On January 3, 1976 — 50 years ago — the United Nations’ “International Covenant on Economic, Social and Cultural Rights” entered into force with the backing of the Soviet Union and the Cold War “Non-Aligned Movement” (NAM). Intended to secure the “right” to housing, health care, fair wages, paid vacations, and other benefits globally, the International Covenant is a prime example of conflating rights with desires.

Thankfully, this socialist project, advanced under the banner of “human rights,” never became the law of the land in the United States. President Jimmy Carter signed the International Covenant at the UN headquarters in 1977, but it has since awaited ratification in the Senate Foreign Relations Committee. Cold War anxieties about the spread of socialism and communism may have hindered its acceptance among Congress and the public. However, 35 years after the Cold War, socialism is surging in popularity, especially among young Americans, and it’s important to reiterate the dangers of the UN’s International Covenant, lest it makes a comeback and the treaty is ratified. 

Russell Kirk wrote that two “essential conditions” are attached to all true rights: first, the capacity of individuals to claim and exercise the alleged right; and second, the correspondent duty that is married to every right. The right to practice one’s religion freely involves a duty to respect others’ religious beliefs; the right to private property dovetails with the responsibility to not violate someone else’s possessions. Thus, true rights are mutually beneficial and reinforcing, undergirded by the virtues of justice and prudence.  

What Kirk designated as “true rights” are synonymous with “natural rights” or “negative rights,” which are inherent in our nature and cannot be taken away. The only obligation they impose on others is to not infringe upon them. “Postive rights,” by contrast, require the individual to sacrifice portions of his earnings or potentially his life in the service of others, even against his own conscience and free will. One individual’s “positive right” to free health care, for example, violates another individual’s right to the fruits of his own labor. In short, one person’s desire becomes someone else’s obligation, and the former bears no responsibility while exercising his “right.”

The conflation between rights and desires — or negative rights and positive rights — was explicitly manifest in President Franklin D. Roosevelt’s “Four Freedoms” articulated in his 1941 State of the Union Address. “Freedom of speech” and “freedom of worship” are negative rights that may be exercised by individuals and secured by government, but “freedom from want” and “freedom from fear” are impossible to achieve — for “want” and “fear” are immutable aspects of the human condition. Our perpetual yearning for more than we presently possess, or our anxieties about future uncertainties, can never be entirely satisfied or relieved, even under the most healthy, safe, and prosperous conditions. 

As Edmund Burke wrote, “The great Error of our Nature is, not to know where to stop, not to be satisfied with any reasonable Acquirement; not to compound with our Condition; but to lose all we have gained by an insatiable Pursuit after more.” The “great Error of our Nature” may impel us to demand unbridled resources from government, all in the pursuit of abstract “rights,” and therefore jeopardize the natural rights that are indispensable to a just social contract.

FDR’s “Four Freedoms” inspired the UN’s 1948 “Universal Declaration of Human Rights,” which affirms the “right” to rest and leisure. While these may be human needs and social goods that both public and private entities should respect, they ought not be framed as “rights.” Unlike freedom of speech and freedom of worship, rest and leisure are exercised without adjacent responsibilities and often require the provision of goods, services, or accommodations by others to be meaningful.

The International Covenant drastically expanded the Universal Declaration of Human Rights. No correspondent duties are associated with the “right” to the free and generous provisions championed by the UN, but instead require the burden and sacrifice of someone else’s labor and its fruits.

The treaty includes not only the “right” to rest and leisure, but also to an “adequate standard of living” and the “progressive introduction of free education.” It even declares the extremely vague “right” to “enjoy the benefits of scientific progress and its applications.” There is no theoretical reason why such broad and elastic provisions cannot be extended to absurd proportions, where even non-essential consumer goods and vogue technologies like video game consoles or robot vacuum cleaners are labeled “human rights.”

The International Covenant and its advocacy of “economic, social and cultural rights” is contrary to America’s founding principles and the Western tradition of natural law. In accordance with the Declaration of Independence, Americans have a right to the “pursuit of happiness,” which governments are instituted to secure, along with the right to life and liberty. But the “right” to happiness itself cannot be reasonably justified by any appeal to the natural law. 

The conflation of rights and desires is an impetus for the expansion of government power, which risks undermining the true rights most vulnerable to usurpation. As Andrew Cowin wrote in a 1993 Heritage Foundation report, the International Covenant “identified rights that were never meant to be granted. For decades, though, it gave Soviet totalitarian governments the cover that justified their accumulation of power and property.” 

While Congress shelved the International Covenant and stopped its provisions from becoming American law, the treaty was ratified by many other countries, including US allies such as Japan, Mexico, France, Germany, and Italy. 

If desires became “rights” in these capitalist democracies, the same could happen in America, which is why — on its 50th anniversary — we must remain vigilant against the UN’s International Covenant on Economic, Social and Cultural Rights.

Elon Musk recently put forth a bold vision: that within two decades, AI will automate virtually all productive activity, work will be optional, and money will lose meaning. Coming from Musk, such pronouncements carry gravitas. And noticeably, the expressed vision unsurprisingly dovetails neatly with Musk’s admittedly exciting entrepreneurial visions. 

Yet variants of those claims have circulated for years, usually without reference to economic theory, institutional constraints, or political risk. Rigorously examining those assertions is essential to decouple technological optimism from the practical realities that will shape the next two decades.

Will Work Be Optional in 20 Years?

In economic terms, “work optionality” requires three simultaneous conditions: (1) per-capita output high enough that the median person can maintain a high standard of living without paid labor, (2) widespread, reliable distribution mechanisms, and (3) institutional stability that ensures income security over time. None of those conditions are close to existing.

Even if AI substitutes for large swaths of labor, historically new automation has reallocated work rather than completely eliminating it. New goods, new services, and new forms of status competition appear as old ones disappear. Moreover, without explicit redistribution mechanisms — which no major nation has implemented — the owners of AI capital capture the lion’s share of gains. That, if anything, requires the median individual to work more, not less.

Musk’s claim requires the total (or near-total) automation of the entire global capital stock, universally broad redistribution of payment streams or wealth, and stable political institutions, all within twenty years. Even considering $38 trillion of US public debt, setting aside lumpiness of capital flows, uneven innovation in various places around the world, differing views on the sanctity of labor and countless other potential obstacles, that is an extraordinary compression of time, capital formation, and global diffusion.

When Musk says that “work will be optional,” no different than choosing to grow vegetables in one’s backyard for fun, he is insinuating a world where production is fully automated and money scarcely matters. But such a future requires astronomically more than clever automation. It demands the near-total overhaul of the global capital stock, new mechanisms for distributing income in the absence of labor markets, and political systems stable enough to address a world where everyone receives sustenance without working. Considering $38 Trillion in US public debt, wildly uneven innovation and development across nations and continents, and deep cultural disagreements about the value and role of work, fitting that transformation into a twenty-year window would require an inconceivable compression of capital formation and institutional evolution. 

Will Money “Lose Meaning?”

For money to lose meaning, scarcity must disappear. But scarcity is not abolished by robots, however intelligent they are or however cheaply they make goods. Scarcity arises because:

• Consumer preferences differ.
  
• Time matters (now vs later).
  
• Land, location, status, political influence, and other constraints make some goods unavoidably rivalrous.

As individuals become wealthier, their consumption tends to shift from goods toward services. Even in a world with ultra-cheap production methods, services, and in particular positional and experiential goods, will dominate utility at high income levels. Access to desirable neighborhoods, exclusive schools, bespoke clubs, rare experiences, or political influence cannot be automated into abundance. Prices will continue to ration those services, and money, even if it changes form, remains the social mechanism that expresses relative value.

What could disappear is wage labor as the primary mechanism for accessing consumption. But that would not constitute an “end of money;” it would instead signify a shift in the income structure of society. One characterized by more capital income, more redistribution, perhaps more universal transfers. A world where “money loses meaning” is one where the economy violates the core assumptions of microeconomics, macroeconomics, and game theory. Artificial intelligence does not do that.

What Actually Matters: Capital, Diffusion, and Institutions

Musk’s vision treats AI as a profound, exogenous leap. Economic systems change, however, only through capital deepening, technological diffusion, and institutional adaptation.

At the very least, replacing the existing global capital stock with AI-augmented systems is a many-decade project. Upgrading energy grids, fitting logistics networks to the speed of AI, remaking industrial processes and transportation fleets, and all the other necessary upgrades of the global industrial base will take orders of magnitude longer than updating software. They require planning, investment, and training for complementary human skills. Each is additionally likely to be a target of hefty regulation, slowing that update process all the more. 

Second, technology diffuses unevenly. Historically, the highest-productivity technologies take decades to spread across countries, sectors, and classes. Under any realistic model of diffusion, any optionality where work is considered will arrive at vastly different times for different nations and the internal strata of their societies.

If that weren’t enough to cast doubt on the idea of work’s future irrelevance, prevailing institutions condition everything. Whether AI abundance produces universal prosperity or vast inequality depends entirely on property rights, competition policy, the rule of law, and stable governance. None of those variables can be automated by graphics processing units (GPUs). AI is indeed likely to be transformative, but productivity shocks are not destiny. 

Institutions, formal and informal, ultimately determine whether a society captures, mismanages, or squanders technological abundance.

AI vs. War, Famine, Pandemic, or Totalitarianism

The argument that rapid AI progress will reduce geopolitical danger is beyond economics; it may simply be a category error. Military conflict, agricultural collapse, disease, or authoritarian risk are not functions of the density of automation or its calculative capacity; they are functions of incentives, history, institutional weakness, and human failings.

If anything, AI may foster volatility: consider the long shadow likely to be cast by autonomous weapons, algorithmic political decision-making, and cyber vulnerabilities. Asymmetries in access to the most advanced AI at any given moment could increase international insecurity, not reduce it. Rapid automation may escalate resource competition, foster nationalist resentment, and shift paranoid regimes into overdrive.

Consider the impact of AI on already totalitarian regimes: thusly augmented, oppressive states become more capable, not more benign. Surveillance, social-credit systems, censorship, predictive crackdowns, and digital repression scale boundlessly with AI. North Korea, Cuba, and scores of other unfree nations will not suddenly liberalize because machines capture data and deliver higher productivity. Existential political risks are not reduced by AI abundance; they may, on the other hand, be amplified by it.

Must We ‘Get There Faster to Avoid Suffering?’

The view that a faster transition is better is nothing but an assumption. It may reflect a candid attempt at regulatory relief or direct government subsidies. In welfare-economic terms, though, the transition to an AI-dominated economy may be more painful than life at the destination itself. Rapid automation can produce unemployment, wealth concentration, social unrest, and political extremism. On top of that, the groups most harmed by the transition have extremely high marginal utility of consumption, which means that transitional losses will weigh heavily upon them.

Optimal diffusion may require gradual adoption precisely because societies need time to adjust: retraining, workplace changes, safety mechanisms, new institutional frameworks, and so on. A reckless sprint to automation might generate more conflict, not less. An adaptive, organic trajectory is far more aligned with empirical economic behavior and political stability. 

But that trajectory cannot be centrally planned. When governments attempt to dictate the timing of transformative technological rollouts — as some are already preparing for or attempting to — they almost always set the pace either too fast — triggering backlash and disruption — or too slow, stifling innovation and growth. Competitive market processes, though imperfect, tend to reveal a more measured rate of adoption than bureaucratically-imposed timelines.

A High-Tech Future, Without The Fiction

AI will significantly reshape the global economy. Productivity may rise sharply in certain sectors, returns on certain forms and mixes of capital may spike, labor markets will inevitably reorganize, and while some degree of both structural and frictional unemployment may result, new industries will emerge. But none of this implies an end of work, scarcity, money, or political acrimony. Across the past century, figures from Keynes to Jeremy Rifkin, Martin Ford, and Erik Brynjolfsson have predicted that technological progress, especially automation and artificial intelligence, ultimately make large portions of human labor unnecessary. Similar post-work visions appear in futurist/science fiction and political writing, from Marshall Brain’s Manna to post-scarcity theorists and Silicon Valley leaders like Ray Kurzweil, all of whom see automation pushing societies to rethink income, purpose, and the role of work itself.

AI is likely to magnify prosperity, but it will also magnify risks, and it cannot fundamentally change human nature. A better description of what AI will create is leverage in the economic, political, and military realms. What nations choose to do with that leverage will determine the future. Technology cannot, and does not, erase incentives, undermine money, or invalidate scarcity. It only changes the terrain on which human beings pursue them.

The most credible exception to the case for free trade policy is rooted in concerns about national security. If complete freedom of trade jeopardizes our national security, some protectionism arguably is justified because, as even Adam Smith insisted, although free trade is enriching and important, “defence … is of much more importance than opulence.”

