from 1945 to 1989 understood that pursuing a Trumpian-style trade path was misguided. They were neither free-trade globalists nor autarkic protectionists. They were strategic realists who sought to build a coalition of the willing to trade freely while simultaneously limiting Soviet access.

We need to do the same today while limiting the CCP’s access.

First and foremost, this means we must stop focusing on trade for trade’s sake. Trade is not an end in itself. It is a tool that should be used to build allied power and constrain Chinese power, and it should be treated as such until the CCP no longer rules and China becomes free, democratic, and market-based.

That requires moving beyond trade agreements toward comprehensive strategic partnerships negotiated as unified packages. Facilitated trade should be one component of these packages, but only one of many. Comprehensive strategic partnerships should include:

1. Concrete reductions in unfair trade practices with the United States, including non-tariff attacks on U.S. firms
2. Security commitments, including agreements to minimum defense-spending thresholds
3. Coordinated export controls and import limitations focused on China
4. Commercial intelligence and counterintelligence cooperation vis-à-vis China
5. Standards cooperation
6. Deep technology and production partnerships in which both nations agree to support the development of each other’s advanced industries, among other measures

This will not be easy. This approach is unprecedented and uncomfortable for the international trade community in Washington. But the alternative is worse.

In a Washington Post article about the Trump administration using tariff threats to pressure allies to boost defense spending, former Acting Deputy U.S. Trade Representative Wendy Cutler stated: “This is the first time I’ve seen that type of request in a trade agreement. When you’re sitting at the negotiating table, you’re not talking about this stuff.”

She is right. This approach is new. But anyone implying that trade negotiations should exclude these considerations is wrong. Either USTR must evolve further into something closer to the USSRR (United States Strategic Relations Representative), or these negotiations must move decisively into the White House, whether under the current administration or those to come, with a range of stakeholders at the table.

Either way, the era of naïve global free trade is over. It is time for a fundamental change in U.S. trade policy, and not one based on isolationism or protectionism. The era of strategy must begin.