As Smith’s statement implies, protectionism pursued for purposes of national defense will reduce the country’s material well-being, but this cost is worth paying if the protectionist measures result in a large enough enhancement of national security. (Caleb Petitt argues, not implausibly, that Smith really didn’t believe that national-security concerns justify a retreat from free trade. But that’s a topic for another time.)

While most free traders today admit the national-security exception, they also warn that it’s very easy to abuse, as shouts of “national security!” are given enormous deference by the public and politicians. Free traders also warn that, even when the national-security exception isn’t intentionally abused, extraordinary care is required to prevent its application from undermining its goal of promoting national security. The surprising practical difficulty of identifying trade-policy measures that are most likely to adequately protect national security is revealed by two recent developments regarding US trade with China.

Semiconductors

The Trump administration lifted controls that restricted Nvidia’s exports of its H200 chips to China. (The administration made this move in exchange for the US government getting 25 percent of Nvidia’s revenues from these sales — an unjustifiable condition, but also a topic for another time.) The Editorial Board of the Wall Street Journal worries that China’s access to these chips will boost that country’s prospects of surpassing the US in AI technology. The reason, as described by the Journal’s Editors, is that advanced chips such as the H200s “are needed to train advanced AI models.” Unable so far to develop their own advanced chips, the Chinese will now use Nvidia’s chips to further “Beijing’s ambitions to dominate biotech, quantum computing and military power.”

Quite possibly, the Trump administration’s lifting of these controls will indeed undermine US national security. But also, quite possibly not. By supplying the bigger market opened to it by access to China, Nvidia can perhaps take advantage of larger economies of scale that will further improve its chip-making efficiency. And more-efficient advanced microchip production by a company such as Nvidia will, in turn, strengthen US national security.

In addition, Nvidia officials and the White House argue that Chinese dependence on non-Chinese advanced chips diminishes China’s prospects of developing its own advanced chips — an effect that also plausibly promotes US national security by retarding Chinese chip technology. Although acknowledging that this argument has some merit, the Journal believes that it doesn’t carry the day. The Journal worries that the improved computing power that China gains as a result of its access to the H200 chips will further, rather than frustrate, Beijing’s quest for AI dominance.

I have no idea which of these two arguments — to not restrict Nvidia’s sales of H200 chips to China or to restrict these sales — is correct. Not only do both have merit, neither argument seems strong enough to clearly defeat the other. And that’s the point. 

Economic arrangements and interdependence today are so enormously complex that the apparent, indisputable validity of simple statements about the need to impose import or export restrictions in the name of national defense often dissolves upon inspection.

Critical Minerals

So-called “rare-earth” minerals present another such conundrum. Rare-earth minerals aren’t rare; they exist all over the globe, including in the United States, where new deposits of such minerals continue to be discovered. China, however, has become the world’s leading producer of these minerals, many of which have military significance. But guess which country is the world’s second-leading producer: the United States.

So why is the White House boasting of its recent deal with the Chinese government,  committing China to avoid restricting its exports of rare earths? The conventional national-security exception to the case for free trade would have the US government impose restrictions on US imports of rare earths in order to stimulate more domestic production of these critical minerals. Therefore, when the Chinese government imposed restrictions on that country’s exports of rare earths, it did for the US economy precisely what conventional national-security trade policy would have the US government do: protect the US market from foreign supplies of these critical minerals as a means of encouraging more US production.

And yet, even on narrow national-security grounds, the White House might here be correct.

The most obvious defense of the White House’s position is that ramping up US production of rare earths would take too long. Perhaps restricted access now to Chinese-supplied rare earths would weaken US national security in the short run so severely as to outweigh any long-run benefits. This possibility is both real and not remote, yet it is typically ignored by most people who invoke the national-security exception to the case for free trade. Tariff-induced expansion of any industry takes time. This reality surely means that, even for resources and outputs that are indisputably vital for national defense, national security sometimes is better served by continuing, without tariffs, our reliance on foreigners.

There’s a second reason why the White House might be justified in bragging of its rare-earths deal with Beijing (although this reason is unlikely actually to have occurred to today’s White House officials). Were China to continue to severely restrict its exports of rare earths to the US, the resulting expansion of the US rare-earths industry would necessarily entail a shrinkage of some other US industries. Even if this expansion in rare-earths production were fully achieved overnight, if the US industries that, as a result, shrink are industries that produce militarily significant outputs, the net effect on US national defense might well be neutral or negative.

This possibility is also one that’s not remote. The specialized knowledge and labor skills that are best used to mine and process rare-earth minerals are likely to be found in disproportionately large numbers in related industries, such as petroleum and ore production, rather than in economically distant industries such as leisure and entertainment. A tariff-induced expansion of US rare-earths production, therefore, might well come at too high a price in terms of the contraction of other militarily important US industries.

I write “might” attentively. This ambiguity is real and has relevance for policy-making. It should always be taken into account. No one knows if the national-security benefits of increased domestic production of rare earths will exceed, or be exceeded by, the national-security detriments of reduced domestic production of other outputs. 

Even if in any particular case the trade-policy decision proves to weaken rather than strengthen national security, greater recognition of such ambiguity would, over time, result not only in improved trade policy but also a stronger national defense.

Security Requires Humility

The above observations are offered not to render the national-security exception to the case for free trade null, but to caution against its overuse. The Trump administration’s recent treatment of the exportation of American-made advanced microchips, along with its actions regarding rare-earth minerals, each in its own way demonstrates (if unintentionally) the shallowness of the conventional advice to protect any and all industries that produce outputs judged to be important for national security.

Zohran Mamdani garnered a bit more than 50 percent of the vote in the recent New York City mayoral election. Have voters learned nothing from history? Apparently not. As Nobel laureate F.A. Hayek quipped, “if socialists understood economics, they wouldn’t be socialists.”

In the past six months, I count no fewer than twelve pieces in The Daily Economy that discuss — directly or indirectly — Mamdani’s socialist policies. Rent controls will decrease the quantity and quality of housing. Millionaire taxes would accelerate the exodus to more friendly states, to the great glee of Texas and Florida real estate agents. City-owned grocery stores would end in a bungle of Soviet proportions, increasing food deserts and raising prices. The drop in tax revenue from increased taxes (Laffer Curve, anyone?), combined with increased expenditures, would lead to another debt crisis. 

Things aren’t looking good for the Big Apple. I remember walking through Manhattan with the late, great economist Jim Gwartney, an early mentor who introduced me to Frédéric Bastiat. He said, “you know, Nikolai… I like to visit New York City once a year to remind myself why I don’t live here.” I don’t think I’d like living in New York City, but I do enjoy visiting a few times a year. The skyline, the commerce, the energy, the Metropolitan Opera, the museums, the restaurants (from posh and exotic to a slice of the world’s best pizza)… and that’s just Manhattan, with less than 20 percent of the population and, with eight percent of total surface, the smallest borough.

I’m going to scramble to make it to New York one last time before it goes to the dogs. Lag effects being what they are, I figure I have a good six to twelve months before things get bad. It will take a while for food and hotel prices to rise, or for the inevitable debt crisis to arrive. The poorest will feel the pain quickly; my tourist bill can take the hit. But it’s the crime that really worries me.

I’m not old enough to remember the 1970s in New York. But I am old enough to remember the late 1980s, which were still pretty gnarly. My family had just returned from a leafy suburb of Paris to leafy Princeton, New Jersey. I missed the café life and the French wines and cheeses — but Princeton is a quiet and peaceful slice of this green Earth. I still remember my first trip to Manhattan in the winter of 1988. I forget if we first arrived at Penn Station or the Port Authority Bus Terminal. Both were ghastly visions of Third World poverty, with hints of Mad Max. Bums were everywhere, in various states of dress — or undress — zonked-out druggies on the streets, sidewalks thick with hobos begging for money. I remember a visceral mix of horror — the memory still makes me reel, even after traveling to 70-plus countries — and pity, as I felt the urge to give something, anything, to every beggar.

Well, I’m sorry to say, despite my inveterate optimism, these sad images are likely to return. We can expect a dramatic uptick in New York City crime rates over the next five to ten years. To be sure, crime in New York has been falling, along with national trends, for the past 30 years. But localized spikes in specific categories demonstrate the fragility of these gains.

Shrinking tax revenues, rising rents and decaying housing, unemployment from higher minimum wages, and other business-punishing policies are likely to raise poverty dramatically. And, while social workers can be a powerful addition to police, Mamdani is already signaling a softer approach to crime. It doesn’t take a Gary Becker to predict a rise in crime.

Lessons from the 1970s

In a recent weekly AIER research meeting, I wondered aloud who might replace Charles Bronson in the next round of inevitable New York vigilante movies.

This led me to return to his 1974 classic, Death Wish. It was a pleasure to revisit the 1970s — the cinematography seems campy now, but it creates a gritty realism. I did not watch the next four movies, or the 2018 Bruce Willis remake. But the 1974 original contained some fascinating nuggets of political philosophy.

The movie opens with a tender, loving, idyllic scene in Hawaii. Middle-aged architect Paul Kersey (Charles Bronson) is on a beach vacation with his wife (Hope Lange). They are in love and happy. Then they go home to New York City. The tropical paradise immediately gives way to traffic jams and graffiti, in the loud concrete and steel jungle, as they make their way home to their Manhattan apartment from the airport.

Back at the office, a colleague complains about the city’s rising crime: “Decent people are going to have to work here and live somewhere else.”

“You mean people who can afford to live somewhere else,” Kersey retorts.

His colleague rolls his eyes. “You’re such a bleeding-heart liberal, Paul,” he says.

“My heart bleeds a little for the underprivileged, yeah,” Kersey replies.

The conversation turns to policing. His colleague suggests the city will need more cops than people to curb rising crime. Kersey is doubtful. “You’ll have to find other options,” he says. “No one could pay the taxes.”

Then comes the crime. Six minutes into the movie, we see our first act of violence. Two minutes later, it’s vandalism, followed by breaking and entering. Then Kersey’s wife is beaten by thugs in her own home, while their adult daughter is sexually assaulted. Kersey’s wife dies from her injuries. His daughter survives but falls into catatonic mutism and ends up institutionalized.

A grieving Kersey finds solace at the office. One night, he tentatively whaps a would-be robber in the head with a sock filled with quarters. Then work calls him to Arizona. There, we learn that he was a conscientious objector in a medical unit during the Korean War, reinforcing his image as a nerdy, mild-mannered, middle-class Manhattan architect. But we also learn he grew up around guns — and he is a crack shot.

The movie then comments on violence and crime. Kersey’s Arizona host argues that New York’s crime wave is no coincidence, given the city’s gun control laws. 

“Muggers operating out here [in Arizona] just plain get their asses blown up,” he tells Kersey. “If you ever get tired of living in that toilet, you’re welcome here.” Then he slips a gift-wrapped case into Kersey’s suitcase: a .32 revolver with ammunition.

Kersey returns to the grim reality of a graffiti-mottled, lawless New York. There is no progress in finding his family’s assailants. The police are overwhelmed, bureaucratic, and uninterested; the two victims are “statistics on a police blotter… and there is nothing we can do to stop it. Nothing but cut and run.”

Shortly thereafter, Kersey shoots and kills a mugger who attempts to rob him. He returns home to vomit — incidentally, much like James Bond in Ian Fleming’s original novels, who didn’t have the casual nonchalance of the Broccoli movies. Minutes later, Kersey opens fire on three muggers, killing two immediately and executing the third as he tries to escape. By the end of the movie, Kersey will have killed a total of ten muggers in self-defense.

From Hollywood to Philosophy

The movie raises a core question: If the police don’t do it, should we not do it ourselves? 

What, really, is “civilized”? Cutting and running, to live among others who have the means to stay safe? Or does a gentleman — or a lady, for that matter — defend himself as an armed citizen, protecting both himself and his community?

It’s notable how the fictionalized NYPD changes its tune when a numbing, overwhelming crime wave sparks vigilante action. Initially, they were apathetic about Kersey’s assault, assigning only a patrolman to the case. But when it becomes clear that the government’s monopoly on violence is being challenged, the case is bumped up — fast — to an inspector. Think of the leap from a single private to a colonel, complete with a task force of about 20 police officers and detectives. 

A crime wave is one thing, but “Murder is no answer to crime in our city; crime is a police responsibility,” complains the Police Commissioner as he pours resources into tracking the vigilante.

I note an important detail. The movie is billed as a vigilante film. I was expecting naqam (biblical vengeance, as taught to me by my late Jesuit mentor). But Kersey doesn’t seek out criminals to execute. In a crime-infested city, it may look like he’s taunting criminals, simply by walking alone after dark. But he is going about his business as anybody would in a functional city, with a functional government and functional police. He just happens to exercise his natural right to self-defense, where the Lockean Commonwealth has failed.

This brings us back to the big question. We’re all uncomfortable with vigilantism. As a good Lockean, I return to Chapter II, Section 13, of the Second Treatise of Government.

To this strange doctrine, viz. That in the state of nature everyone has the executive power of the law of nature, I doubt not but it will be objected, that it is unreasonable for men to be judges in their own cases, that self-love will make men partial to themselves and their friends: and on the other side, that ill nature, passion and revenge will carry them too far in punishing others; and hence nothing but confusion and disorder will follow, and that therefore God hath certainly appointed government to restrain the partiality and violence of men. I easily grant, that civil government is the proper remedy for the inconveniencies of the state of nature, which must certainly be great, where men may be judges in their own case, since it is easy to be imagined, that he who was so unjust as to do his brother an injury, will scarce be so just as to condemn himself for it…

And yet. And yet…

Around the world, long-distance competition, then cellphone competition, replaced state telephone monopolies. Federal Express and UPS have replaced an inefficient monopoly postal service. Even Denmark — a country that has traditionally been enamored of state solutions — recently ended the state’s collection and delivery of letters. Bitcoin is increasingly replacing failed fiat currencies. Private, tax-deferred retirement accounts (IRAs) arrived in the US 50 years ago; they have astronomically higher returns than Social Security.

So, why not security?

In America today, private security guards outnumber police two to one. To be sure, the latter enjoy a vast number of monopoly privileges, from use of force and arrest powers to qualified immunity that shields them from liability for actions committed behind the badge.

Returning to political theory, the anarcho-capitalist argues that security can and should be private, as the state can never be neutral and will inevitably serve its own interests. The minarchist and the Hayek/Friedman/Buchanan super-minimalists have crafted strong arguments for the necessity of neutral state-enforcement of rights. James M. Buchanan was uncharacteristically blunt: “The libertarian anarchists who dream of markets without states are romantic fools who have read neither Hobbes nor history.” 

But what if the state is demonstrably incapable of providing security? This was clearly the case in New York City in the 1970s. Adding insult to injury, the city, at least according to Death Wish, was more interested in protecting its monopoly on force than providing security.

The half of New Yorkers who didn’t vote for Commissar Mamdani don’t deserve the hell he is about to unleash on them. As to the 50 percent of economically illiterate, naïve, and rapacious New Yorkers who voted for socialism, do they deserve what they asked for? Was H.L. Mencken right when he opined that “democracy is the theory that the common people know what they want, and deserve to get it good and hard”? Or can we hope for forgiveness, for they know not what they do?

I hope I’m wrong. I really do. I wish all the best for New York City. I fervently hope Mayor Mamdani’s policies are squarely thwarted by Albany. But I don’t think I am wrong. And this invites a final question. 

Who will replace Charles Bronson in the next round of Death Wish movies?

Being blackpilled isn’t just for incels anymore — a 2025 analysis points to a rising “cultural nihilism” among Gen Z in America, marked by a sense of helplessness where change feels impossible, and life seems meaningless.

Gallup reports “the percentage of US adults who report currently having or being treated for depression has exceeded 18 percent in both 2024 and 2025, up about eight percentage points since the initial measurement in 2015.”

According to a YouGov survey, almost 20 percent of Americans under the age of 30 believe that using violence for political purposes can, at times, be warranted.

Both the “woke right” and “woke left” push a worldview rooted in black-pilled fatalism. Despite naming different villains — whether white racism, capitalism, the Deep State, Jews, feminists, or others — their narratives undermine individual responsibility. 

By insisting that overwhelming external forces control life, the woke factions across the spectrum encourage what Stanford psychologist Carol Dweck calls a fixed mindset — a belief that fate is determined by factors like genetics or rigged systems, making personal effort seem pointless and fueling nihilism.

Dweck writes in her book Mindset, “Many people with the fixed mindset think the world needs to change, not them. They feel entitled to something better — a better job, house, or spouse. The world should recognize their special qualities and treat them accordingly.”

At times, we all experience moments of black pilled thinking — feeling like failures or victims and questioning whether our lives have meaning. When these thoughts arise, Dweck’s research on personal mindsets offers an antidote. Our mindset beliefs about intelligence and ability shape how we navigate life.

Dweck observes a defensive internal monologue common among those with a fixed mindset:

Will I look smart or dumb?
Will I be accepted or rejected?
Will I feel like a winner or a loser?

These questions characterize the fixed mindset belief that intelligence and capabilities are static, unchangeable traits.

Dweck explains that a person with a fixed mindset is easily frightened by challenges because they believe that any failure serves as a permanent verdict on their worth. This belief creates a paralyzing cycle in which the individual becomes more concerned with image than with improvement. Dweck reveals how “believing that your qualities are carved in stone… creates an urgency to prove yourself over and over.”

In a fixed mindset, individuals tend to hide mistakes rather than seek the feedback and practice needed for growth. The emotional toll is heavy; Dweck compares the experience to “always trying to convince yourself and others that you have a royal flush when you’re secretly worried it’s a pair of tens.”

The antidote to this stagnation and the prospect of sliding into nihilism is the growth mindset. Rather than seeing abilities as a birthright, this perspective views them as a starting point. Dweck defines it as follows:

This growth mindset is based on the belief that your basic qualities are things you can cultivate through your efforts, your strategies, and help from others. Although people may differ in every which way — in their initial talents and aptitudes, interests, or temperaments — everyone can change and grow through application and experience.

Importantly, research shows individuals may feel confident and growth-oriented in one domain and fixed in another. The key to a transformative mindset shift is self-awareness — identifying where fixed beliefs constrain us so we can begin adopting beliefs that enable change. 

A growth mindset doesn’t take the sting out of failure, but it reframes its meaning into fuel for practice. As Dweck writes, “Even in the growth mindset, failure can be painful. But it doesn’t define you. It’s a problem to be faced, dealt with, and learned from.”

With a growth mindset, personal liberty means exercising positive opportunities to voluntarily experiment, fail, and adjust to develop one’s capacities on a path to a meaningful life. Liberty means more than a negative condition marked by the absence of coercion or interference in one’s personal affairs.

This can be called a personal decentralized discovery process of trial and error within the self. A growth mindset is simply an internalized commitment to the same process we celebrate in a liberal society where the market mechanism is characterized by decentralized experimentation, feedback, and adaptation. That is the choice between being an entrepreneur and a rent-seeking crony.

Here are some mindset strategies for shifting to a growth mindset.

Go for the Small Win

Remember that Dweck is advocating a process, not a miraculous all-at-once shift. The black-pilled, fixed-mindset person — and at times, that can be any of us — needs small wins — experiences where effort actually produces change. 

The legendary former football coach at the University of Alabama, Nick Saban, relentlessly taught his players to focus on executing their roles on each play, emphasizing process over outcome.

A growth mindset creates a philosophical framework for noticing the importance of these wins. You want to be able to observe mentally: I tried a new strategy, and it worked. This proves change is possible through my effort.

A growth mindset doesn’t deny obstacles or pretend there are no differences in abilities.

In contrast, those with a fixed mindset spiral into an unvirtuous nihilistic funk. Excuses are made for the lack of effort, and then failure proves to them that their excuses were correct.

Become More Aware of Your Metacognitive Patterns

Metacognition is your thinking about your thinking. A person with a fixed mindset holds fixed beliefs about their thinking itself, such as I can’t change how I think. Or I am what I am and I can’t change.

The latest generations of cognitive therapy are Metacognitive Therapy (MCT) and Acceptance and Commitment Therapy (ACT). Their research shows that metacognitive beliefs can change, and the first step is becoming aware of our thinking patterns without justifying them. Such awareness breaks the emotional spiral that leads to hopelessness and despair.

The black-pilled worldview is built on fixed-mindset premises, such as:

Society is inherently unjust.
My efforts have no effect. 

The growth mindset antidote is:

My sustained effort impacts outcomes.

MCT thinkers don’t reference Dweck, but their analysis of the Cognitive Attentional Syndrome (CAS) describes precisely what happens psychologically when we adopt a fixed mindset about our problems. We ruminate on our fixed mindset beliefs. We seek information that confirms our beliefs, and then our coping behaviors backfire. 

This is fixed mindset thinking at the metacognitive level. People believe their thinking patterns are unchangeable: This is just how my mind works. So, they never attempt the strategies that would actually help.

A fixed mindset about one’s own thinking is a primary mechanism underlying psychological suffering. When people adopt a growth mindset, not just about abilities but also about their thought patterns, they become willing to experiment with new ways of loosening the hold their conditioned thought patterns have on them.

Make Meaning and Serve Your Purpose

You may have found that the more meaning you have in your life, the more resilient you are in facing life’s challenges. Dweck’s growth mindset directly creates a framework for ongoing meaning-making: the perpetual project of self-development.

The champion of human flourishing, Leonard Read, wrote in his book Elements of Libertarian Leadership: “Man’s purpose here is to grow, to emerge, to hatch, to evolve in consciousness.”

Read argues that without an anchor of a foundational purpose, we act aimlessly:

With our lives anchored to nothing, we tend to believe and act aimlessly; that is, we obey emotional compulsions instead of adhering strictly to the disciplines imposed by some transcendental premise or value or principle.

Read aligns with Dweck’s emphasis on the importance of having a guiding framework for personal development and the belief that one’s abilities and intelligence can be developed through effort and learning. 

Nihilists are constrained by their fixed mindsets. Champions of liberty with a growth mindset find meaning in their lives and contribute to the very foundations of a flourishing society. 

If you’re building your to-be-read list for the coming year or a stack in case you’re snowed in, the editors at The Daily Economy would like to suggest some of our favorite and most-anticipated reads.

Each book below combines thought-provoking (and often data-rich) prose on economic growth, innovation, and human flourishing.

1. Peak Human by Johan Norberg 

Joakim Book reviewed a big new book for our 2026 reading list: Peak Human by Johan Norberg, which traces the rise and fall of seven of history’s greatest civilizations and shows how openness to ideas, trade, and human exchange has driven human progress. 

Norberg argues that golden ages—from Athens and Rome to the modern Anglosphere—flourished when societies were open and free, and declined when they closed in on themselves. His long view of history connects economic, cultural, and political forces to ask whether our own era can sustain its peak rather than slip into stagnation. 

Read Joakim’s review to learn more about Peak Human and why it’s one of the books worth your time in 2026.

2. Surviving Rome by Kim Bowes 

As many know, 2023 was the year people figured out that Americans — especially men, apparently — think about the Roman Empire a lot. Kim Bowes, an American archaeologist and professor of Classical Studies at the University of Pennsylvania, is tapping into that interest. Her new book, Surviving Rome: The Economic Lives of the Ninety Percent, examines the everyday economic realities of ordinary Romans, showing how trade, labor, and household management shaped life for the vast majority of the population rather than the emperors and elites we usually hear about.

The Daily Economy hasn’t reviewed it yet, but Lawrence Reed will be offering a full review after the New Year, giving readers a glimpse at the practical aspects of economic history that are often overlooked.

3. The Social Philosophers by Robert Nisbet

Paul Mueller explores a big question in social thought: how do communities actually form and what holds them together? Drawing on Robert Nisbet’s latest book, The Social Philosophers, Mueller walks through the major forms of community that have shaped human history — from kinship and military bonds to political, religious, and plural associations — showing how each responds to different pressures and offers distinct ways people organize, cooperate, and find meaning. 

Mueller argues that communities aren’t just aggregations of individuals but networks of intermediate institutions — families, churches, voluntary associations — that mediate between the individual and the state. He traces how shifts from one dominant community type to another have driven cultural and political change across eras.

If you’re looking to understand how communities form — and why some thrive — Nisbet’s Social Philosophers offers a valuable framework worth revisiting.

4. An Abundance of Caution by David Zweig

David Zweig’s An Abundance of Caution: American Schools, the Virus, and a Story of Bad Decisions delivers a hard‑hitting account of how pandemic policies — especially prolonged school closures — were driven by flawed modeling and weak evidence, with consequences still being felt by children and families. Zweig meticulously documents how trusted institutions, health authorities, and much of the media embraced assumptions that ignored real‑world data, keeping millions of students out of classrooms long after risks to healthy children were minimal and deepening educational and social harms in the process. 

In his review for The Daily Economy, Paul D. Thacker highlights how Zweig’s reporting exposes the limits of predictive models and the damage done when “follow the science” becomes rigid compliance, eroding trust in expertise and public‑health leadership. Read the analysis to learn more about how pandemic forecasting failed and why that matters for how we interpret scientific models and public‑health decisions going forward.

5. Our Dollar, Your Problem by Kenneth Rogoff

Kenneth Rogoff’s Our Dollar, Your Problem is a compelling guided tour of the “Pax Dollar” era, which defined global trade since the Second World War and seems to be drawing to a close. The book’s strength is its clear-eyed emphasis on incentives and political constraints. Rogoff is no apologist for central banking hubris: he highlights how America’s “exorbitant privilege” can breed moral hazard, encourage excessive debt, and export volatility to the rest of the world. 

No particular currency is predicted to dethrone King Dollar, but Rogoff cautions that fiscal drift and political bullying is chipping away at the castle’s foundation. 

6. After the Spike by Dean Spears and Michael Geruso

Decades after Julian Simon called human minds the planet’s “Ultimate Resource,” the case must again be made that more people can create more prosperity than increased population could erode. Global population growth is slowing, with birth rates in China, India, and across Latin America now falling. 

In After the Spike: Population, Progress, and the Case for People, Dean Spears and Michael Geruso rise to the challenge, showing that fertility rates in most countries have fallen below replacement levels and are likely to drive a long-term decline in global population. True human progress — from scientific breakthroughs to economic cooperation — has historically thrived in densely interconnected societies with abundant human capital. Fewer people could weaken the very engine of innovation and prosperity that has lifted billions out of poverty. 

7. The Land Trap by Mike Bird

Writing with a journalist’s pace and an economist’s instincts, Mike Bird, Wall Street editor at The Economist, shows how land — fixed, scarce, and politically charged — has repeatedly shaped and reshaped governments and societal wealth.

For early agricultural civilizations, “the way in which land was owned, organized, and used was one of the foremost promises of state-building, which made the difference between economic survival and total collapse.” In other words, the way building crunches and land-use regulations shape our economic lives now has been centuries in the making. 

From all of us here at The Daily Economy, Happy New Year.

Strategic Trade Liberalization and the United States’ Future in the Asia-Pacific Region

Executive Summary

Since the nineteenth century, the United States has been a significant economic and political presence in the Asia–Pacific region. That has involved periodic clashes with other powers, the most extensive and brutal being with Japan, culminating in the Pacific War of 1941–1945. The United States also participated in — and lost — a regional war in Vietnam. Today, America finds itself embroiled in a significant geopolitical and regional competition with the People’s Republic of China.

Amidst these political changes, trade has remained central to America’s engagement in the Asia–Pacific region. American entrepreneurs and businesses have long recognized the opportunities for trade in the Asia–Pacific region as well as the subsequent benefits for American consumers and workers. Even before the United States acquired massive territory in the Western half of North America throughout the nineteenth century, American merchants were trading throughout the Pacific Ocean.

Those economic possibilities for Americans remain as alive today as they were in the past. Since the late 2000s, however, new political developments have complicated this picture. Some of the most consequential include changes in China’s relationship with the United States, China’s ongoing use of neomercantilist trade agreements to try to force Asia–Pacific nations into greater dependency on Beijing, and swings toward protectionism across the political spectrum of American opinion and policy.

Protectionism, however, is detrimental to America’s economic and national security interests.^[1] This paper lays out a framework for how the United States can advance a trade liberalization agenda for the Asia–Pacific that reflects present geopolitical conditions. National security considerations always shape trade policy and a full liberalization of trade throughout the region is unlikely. Nevertheless, American efforts to promote a strategic liberalization of trade with nations throughout the Asia–Pacific region will serve America’s economic interests, as well as strengthen America’s position in its geopolitical contest with China.

Key Points:

1. America is being outmaneuvered by China in the Asia–Pacific region through the latter’s use of neomercantilist trade agreements primarily designed to promote Chinese political dominance rather than economic growth. The current US strategy of transactional dealmaking primarily on a nation-by-nation basis, accompanied by significant tariff threats, is an ineffective response to the Chinese use of trade agreements to create deep dependency by countries on Beijing.

2. America can respond to these challenges by pursuing a strategic trade liberalization agenda in the Asia–Pacific region that involves:
   1. rejecting the ascendant protectionist outlook that dominates important segments of US domestic opinion; and
   2. recognizing geopolitical realities facing the United States in the Asia–Pacific.

3. America’s pursuit of strategic trade liberalization with Asia–Pacific nations can occur through:
   1. new bilateral trade agreements with important Asia–Pacific nations;
   2. further liberalizing existing bilateral trade agreements with Asia–Pacific countries; and
   3. reentering a regional multilateral trade agreement — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) — and focusing its efforts on lowering tariff and non-tariff barriers (NTBs) to trade between CPTPP member states.
      
4. America’s position vis-à-vis China will be improved to the degree that the United States is able to enhance freedom of trade between countries in the Asia–Pacific.
   
5. Competition from Asia–Pacific nations will spur innovation, adaptability, and the exchange of ideas (including in industry, manufacturing, and technology) in the American economy and produce the greater economic growth that is crucial for long-term US national security.
   1. By presenting itself as the champion of Asian-Pacific trade liberalization, the United States can offer a stark contrast to the Chinese model of neomercantilism and creeping political control.

Introduction

In 1890, the US Census Bureau’s superintendent, Robert P. Porter, declared the closure of the American frontier. The great American westward trek across the continent that had begun in the 1700s was over. Americans, however, kept looking westward, not least by gazing toward the Asia–Pacific and its great economic possibilities.

Trade has long been central to that vision of America’s presence in the Asia–Pacific. The United States’ first formal treaty with an Asian nation — the 1833 Treaty of Amity and Commerce between America and the Kingdom of Siam — was primarily focused on trade relations. But America’s trade engagement with the region accelerated after World War II following the United States’ victory over Imperial Japan. Trade relations were further bolstered as the epicenter of the global economy began to shift away from the North Atlantic in the 1960s. Since then, Western Europe’s share of world GDP has continued to diminish in favor of Asia–Pacific nations.^[2] In April 2025, three of the world’s five biggest economies in terms of nominal GDP — specifically, the United States, the People’s Republic of China, and Japan — were located in the region.^[3]

Growing awareness of this change in the global economy played a role in President Barack Obama’s November 2011 statement (delivered, not coincidentally, before the Parliament of Australia) in which he announced the following:

As President, I have, therefore, made a deliberate and strategic decision — as a Pacific nation, the United States will play a larger and long-term role in shaping this region and its future, by upholding core principles and in close partnership with our allies and friends.

Let me tell you what this means. First, we seek security, which is the foundation of peace and prosperity. We stand for an international order in which the rights and responsibilities of all nations and all people are upheld. Where international law and norms are enforced. Where commerce and freedom of navigation are not impeded. Where emerging powers contribute to regional security, and where disagreements are resolved peacefully. That’s the future that we seek.^[4]

Here we see Obama mixing an emphasis on US national security with a commitment to trade liberalization, along with promoting the growth of “liberal international order” throughout the region. Obama’s insistence on calling the United States “a Pacific nation” underscored the US position that America’s presence in the Asia–Pacific region was not only a geographical fact; it also indicated that America considered much of its political and economic future to be firmly located in the region.

Since 2016, however, the US government has significantly shifted its approach to trade in general, and trade relations in the Asia–Pacific region in particular. Three presidential administrations have moved US trade policy away from free trade agreements (FTAs) and pursuing the type of multilateral framework for trade liberalization that was taken as a given in Obama’s speech. That agenda has been sidelined in favor of America using tariffs and non-tariff barriers (NTBs) as part of a unilateral attempt to reset US trade relations with every other nation in the world through a highly transactional deal-making approach, primarily on a nation-by-nation basis.

While this new strategy, and the associated use of tariffs, is often presented as part of a negotiating stance, Americans’ turn to a unilateral protectionist outlook also reflects considerable emerging skepticism, transcending the political spectrum, about the general trade-stance adopted by the United States since 1945.

As the former trade official Michael L. Beeman writes, “America’s sharp trade policy swerves to the New Right and the Progressive Left have bent both ends of the US political spectrum back toward each other and into rough alignment in a new policy dimension.”^[5] That new policy outlook is premised on the (misguided) belief that trade liberalization has undermined the US economy and that America has lost more economically and politically than it has gained by diminishing barriers to freer economic exchanges between its citizens and people in other nations.

American trade policy is consequently in a state of flux and likely to remain so over the next decade. At present, there is little prospect of America returning to the postwar stance that broadly prevailed from the Truman administration to the Obama administration. That, however, constitutes an opportunity for American policymakers concerned about the long term to outline how America might pursue a trade liberalization policy throughout the Asia–Pacific while remaining cognizant of the geopolitical realities in the region. Providing such a framework — a strategic trade liberalization approach — in deliberately broad strokes is the purpose of this paper. But before presenting this framework, we need to provide some theoretical and historical context to outline:

• Why trade liberalization is preferable to protectionism.
• The general history of American trade policy toward the Asia–Pacific region.
• The economic stakes involved in getting US trade policy toward the Asia–Pacific right.

Free Trade Creates Wealth

Any reflection on an American trade liberalization policy toward the Asia–Pacific region requires a reminder of the benefits of free trade for Americans. By trade liberalization, I mean the steady reduction of tariffs and non-tariff barriers that impose costs on exchange between people and businesses based in different countries. In economic terms, trade liberalization produces greater wealth and improves the overall economic welfare of Americans over time.

The evidence for this is frankly overwhelming. First, we know that trade liberalization accelerates per-capita GDP growth. One study of trade reform’s impact upon growth found:

a 25 percent reduction in the tariff on capital or intermediate goods is associated with a 0.75-1 percentage point increase in economic growth for liberalizers compared with non-liberalizers. They show a dramatic divergence in the path of real per capita GDP between the two groups: By 2004 the liberalizers were 10 percent above the 1975–98 trend of both and non-liberalizers had fallen almost 10 percent below trend, creating a 15–20 percent gap between the two sets of countries.^[6]

A more recent International Monetary Fund (IMF) 2017 analysis of the trade-growth relationship illustrated how trade across borders significantly contributes to increases in per capita income. It estimated that “a one percentage-point increase in trade openness raises real per capita income by two to six percent.”^[7]The reduction in import costs facilitated by trade liberalization brings substantial welfare gains to high- and low-income Americans, but gains to the poorest American households, as economist Michael E. Waugh found, are four and a half times the gains of the richest American households. In his words, “poor, high marginal utility households — which are very sensitive to price — will tend to benefit more from trade than rich households.”^[8]

Such benefits and the growth which drives them are facilitated by the way in which trade liberalization expands the division of labor across borders. This greater specialization, in turn, stimulates more efficiency and productivity from businesses. Workers gravitate to more productive economic sectors where higher wages are invariably to be found. Under free-trade conditions, the value of people’s real wages increases, insofar as they can buy more goods and services which have, thanks to trade liberalization, become less expensive. Consumers are thus the direct and ultimate beneficiaries of trade liberalization.

Second, the competition from abroad sparked by ever-expanding trade makes businesses more resilient and adaptable. Exposure to greater foreign competition compels companies to face that their viability is perpetually open to challenges from existing and potential domestic rivals, but also from international competitors. This incentivizes them to constantly evaluate what they are doing and why they are doing it. The deeper and wider the competition, the more businesses are subject to unrelenting pressures to innovate, reassess their comparative advantage, streamline their organizations, shrink costs, find less-expensive inputs, take their products into new markets, reorganize their distribution systems, and thereby lower their prices while maintaining profit margins. Again, consumers benefit as a consequence of businesses doing things more efficiently.

No doubt, the intensification of competition can be unsettling for American businesses and workers alike. The alternative, however, is an America cowering behind tariff walls, pretending that people abroad are not willing to work as hard or be as innovative as Americans, or that economic truths like comparative advantage do not apply to Americans, or that sectoral change can be avoided in the American economy, or that some unproductive forms of employment can be preserved without incurring enormous long-term costs. Adopting such a mindset and embracing corresponding policies is not optimal for the US economy, nor the long-term well-being of Americans.^[9]

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Trade Amidst Geopolitics

The basic theory of free trade and the empirical evidence for trade liberalization’s economic benefits are well established. Moreover, most Americans recognize the opportunities offered by trade with other nations, be it the possibility of purchasing products at lower prices than it would otherwise cost to produce the same goods in America, or the prospect of the profits to be made from selling American goods in foreign markets.

Trade policy, however, occurs in a world of sovereign nation-states, not an economics textbook. Politically mediated agreements and treaties are subject to often-changing national rivalries and competition. Indeed, trade agreements are regularly pursued in conjunction with attempts to realize specific national security objectives. America’s trade relationships in the Asia–Pacific region are no exception. Some understanding of this history is important for contextualizing the future of US trade relationships in the region.

America’s engagement in trade in the Asia–Pacific region dates to the eighteenth century. In 1784, an American ship, The Empress of China, became the first American ship to sail from the young American republic — then still a loose confederation of states, rather than the more unified constitutional regime that emerged in 1790 — all the way to China. Sixty years later, the United States signed the 1844 Treaty of Wangxia with Imperial China, thereby securing access to Chinese markets for American merchants. Nine years later, Commodore Matthew C. Perry sailed his four “black ships” into Tokyo Bay to demand that the until-then closed nation of Japan open its markets to American goods. The result was the Treaty of Kanagawa, signed in 1854.

This marked the beginning of an extended period of US-Japanese trade that persisted until the 1930s. Following Japanese aggression in China throughout that decade, the United States gradually placed sanctions on specific goods (particularly oil and scrap steel) being exported to Japan and then imposed a full trade embargo on exports to Japan throughout 1940 and 1941 after Japanese army and naval units occupied French Indochina. Following Japan’s surrender in 1945, however, considerable efforts were made by Washington and Tokyo to put US-Japan trade relations back on a productive and mutually beneficial footing, though tensions have continued to exist.^[10]

The subsequent postwar renewal of US-Japan trade relations formed part of a broader US Cold-War effort to expand American trade globally, with a major objective being to counter the expansion of Communism. As in Western Europe, the opening and re-establishment of trade links was accompanied by the signing of several alliance treaties with Asia–Pacific nations. This included countries like Australia and New Zealand (the 1951 ANZUS treaty), South Korea (the 1953 Mutual Defense Treaty), Japan (the 1952 Treaty of Mutual Cooperation and Security between the United States and Japan), the Philippines (the 1951 Mutual Defense Treaty between the United States and the Republic of the Philippines), and the 1962 Thanat–Rusk communique that formed the basis of America’s modern security arrangements with Thailand. Overlying all this was the now-defunct Southeast Asia Treaty Organization (SEATO) created following the signing of the Southeast Asia Collective Defense Treaty in 1954.

Many of these initiatives were part of the “San Francisco System,” which created a set of bilateral alliances with key Asian-Pacific nations in which the United States was the “hub” and its allies the “spokes.” This contrasted with the single, integrated alliance NATO model that the United States took the lead in establishing in Western Europe in 1949. The context in which the San Francisco System operated changed in subsequent decades. Decolonization, for example, significantly reduced the strategic role once played by European nations like France, Britain, and the Netherlands in Asia. The rapprochement between the United States and mainland China realized during the Nixon administration also had major implications for how America engaged its strategic interests in the Asia–Pacific, as did America’s involvement in, and loss of, the Vietnam War.

These changes were paralleled by shifts in US trade policy from the 1950s onwards. Berkeley political scientist Vinod Aggarwal identifies the following stages in America’s trade stance toward the Asia–Pacific, from the postwar period until 2008:

The first, from World War II to the mid-1950s, can be characterized as a strong commitment to multilateralism and open trade. The second phase from the mid-1950s to the early-1980s can be termed ‘liberal protectionism’ — a pragmatic approach to buying off losers from trade liberalization by providing them with temporary restrictions on trade (some of which, such as textiles and apparel, that grew into widespread protection). From the mid-1980s to the early 1990s, the US shifted to the promotion of regionally focused accords in conjunction with the Uruguay Round. Finally, from the mid-1990s to 2008, the US pursued competitive liberalization, with an emphasis on both open sectoral and bilateral trade arrangements.^[11]

One consistency transcending these shifts was America’s leadership in establishing the rules for international trade. This was partly realized through the United States taking an active lead in the General Agreement on Trade and Tariffs (GATT) created in 1941 and which became the World Trade Organization (WTO) in 1995.

On one level, this process resulted, Beeman shows, in the development of rules which injected a high degree of predictability and certainty into the international trading system.^[12] But, Beeman notes, US officials also worked hard to ensure that the GATT and WTO rules governing trade served America’s long-term economic and strategic interests — not those of an amorphous global world order. Another advantage conferred by the WTO on the United States was that it provided an established forum in which America, by virtue of its ongoing status as the world’s economic superpower, could exercise huge influence upon global trade and slowly negotiate a wider opening of global markets to American commerce.

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Economic Nationalism Redux

Multilateral trade liberalization was thus pursued by Washington through international institutions, with an eye to promoting US national interests. In the late 2000s, this approach began to fall apart, thereby creating many of the conditions presently shaping US trade engagement in the Asia–Pacific region. In the first place, substantial conflicts emerged between China and America over the former’s use of subsidies to bolster exports of particular goods (e.g., solar panels, electric cars, etc.) into global markets, including the United States.^[13] As Stephen Ezell illustrates, China also failed to abide by some basic commitments expected of any WTO member “on issues such as industrial subsidization, protection of foreign intellectual property, forcing joint ventures and technology transfer, and providing market access to services industries.”^[14] Furthermore, far from embracing the broader trade liberalization agenda expected of WTO entrants, Chinese domestic and international economic policies were more akin, as we will see, to those of an eighteenth-century mercantilist state.^[15]

The impact of these changes upon American policymakers was signaled by three developments. First, the Obama administration withdrew from the Doha Round of global trade negotiations in 2015. This move was driven, as former United States Trade Representative Michael B.G. Froman summarizes, by concerns “that the resulting agreement would have locked in preferential treatment for China at the expense of the United States and the rest of the world.”^[16]

The second development, and one that indicated deepening skepticism about the WTO’s utility, was the Obama administration’s effort to build a new America-centered regional trade structure in the Asia–Pacific via the Trans–Pacific Partnership (TPP). This also reflected growing concerns about China’s economic and political ambitions in the Asia–Pacific region, especially after Xi Jinping’s ascension to power in China. By the mid-2015s, it was apparent that post-Cold-War ambitions to build a type of liberal international order were coming undone. The US-China competition had become the heart of a renewed geopolitical contest, with the Asia–Pacific rim constituting the primary theatre in which that conflict is being played out.

The third sign of political change driving a major rethinking of trade policy was the election of Donald Trump — a long-term critic of postwar US trade policy^[17] — as President. The subsequent political shift was reflected in the first Trump administration’s National Security Strategy document, issued in 2017. Many national security policies of previous administrations, the document stated, had been “based on the assumption that engagement with rivals and their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners.” But, the document bluntly added, “For the most part, this premise turned out to be false.”^[18]

It wasn’t only conservative Americans who believed the promise of free trade had soured. In 2018, two former senior Obama administration officials stated in a Foreign Affairs article that Democratic and Republican administrations “had been guilty of fundamental policy missteps on China.”^[19] That included mistaken assumptions that China’s entry into the WTO would help promote the gradual liberalization of other spheres of life in an otherwise highly authoritarian political culture.

From 2017 onwards, US trade policy toward the Asia–Pacific region underwent a dramatic upheaval. Alongside withdrawing from TPP in January 2017, the first Trump administration and then the Biden administration integrated the more expansive use of tariffs into US trade policy, with a particular emphasis upon America’s trade relationship with China. Then, on April 2, 2025, the Trump administration announced Executive Order 14257,^[20] outlining a new “Liberation Day” US tariff schedule. This imposed a 10-percent baseline tariff on imports into America from nearly all countries beginning April 5, as well as higher tariffs on imports from 57 specific countries, including many Asian-Pacific nations. The break from the American stance that prevailed from the 1980s until the late-2000s, vis-à-vis the Asia–Pacific region, could not have been starker.

By mid-2025, any prospects for a rules-based liberal international trading system were dead. They were replaced, Froman stresses, “by a flagrant disregard for any semblance of a rules-based system and a clear preference for a power-based system to take its place. Even if pieces of the old order manage to survive, the damage is done: there is no going back.”^[21] And to this we should add: the primary players that undone the rules-based order are the People’s Republic of China and the United States of America — the world’s two most powerful nations and the two most significant players in the Asia–Pacific region. For better or worse, the question of the future of trade throughout the Asia–Pacific lies in their hands.

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High Stakes, Economic and Political

This background underscores how America’s trade stance vis-à-vis the Asia–Pacific region is presently being driven by reactions to the way China is engaging with the region, the discrediting of multilateral trade liberalization, and the influence of economic nationalist ideas in US domestic politics. These developments, however, make it all the more critical that US policymakers understand the stakes involved in getting trade policy right in this region.

The sheer size of the economies of the Asia–Pacific region alone should focus American minds. At the beginning of the twentieth century, the world economy was dominated by the United States, Great Britain, and other European nations such as Germany and France. But 125 years later, things were different. By April 2025, the IMF listed the United States as the world’s biggest economy in nominal GDP terms ($30.51 trillion), followed by China ($19.23 trillion). Japan was listed as the world’s fifth-largest economy ($4.19 trillion).^[22]

Another way to demonstrate the region’s economic significance is to look at the twenty-one nations that belong to the Asia–Pacific Economic Cooperation (APEC) forum. APEC was established in 1989 with the goal of promoting free trade and economic cooperation among Asia–Pacific nations. According to the Office of the United States Trade Representative (USTR), the 21 member economies that made up APEC in 2023 accounted for “approximately 38 percent of the world’s population, 60 percent of the world’s total GDP and 47 percent of the world’s trade.” In 2023, total APEC GDP (which includes US GDP) was a staggering $63.8 trillion, and “US goods and services trade with APEC totaled an estimated $3.8 trillion” that same year.^[23]

The sheer scale of these numbers underscores the opportunities that great economic integration into the Asia–Pacific region represents for America. But separating trade issues from national security concerns is never easy. Over the past fifteen years, China’s expanding economic engagement in the region has been accompanied by efforts to improve its strategic presence throughout the Asia–Pacific.^[24] Beijing has created new trade agreements with many Asia–Pacific nations and upgraded several other existing trade agreements. Prominent examples include:

• The China–Association of Southeast Asian Nations [ASEAN] Free Trade Agreement, first signed in 2011, upgraded in 2015, which regulates trade between China and the 10 ASEAN member states.
   
• The Regional Comprehensive Economic Partnership (RCEP), signed in 2020, by 15 Asia–Pacific countries (China, Japan, South Korea, New Zealand, Australia, and the 10 ASEAN member states). It is presently the largest trade agreement by GDP.^[25]
   
• The China–Singapore Free Trade Agreement (CSFTA), originally signed in 2008, and given a Further Upgrade Protocol that became effective on December 31, 2024.
   
• The China–New Zealand Free Trade Agreement, originally signed in 2008, and given an upgrade that came into force on April 7, 2022.
   
• The China–Australia Free Trade Agreement (ChAFTA) that entered into force on December 20, 2015.
  

In 2025, China was also negotiating several other FTAs, or working on joint feasibility studies for possible FTAs, with other Asia–Pacific nations. These include proposals for a China–Japan–South Korea Free Trade Agreement (CJSKFTA); a China–Canada FTA; and a China–Papua New Guinea FTA.

China’s more recent trade agreements need to be placed in the context of its regional geopolitical ambitions, especially Beijing’s extensive use of neomercantilist policies. In domestic terms, this presently translates into the ruling party-state apparatus placing even tighter constraints upon the economic freedom of entrepreneurs and investors, bringing more and more Chinese businesses under direct state control, putting more party officials on company boards, demanding that CEOs inscribe China’s national goals directly into their business plans, and requiring state-run banks to shift more credit toward state-run enterprises and away from more-or-less private companies.^[26] As far as Beijing’s approach to trade is concerned, economist Fu-Lai Tony Yu describes China’s neomercantilist strategies as including:

stockpiling gold and foreign reserves and striving for favorable balance of payment via exchange rate manipulation, tariff, export subsidies, and other trade protections. The Chinese government [also] initiates “Belt and Road” projects and the Asian Infrastructure Investment Bank (AIIB) to counter American and Western influences and deploys strategic expansion in Africa, South Asia, and Latin American countries.^[27]

In trade agreements initiated by Beijing, this neomercantilist approach expresses itself in 1) “low quality . . . liberalization because they are driven largely by political, not economic, considerations” and 2) a “preference for narrower, incomplete initial agreements that are progressively expanded over time.”^[28] The point of the incompleteness and lack of detail is to give Chinese officials the space and time which it needs to exert pressure to make its trade partners more dependent on Beijing over time. By focusing on politically sensitive economic sectors such as minerals or energy, China seeks to create constituencies inside trade partner countries that will advance its broader political interests in return for ongoing access to Chinese markets. As the international relations scholar Michael Sampson states, “a country that is highly dependent on exporting a particular good to the Chinese market at a very high volume will find it difficult to switch elsewhere without incurring substantial costs given the almost unmatched size of the Chinese market.”^[29]

A good example of how Chinese neomercantilism manifests itself in trade agreements is China’s participation in the Regional Comprehensive Economic Partnership. Led primarily by Beijing, RCEP was designed, in part, to orientate trade toward China and away from the United States. The accord commingled the interests of 15 high–, middle–, and low–income Asia–Pacific nations, including US allies like Japan, Australia, South Korea, and the Philippines. As one scholar wrote at the time of RCEP’s signing:

RCEP . . . has little substantive to say on industrial subsidies or state-owned enterprises, almost certainly a nod to Beijing’s desire to safeguard its own domestic economic management tools. . . . Beijing will use its economic heft . . . to exert influence on regulations and standards setting within the bloc, as it is already explicitly trying to do in the countries included in its Belt and Road Initiative.^[30]

RCEP did produce some harmonization of rules of origin and some standardization of customs procedures. RCEP’s ambiguities let China avoid reforming at home while pressuring others to adopt its regulatory model — part of Beijing’s broader effort to spread its neomercantilist system beyond its borders. China’s trade agreements replicate its economic model of power and control, in stark contrast to freer market capitalism that the United States once championed throughout the world.

To be sure, Beijing’s effort to advance its economic place in the Asia–Pacific region through a multiplicity of trade agreements has created complications for China’s trade with Asia–Pacific nations. As former World Bank Chief Economist Anne O. Kruger pointed out in the late-1990s, a series of overlapping FTAs can facilitate the type of complicated trade environments that free trade is supposed to supplant.^[31] People engaged in cross-border trade find themselves having to navigate conflicting and inconsistent trade regimes. Every new trade agreement also provides fresh opportunities for lobbyists, leveraging loopholes to secure new protections and privileges. They also furnish new grounds for endless litigation by trade lawyers.^[32]

The proliferation of such inefficiencies affects China as much as it does the other players involved in one or more of the trade arrangements listed above. That reality must be balanced against the fact that, in all the above-listed regional agreements, China is the biggest economic and political power. That puts China in a far stronger negotiating position and increases the odds that Chinese proposals will prevail in trade disputes. To that extent, the complexity generated by a multiplicity of agreements often serves China’s political interests (though not necessarily its economic well-being) at other nations’ expense.

Unilateral Transactionalism Hurts Americans

Since 2016, the predominant US policy response to these maneuverings on China’s part has been a shift toward mild protectionism and then even further toward unilateral transactionalism. Certainly, like China, the United States has maintained its own web of trade arrangements in the Asia–Pacific region. This includes FTAs with Australia, Korea, Japan, Chile, Peru, and Singapore as well as the United States–Mexico–Canada Agreement (USMCA). America also has trade and investment framework arrangements in place with ASEAN, Brunei, Malaysia, Fiji, Indonesia, New Zealand, the Philippines, Thailand, and Vietnam.

None of these agreements, however, could be described as advancing a radical free trade agenda. Yet there is little dispute that a free trade outlook was more influential than economic nationalist positions in shaping these agreements. That free trade mindset on the part of American policymakers was especially evident in the way the United States used its membership of APEC to try and advance broader trade liberalization. This was partly a consequence of the WTO’s growing unwieldiness. As it expanded from 76 to 164 member countries, the WTO found it harder to build consensus positions. APEC, by contrast, was a smaller (21 members), more geographically aligned group. APEC offered another advantage for trade reform: members didn’t have to be sovereign states. Instead, membership is based on being an “independent economic entity.” Not only did this allow Hong Kong and Taiwan to be APEC members beside mainland China; it reflected the hope of some policymakers in the 1990s that it might be possible to distinguish trade relationships in the region from national security questions.

Confidence that such distinctions can be made has declined in the wake of fundamental changes in the US–China relationship since 2012 and ongoing clashes between Beijing and successive US presidential administrations over trade policy. The second Trump administration has intensified America’s tariff campaign to change China’s behavior through a unilateral, transactional approach to trade policy. The goal is to secure trade deals that, the administration believes, will leave the United States economically better off. But there are good reasons to doubt that this will occur.

Frequent changes to the second Trump administration’s tariff policies — delays, revisions, and shifting targets — make them difficult to model. That said, studies of the effects of the administration’s policies announced, for example, with the revised tariff schedule outlined in the Liberation Day executive order of April 2, 2025, indicate negative effects on US consumers. The Penn Wharton Budget Model states that this tariff schedule “will reduce long-run GDP by about six percent and wages by five percent. A middle-income household faces a $22,000 lifetime loss. These losses are twice as large as a revenue-equivalent corporate tax increase from 21 percent to 36 percent, an otherwise highly distorting tax.”^[33]

Similarly dismal results resulted from the Peterson Institute for International Economics’ modelling of five different scenarios based on the tariffs announced (and changed) between April 2 and May 5, 2025. This modelling found that:

• “The tariffs significantly reduce US and global economic growth and increase inflation in many economies, depending on how countries respond.”

• “Contrary to the claim that the tariff policy will spur an industrial revival in the United States, the tariffs disproportionately hurt the US agriculture and durable manufacturing sectors in terms of output losses, lower employment, and price increases.”

• Financial markets’ reaction to the Liberation Day tariffs in the form of “the depreciation of the dollar” and “the sharp rise in US bond yields” “suggest a rise in global perceptions of the relative risk of holding US assets — a rise in the risk premium demanded by investors.” This magnification of risk will accentuate “US losses in employment and income as foreign capital flows away from the United States to other countries.”^[34]

These forecasts suggest that serious domestic economic difficulties for the United States will flow from the second Trump administration’s trade policies. One such problem concerns how the tariffs will incentivize American companies to focus on extracting privileges from the US government rather than seeking to out-innovate and outcompete their domestic and foreign rivals. America’s growing use of protectionist measures, Beeman states, will create “new opportunities for interest groups to try [to] capture favorable decisions from America’s policymakers, [thereby] opening the door for further discrimination among them as well.”^[35]

The ever-changing US tariff schedule will create a cash bonanza not only for lobbyists, but for trade lawyers with a clear incentive to keep trade regulations as numerous and byzantine as possible. Then there are the growing inefficiencies and higher costs these tariffs will consequently inflict on American businesses, raising prices for American consumers even when they buy domestically.

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Whither Trade Freedom?

Will America reverse its present trade trajectory in the Asia–Pacific region? At present, that seems unlikely. The political momentum remains with protectionists. Moreover, while opinion polls in mid-2025 indicated that most Americans favor free trade,^[36] that positive disposition always comes with many unspoken caveats. Americans may favor trade liberalization on a generic level, but some will insist      their state, their town, their industry, or their company merits some degree of protection. And when the subject of China is introduced, the numbers favoring free trade immediately trend downwards.^[37]

In short, many Americans have less-than-straightforward views on trade. Economic nationalists know this, and ruthlessly exploit Americans’ diffidence about trade to cobble together election-winning coalitions. Compounding the problem, no American political leader of sufficient gravitas is currently waving the free-trade flag.

The question for those convinced of the economic case for trade liberalization thus becomes: How does the United States advance a trade liberalization agenda in the Asia–Pacific region in a manner cognizant of geopolitical realities, most notably Beijing’s neomercantilist approach to the region? Americans should be capable, despite the challenges, of realizing the enormous economic opportunities of strategic trade engagement in one of the world’s fastest-growing regions. It makes neither economic nor political sense for the United States to allow Beijing to slowly turn the Asia–Pacific rim into a Chinese-dominated economic lake, from which America is excluded or excludes itself. Nor is it obvious how a slow US retreat from the world’s most dynamic economic region would promote America’s national security interests.

Certainly, a general overall lowering of trade barriers for all nations (of the type pursued from the 1990s until the late-2000s) would avoid the problems associated with overlapping trade agreements. The WTO’s ability to advance a multilateral trade liberalization agenda for all its members remains limited, however, and there is no indication that this will change in the short to medium term.^[38] No major multilateral trade agreement has been successfully pursued and concluded under the WTO’s auspices since the Uruguay Round (1986–1994). Although the Doha Development Round started in 2001, it has not been concluded and there is no prospect of this occurring anytime soon, especially given post-2016 shifts in US trade policy. Thus far, post-1994 WTO multilateral agreements have been limited to extremely specific goals, such as the Agreement on Fisheries Subsidies, adopted on June 17, 2022. Even that narrowly focused rule has not been ratified by the required two-thirds of WTO members, illustrating the sheer difficulty in reaching comprehensive multilateral agreement.

Americans anxious to liberalize trade in the Asia–Pacific must consider other options. One way forward is for the United States to pursue a three-pronged strategic trade liberalization strategy. This would involve:

• Further liberalizing existing bilateral trade agreements with those Asia–Pacific countries with whom it already has such agreements.

• Pursuing new bilateral trade agreements with important Asia–Pacific nations which are focused upon reducing tariffs and NTBs.

• Reconstructing a US-led regional multilateral trade agreement through the CPTPP in which the primary focus is upon lowering tariffs and diminishing NTBs among CPTPP members.

Admittedly, this strategic trade liberalization agenda risks adding to the proliferation of trade agreements, generating some conflicts and contradictions. Nonetheless, this approach realistically appreciates the geopolitical challenges of the Asia–Pacific that no responsible US trade policy can ignore. Moreover, it stands in sharp contrast to China’s neomercantilist model, relying instead on expanding market freedom between the United States and its current and prospective Asia–Pacific partners.

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Liberalizing Bilaterally

In bilateral terms, a first step would be for the United States to engage those Asia–Pacific countries with which it already has existing FTAs with proposals to further liberalize these agreements. A free trade agreement between the United States and any country is just a start, serving as a platform for further negotiations, especially for greater market access and trade between partnered nations.

Most particularly, long-standing US allies like Korea, Australia, and Japan might be engaged in talks to further diminish the tariffs and NTBs still inhibiting trade. Such upgrades could also involve targeted initiatives such as freeing up digital trade and e-commerce between these countries, thereby growing the access of American tech companies to these markets. America could, for instance, seek to update its FTA with Singapore, as tech companies in both countries deepen links stretching back to 1987. Such cooperation would surely increase the number of start-ups in both nations.^[39]

A second step would be to pursue bilateral trade agreements that liberalize US trade with geopolitically critical Asia–Pacific nations such as Vietnam and Indonesia. These nations have large consumer markets (the population of Indonesia alone is 284 million people) that contain opportunities for US exporters. Specific trade nuisances (such as poor enforcement of intellectual property rights, a perennial problem in developing nations) could be addressed on a nation-by-nation basis throughout the Asia–Pacific.

American importers and exporters would have to navigate the contradictions generated by America entering into new bilateral agreements with different Asia–Pacific nations. The upside is that deeper and more bilateral agreements of a liberalizing nature would tie these countries’ economies more closely into the US economy, facilitate economic growth in the United States and these nations, and help counter Chinese pressures upon these countries to put more distance between them and the United States. Even more significantly, bilateral liberalizing trade agreements would build momentum to help the United States realize an even bigger trade objective: the development of a US-led multilateral regional market-liberalizing agreement. Embracing an increasing number of Asia–Pacific nations would further blunt China’s ability to realize its geopolitical and neomercantilist ambitions.

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From Bilateral to Regional

Any regional trade agreement (RTA) typically involves countries (usually, though not always, geographically adjacent in some way or enjoying certain political and historical ties) agreeing to reciprocal arrangements to standardize trade barriers between the participating nations. The form assumed by an RTA can vary, from customs unions to free trade zones. They can focus on tariffs but also NTBs. In some cases, they specify particular treatment of investments and services among signatories to the agreement.

As the WTO points out, “These deals, by their very nature, are discriminatory as only their signatories enjoy more favorable market-access conditions.”^[40] This is one reason why the WTO’s formal documents express only mildly favorable views of RTAs. These texts typically insist that RTAs “must remain complementary to, not a substitute for, the multilateral trading system.”^[41] The concern is that many, if not most trade questions can only be properly addressed via the multilateral framework established by the WTO. Given, however, the WTO’s ongoing paralysis, an American-led RTA is a more politically plausible route for the United States to promote trade liberalization and advance its economic and political interests in the Asia–Pacific region.

Of course, the content and underlying logic of such an agreement would matter a great deal. An American-led RTA that effectively encouraged its members to embrace neomercantilist policies (i.e., the present Chinese trade model) would neither advance trade liberalization nor serve the interests of American consumers. There is also the question of whether such an agreement would remain closed to any group beyond the original signatories, or whether it could be opened to others.

This is where injecting a plurilateral dimension into such an RTA could help. Plurilateral trade arrangements involve a set of nations agreeing on new trade commitments and then either extending the benefits to all members on a most-favored-nation (MFN) basis, or offering non-signatories the opportunity to enter into such agreements at a future date.^[42] As the WTO understands plurilateral arrangements, they embrace cases whereby:

certain member states may agree on rules on trade in specific subjects that not all Member States may agree to. As such, plurilateral agreements come to the fore where there is no multilateral consent. These plurilateral agreements therefore only bind Member States that have signed up to them.^[43]

An American-led Asia–Pacific RTA grounded on such plurilateral principles could offer a pathway for the United States to gradually draw Asia–Pacific nations into a free-trade orientated RTA focused on a limited number of goals, at the heart of which is the promotion of greater economic liberty — specifically, a progressive lowering of tariffs and NTBs between the countries. Such an RTA would thus offer a genuinely market-orientated alternative to China’s neomercantilist trade arrangements.

How might this RTA with plurilateral characteristics be advanced by the United States? One option would be for America to revisit the defunct Trans-Pacific Partnership (TPP) and its successor arrangement — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) — by joining and leading it in market-liberalizing directions.

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What Could Have Been

Developed under American leadership from the 2000s onwards and signed by the United States and the other 11 members (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) on February 4, 2016, TPP was not ratified by America. It encountered immense domestic opposition in the United States from groups such as economic nationalists and trade unions. The US subsequently withdrew from TPP in February 2017.

The topics addressed in TPP’s 30 chapters ranged from the level of tariffs applied to goods and services to mechanisms for resolving disputes between signatories. The treatment of environmental and labor standards, intellectual property, and regulations concerning e-commerce were also included. Additionally, TPP contained many provisions having little to do with trade, such as the maintenance of cultural diversity, the right to develop healthcare systems, and supporting the development of small and medium-sized businesses. At the time, however, the USTR described TPP’s primary objective and achievement in the following manner:

The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for our businesses, workers, and consumers.^[44]

Some of the most substantive of these reductions in barriers were aimed at manufacturing goods, agricultural products, and textiles. This was to be accompanied by eliminating restrictions on cross-border services and opening markets to greater foreign investment among members.

In presenting its case for Congressional ratification of TPP throughout 2015 and 2016, the Obama administration stressed two points. The first was economic: TPP would open more markets to American goods, creating new opportunities for American businesses and workers. It would also lead to greater and easier foreign investment in the US economy as well as lower prices for American consumers. The second point was geopolitical. In Obama’s own words, “we have to make sure the United States — and not countries like China — is the one writing this century’s rules for the world’s economy.”^[45]

Throughout 2016, in the face of attacks on TPP by presidential candidates Hillary Clinton and Donald Trump as well as sections of the Progressive Left and New Right, Obama repeatedly stressed that TPP excluded China from its membership. From this standpoint, TPP was understood as a way for America to pursue an Asia-centered strategy that combined the pursuit of economic growth and freer trade with the imperative of underscoring that there would be no geopolitical retreat on America’s part from the Asia–Pacific in the face of China’s determination to stamp its political preferences on the region. Awareness of the geopolitical stakes also underlay the 2016 warning by Singapore’s prime minister Lee Hsien Loong that China is “engaging all of the countries in the region around its own version of trade agreements, and they’re sure not worried about labor standards, or environmental standards, or human trafficking or anti-corruption measures.”^[46]

As far as Obama was concerned, the rules needed to include environmental and labor regulations of the type that China had no intention of embracing. “Right now,” he argued, “China wants to write the rules for commerce in Asia. If it succeeds, our competitors would be free to ignore basic environmental and labor standards, giving them an unfair advantage over American workers.”^[47] These words may be seen as Obama seeking to shore up support for TPP among some of his domestic political constituencies and/or reflective of his own ideological preferences. Nonetheless, TPP did lower tariffs and NTBs more than RCEP that was being pushed aggressively by China during the same time period.^[48]

Significantly, TPP’s provisions concerning state-owned enterprises — which have proliferated in China since 2012 — would have significantly inhibited the ability of Chinese state enterprises to operate in TPP signatory nations. This was not a coincidence.

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Multilateral, Regional, and Plurilateral

With the benefit of hindsight, the United States’ decision to withdraw from TPP now looks to have been a serious error. Leaving aside the economic benefits of freer trade with the 11 other member states, an American-led TPP would have signaled continuation of America’s deep economic commitment to the Asia–Pacific region, reassured member states of America’s capacity to resist domestic pressures to turn economically inwards, and, above all, demonstrated America’s unwillingness to allow the region to become economically dominated by China. Key US allies like Australia, Japan, Korea, and Singapore would have particularly taken heart from an American ratification of TPP. Instead, withdrawal from TPP allowed China to fill the void with the RCEP.

Although the Biden Administration stated its willingness to reconsider American involvement in TPP, it did little to revive the initiative. This reflected the bipartisan turn against trade liberalization in the United States. While the influence of economic nationalists grew within the Republican party, plenty of Democratic-leaning constituencies likewise insisted that their economic well-being had been undermined by free trade initiatives. In his survey of the Biden administration’s trade posture, Beeman states that “What became more apparent over time was that it…was a union-centered, and at times union-directed, trade policy.”^[49] More generally, Beeman adds, “the administration’s trade policy continued to prioritize the fundamentally anti-free trade and broadly anti-corporate views of its trade union and civil society constituents.”^[50]

Abandonment of TPP did result in the United States effectively ceding a major rule-making role for trade in the Asia–Pacific region and making it easier for Beijing to push through RCEP. The 11 remaining members of TPP (known as the TPP-11) sought to salvage as much as they could of the original TPP, revealing ongoing reservations about China’s influence. Signed in March 2018, CPTPP was soon ratified by a majority of members and became effective for ratifying countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) in December 2018. For a trade agreement, this qualifies as lightning speed. In December 2024, Britain was admitted to the CPTPP.

CPTPP largely replicated TPP, especially concerning tariff reductions. It also retained TPP’s high transparency standards for state-owned enterprises — something not to China’s liking. Moreover, as economist Matthew P. Goodman pointed out in March 2018, “a total of 22 provisions from the original agreement were suspended or otherwise changed, setting aside issues that were priorities for the United States in the original negotiations but did not enjoy similar support among the other TPP countries.”^[51] These suspensions mattered, because they sought to make it easier for the United States to enter CPTPP in the future. That signaled a desire to see more (rather than less) American economic and political leadership in the Asia–Pacific area.

But while other Asia–Pacific countries — such as Costa Rica, Ecuador, Indonesia, and Taiwan — have applied to become CPTPP members since 2018, America has not and shows no sign of wanting to do so. By contrast, China announced its desire to join CPTPP in September 2021. This could be read as an indication of Beijing’s determination to inhibit any future US administration from using CPTPP as a counterweight to China’s geopolitical and economic agendas for the region.

Naturally, some CPTPP members would be wary of allowing the United States back inside this RTA, having been frustrated once by American domestic politics that terminated its TPP participation in January 2017. Many CPTPP members would, however, welcome US reentry. As well as increasing their access to the world’s largest economy, it would reduce pressures on them to admit China to CPTPP.

A US reentry into CPTPP would require some humility, as the US would have to concede that leaving TPP was a misjudgment. This would not be the first time that America found itself conceding serious trade policy errors. The Smoot-Hawley Tariff Act of 1930 inflicted considerable damage on the US economy by raising American tariffs on imports. It was superseded just four years later by the Reciprocal Trade Agreements Act of 1934, which started returning the United States to a trade liberalization agenda by reducing tariffs.

A comparable American admission about TPP would have to be preceded by something even more difficult: the establishment of a broad bipartisan domestic consensus in favor of a strategic trade liberalization agenda for the Asia–Pacific region. While overcoming opposition would be hard, it is not inconceivable. Should America’s more recent embrace of protectionist policies produce the inefficiencies, cronyism, and higher prices associated with such trade arrangements, the trade policies followed by the Trump I, Biden, and Trump II administrations stand some chance of becoming discredited among critical masses across the American political spectrum.

Granted, overcoming resistance from special interests and their lobbyists who directly benefit from protectionist policies at consumers’ and taxpayers’ expense would be especially challenging. The special interests that directly benefit from subsidies will fiercely resist any attempt to take away what amounts to corporate welfare. Though large numbers of Americans may have a dim view of government subsidies, organized minorities that stand to gain immediately from subsidies ultimately paid for by American taxpayers are more likely to get their way because the majorities who economically gain from trade liberalization in the long term (like consumers) are dispersed and disorganized. Nonetheless, a resurgence of free trade sympathies on a scale that political leaders find difficult to ignore would create space for trade liberalizers to stress the benefits of greater American access to markets throughout the Asia–Pacific as well as draw attention to how an American-shaped CPTPP could counter Chinese influence in the region.

The next step for a United States inside CPTPP’s fold would be to 1) make further tariff reductions a goal for CPTPP; 2) promote updates to CPTPP that encompass issues like artificial intelligence and digital trade which have assumed greater significance since 2017; and 3) direct more attention to diminishing NTBs or non-tariff measures (NTMs). All three provisions could be given plurilateral status, thereby allowing CPTPP to expand by admitting member-states willing to adopt these market liberalizing provisions.

Reducing the impact of NTBs on CPTPP members would be an especially important feature of such a strategy. Amid impassioned debates about tariffs, NTBs’ role in blocking freer trade is often overlooked. Some of the more typical NTBs include the following:

• Government licenses or permits that must be acquired before particular goods can be exported.

• Extremely complicated customs protocols that slow down the speed of trade and thereby increase the costs.

• Technical barriers to trade (TBT) associated with the testing and certification of products before they can be imported or exported.

• Safety standards concerning imports of products such as food can significantly limit trade.

• Subsidies to domestic industries.

In 2019, the United Nations Economic and Social Commission for Asia and the Pacific estimated that “Trade costs of NTMs are more than double that of ordinary customs tariffs.”^[52] This only underlines the need for American leadership on this issue. Realizing this objective would be easier in some areas than others. Harmonizing licensing and safety standards, for example, is simpler than achieving agreements on reducing subsidies. These difficulties should, however, not impede the United States from emphasizing the benefits of radically reducing NTBs through CPTPP.

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America Wins

The specific combination of American-led trade-liberalization measures proposed by this paper for the Asia–Pacific region amounts to an ambitious agenda for the expansion of economic liberty and America’s presence in the Asia–Pacific region. Any one of the three prongs — liberalizing existing bilateral agreements with Asia–Pacific nations, entering into new bilateral agreements with critical Asia–Pacific countries, reengaging in multilateral regional arrangements— would require major expenditures of political capital by a presidential administration and legislators alike.

If the United States were to pursue a trade liberalization agenda of the type proposed in this paper throughout the Asia–Pacific, it would confront domestic US bipartisan opposition of the type which is inclined to view extensive American trade with the rest of the world as a zero-sum game in which America is inevitably the loser. It would also encounter obstruction by Beijing who would see a US strategic trade liberalization agenda as implicitly challenging China’s neomercantilist ambitions for the region. These difficulties should not, however, cause us to lose sight of the benefits for the United States if Washington pursued a strategic trade liberalization policy in the Asia–Pacific. To reiterate, these benefits would include:

• Offering economic advantages to American consumers in the form of lower prices, and to American businesses in the form of cheaper inputs as well as the disciplining effects of enhanced competition.

• Giving the US an edge in a geopolitical contest with China.

• Signaling a revival of American ambition to take the lead in setting the rules for trade.

In geopolitical terms, it is always better for a nation to be a rule-setter than a rule-taker. The United States must not cede that role to a China that has a distinctly neomercantilist view of the world’s economic future and an authoritarian conception of the nature and ends of politics.

Above all, America’s pursuit of strategic liberalization in the Asia–Pacific region would help set the United States up to be the leading player in a twenty-first century in which Asia and the Asia–Pacific will assume the place occupied by European nations in the nineteenth and early-to-mid twentieth centuries. The economic and political payoff would be formidable. For that reason alone, it would be a shame if America decided to turn its back on a new Western frontier. Like the frontier of the nineteenth-century United States, the Asia–Pacific offers so much opportunity to any country enterprising enough to seize it.

Glossary of Abbreviations Used in the Text

Abbreviation

APEC	Asia–Pacific Economic Cooperation
ANZUS	Australia, New Zealand, United States Security Treaty
ASEAN	Association of South-East Asian Nations
ChAFTA	China–Australia Free Trade Agreement
CJSKFTA	China–Japan–South Korea Free Trade Agreement
CPTTP	Comprehensive and Progressive Agreement for Trans-Pacific Partnership
CSFTA	China–Singapore Free Trade Agreement
GATT	General Agreement on Trade and Tariffs
GDP	Gross Domestic Profit
IMF	International Monetary Fund
MFN	Most-Favored-Nation
NTB	Non-Tariff Barriers
NTM	Non-Tariff Measures
RCEP	Regional Comprehensive Economic Partnership
RTA	Regional Trade Agreement
SEATO	Southeast Asia Treaty Organization
TBT	Technical Barriers to Trade
IFA	Trade and Investment Framework Arrangements
TPP	Trans-Pacific Partnership
USMCA	United States-Mexico-Canada Agreement
WTO	World Trade Organization

Endnotes

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[1] The framework adopted in this paper for reflecting upon the relationship between trade and national security and how trade liberalization generally advances a country’s national security is outlined in Samuel Gregg, A Free, Prosperous and Secure America How Trade Liberalization Strengthens US National Security, and Economic Nationalism Undermines It, AIER Papers #2 (July 15, 2024), accessed August 23, AIER Papers #2 (July 15, 2024), accessed August 23, 2025, https://aier.org/wp-content/uploads/2024/07/AIER_Whitepaper-02_Trade-Liberalization.pdf.

[2] See, for example, Rajiv Biswas, “The Ascent of APAC in the Global Economy,” S&P Global Economic Intelligence (July 1, 2022), accessed August 18, 2025, https:/www.spglobal.com/marketintelligence/en/mi/research-analysis/the-ascent-of-apac-in-the-global-economy-june22.html

[3] See IMF, “World Economic Outlook Database, April 2025,” accessed August 25, 2025, https://www.imf.org/en/Publications/WEO/weo-database/2025/April/weo-report

[4] “Remarks By President Obama to the Australian Parliament” (November 17, 2021), accessed August 19, 2025, https://obamawhitehouse.archives.gov/the-press-office/2011/11/17/remarks-president-obama-australian-parliament

[5] Michael L. Beeman, Walking Out: America’s New Trade Policy in the Asia–Pacific and Beyond (Stanford, CA: Stanford University Press, 2024), 1.

[6] See Douglas A. Irwin, “Does Trade Reform Promote Economic Growth? A Review of Recent Evidence,” National Bureau of Economic Research Working Paper (June 2019), accessed August 24, 2025, https://www.nber.org/system/files/working_papers/w25927/w25927.pdf, citing Antoni Estevadeordal and Alan M. Taylor, “Is the Washington Consensus Dead? Growth, Openness, and the Great Liberalization, 1970s–2000s,” The Review of Economics and Statistics 95, no. 5 (2013): 1669-1690.

[7] See International Monetary Fund, Making Trade an Engine of Growth for All: The Case for Trade and for Policies to Facilitate Adjustment (April 10, 2017), accessed August 18, 2025, https://www.imf.org/en/Publications/ Policy-Papers/Issues/2017/04/08/making-trade-an-engineof- growth-for-all

[8] See Michael E. Waugh, “Heterogeneous Agent Trade,” Federal Reserve Bank of Minneapolis Staff Report no. 653 (October 2023), 2.

[9] This section draws on Samuel Gregg, “Make Trade Free Again,” Law & Liberty (August 17, 2023), accessed August 14, 2025, https:// lawliberty.org/make-trade-free-again/

[10] See Shujiro Urata, “US-Japan Trade Frictions: The Past, the Present, and Implications for the US–China Trade War,” Asian Economic Policy Review 15 (2020): 141-159.

[11] Vinod K. Aggarwal, “Look West: The Evolution of US Trade Policy Toward Asia,” Globalizations 7, no. 4 (2010): 460-1.

[12] See Beeman, Walking Out, 3, 7, 13.

[13] See Samuel Gregg, The Next American Economy: Nation, State, and Markets in an Uncertain World (New York: Encounter, 2022), 74-75.

[14] See Stephen Ezell, “False Promises II: The Continuing Gap between China’s WTO Commitments and Its Practices,” Information Technology and Innovation Foundation (July 2021), accessed August 25, 2025, https://itif.org/sites/default/files/2021-false-promises.pdf

[15] See Gregg, The Next American Economy, 59; and Lingling Wei, “China’s Xi Ramps up Control of Private Sector. ‘We Have No Choice but to Follow the Party’,” Wall Street Journal, (December 10, 2020), accessed May 6, 2021, https://www.wsj.com/articles/china-xi-clampdown- private-sector-communist-party-11607612531?mod=searchresults_ pos3&page=3

[16] Michael B.G. Froman, “After the Trade War: Remaking Rules From the Ruins of the Rules-Based System,” Foreign Affairs (August 11, 2025), accessed August 25, 2025, https://www.foreignaffairs.com/ united-states/after-trade-war-michael-froman

[17] See Jim Tankersley and Mark Lander, “Trump’s Love for Tariffs Began in Japan’s ‘80s Boom,” New York Times (May 15, 2019), accessed October 17, 2025, https://www.nytimes.com/2019/05/15/us/ politics/china-trade-donald-trump.html

[18] National Security Strategy of the United States (December 2017), accessed August 23, 2025, https://trumpwhitehouse.archives.gov/ wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905-2.pdf.

[19] See Kurt M. Campbell and Ely Ratner, “The China Reckoning: How Beijing Defied American Expectations,” Foreign Affairs (March/April 2018), accessed August 25, 2025, https://www.foreignaffairs.com/ articles/china/2018-02-13/china-reckoning

[20] See President Donald J. Trump, “Executive Order Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits” (April 2, 2025), accessed August 25, 2025, https://www. whitehouse.gov/presidential-actions/2025/04/regulating-importswith- a-reciprocal-tariff-to-rectify-trade-practices-that-contributeto- large-and-persistent-annual-united-states-goods-trade-deficits/

[21] Michael B.G. Froman, “After the Trade War: Remaking Rules From the Ruins of the Rules-Based System,” Foreign Affairs (August 11, 2025), accessed August 25, 2025, https://www.foreignaffairs.com/ united-states/after-trade-war-michael-froman

[22] See International Monetary Fund, World Economic Outlook Database, accessed August 11, 2025, https://www.imf.org/en/Publications/ WEO/weo-database/2025/April/weo-report

[23] Office of the United States Trade Representative, “US-APEC Trade Facts,” accessed August 11, 2025, https://ustr.gov/trade-agreements/ other-initiatives/Asia–Pacific-economic-cooperation-apec/us-apectrade- facts

[24] See Charles Edel and Kathryn Paik, “China’s Power Play Across the Pacific,” Commentary (April 8, 2025), accessed August 12, 2025, https://www.csis.org/analysis/chinas-power-play-across-pacific

[25] See DFAT, Regional Comprehensive Economic Partnership Agreement (RCEP), accessed August 14, 2025, https://www.dfat.gov.au/ trade/agreements/in-force/rcep

[26] See Gregg, The Next American Economy, 29.

[27] FL.Yu, “Neomercantilist Policy and China’s Rise as a Global Power,” in Contemporary Issues in International Political Economy, eds. FL.T. Yu and D.S. Kwan (Singapore: Palgrave Macmillan, 2019), 175.

[28] Michael Sampson, “The evolution of China’s regional trade agreements: power dynamics and the future of the Asia–Pacific,” The Pacific Review 34 (2), 2021, 261.

[29] Ibid., 263.

[30] Robert Ward, “RCEP trade deal: A Geopolitical Win for China” (November 25, 2020), accessed August 14, 2025, International Institute for Strategic Studies Online Analysis, https://www.iiss.org/ online-analysis/online-analysis/2020/11/rcep-trade-deal/

[31] See Anne O. Krueger, “Problems with Overlapping Free Trade Areas,” in Regionalism versus Multilateral Trade Arrangements, eds. Takatoshi Ito and Anne O. Krueger (Chicago: The University of Chicago Press, 1997), 22.

[32] See ibid., 18.

[33] Penn Wharton Budget Model, “The Economic Effects of President Trump’s Tariffs” (April 10, 2025), accessed August 13, 2025, https://budgetmodel.wharton.upenn.edu/issues/2025/4/10/economic-effects- of-president-trumps-tariffs

[34] See Warwick J. McKibbin, Marcus Noland, and Geoffrey Shuetrim, “The global economic effects of Trump’s 2025 tariffs,” Peterson Institute for International Economics, Working Paper 25-13, (June 2025), accessed August 13, 2025, https://www.piie.com/sites/default/ files/2025-06/wp25-13.pdf

[35] Beeman, Walking Out, 307.

[36] See, for example, The Chicago Council on Global Public Affairs, “Most Americans Think the United States Should Pursue Global Free Trade” (May 5, 2025), accessed August 24, 2025, https://globalaffairs. org/research/public-opinion-survey/most-americans-thinkunited- states-should-pursue-global-free-trade

[37] See, for example, Pew Research Center, “Views of trade between China and the US,” (April 17, 2025), accessed August 24, 2025, https://www.pewresearch.org/global/2025/04/17/views-of-tradebetween- china-and-the-us/

[38] See, for example, Alan Wm. Wolff, “Is the World Trade Organization Still Relevant?” Peterson Institute for International Economics Policy Brief 24–15 (December 2024), accessed August 18, 2025, https://www.piie.com/sites/default/files/2024-12/pb24-15.pdf

[39] See Jack L. Harris and Max-Peter Menzel, “The Silicon Valley – Singapore connection: The role of institutional gateways in establishing knowledge pipelines,” Geoforum 144 (2023), 103803, accessed September 9, 2025, https://www.sciencedirect.com/science/article/ pii/S001671852300129X?via%3Dihub

[40] WTO, “Regional trade agreements and the WTO,” accessed August 14, 2025, https://www.wto.org/english/tratop_e/region_e/ scope_rta_e.htm

[41] Ibid.

[42] See James Baccus, The Future of the WTO: Multilateral or Plurilateral?, Cato Institute Policy Analysis No. 947 (May 25, 2023), accessed August 9, 2025, https://www.cato.org/policy-analysis/future-wto

[43] “An introduction to plurilateral agreements of the WTO Lexis Nexis” (2025), accessed August 8, 2025, https://www.lexisnexis. co.uk/legal/guidance/an-introduction-to-plurilateral-agreements- of-the-wto

[44] Office of the US Trade Representative, “Summary of the Trans-Pacific Partnership Agreement” (October 4, 2015), accessed August 22, 2025, https://ustr.gov/about-us/policy-offices/press-office/press-releases/ 2015/october/summary-trans-pacific-partnership

[45] President Barack Obama, “Writing the Rules for 21st Century Trade” (February 18, 2015), accessed August 22, 2025, https:// obamawhitehouse.archives.gov/blog/2015/02/18/president-obamawriting- rules-21st-century-trade

[46] Quoted in Brett Fortnam, “Singapore PM: US Failure to Ratify TPP Would Damage Its Diplomatic Relations,” World Trade Online, August 2, 2016.

[47] Obama, “Writing the Rules for 21st Century Trade.”

[48] See, for example, Suzie Park, “The Rise of Asia–Pacific Regionalism in Trade Agreements Following the US Withdrawal from the Trans-Pacific Partnership,” NYU Journal of International Law and Politics 53, no. 27 (2020): 27-36.

[49] Beeman, Walking Out, 51.

[50] Ibid., 245.

[51] Matthew P. Goodman, “From TPP to CPTPP,” Center for International and Strategic Studies, Critical Questions (March 8, 2018), accessed August 16, 2025, https://www.csis.org/analysis/tpp-cptpp

[52] Asia–Pacific Trade and Investment Report 2019: Navigating Non-tariff Measures towards Sustainable Development (2019), xiii, accessed August 17, 2025, https://repository.unescap.org/server/api/core/bitstreams/93123bda-646d-42e1-a689-fb7c7d37ef77/content

Introduction

The gold standard was a monetary system that defined a unit of a nation’s currency as a fixed weight of gold and made the two mutually exchangeable. For much of modern history, several versions of this pairing served as the foundation of global trade and finance. Under the gold standard, governments promised to redeem paper money for a defined amount of gold on demand, which made the value of currencies stable and predictable. That stability fueled unprecedented global integration, linking the prosperity of many nations through the shared economic logic of gold.

The gold standard was largely abandoned during the twentieth century, but debate over its virtues and flaws endures. Supporters see it as a bulwark against inflation and government overspending; critics call it too rigid for modern economies. Understanding what the gold standard was, how it worked, and why it fell out of favor helps to clarify not only a pivotal era in economic history but also recurring arguments about money, fiscal discipline, and currency stability. 

What Is the Gold Standard?

Under an active gold standard, a country defines its currency as equivalent toa specific weight of gold. Governments or central banks advertise willingness to buy or sell gold at that fixed price, ensuring that paper money is “as good as gold.” When the United States adopted the classical gold standard, one dollar equaled about one-twentieth of an ounce of gold. Anyone could, in theory, exchange paper currency for that amount of metal. 

This convertibility linked every participating currency to gold, and to one another, creating a system of fixed exchange rates. A dollar, a pound, or a franc all represented certain weights of gold, making international trade and investment far more predictable. Because the supply of gold changed only slowly, the total amount of money governments could print was naturally limited. That constraint is what advocates of the gold standard consider its greatest strength: it restricted governments from printing money without real value behind it. 

Over time, the gold standard evolved in several forms. The gold specie standard, dominant in the nineteenth century, involved coins made of gold circulating alongside paper notes that were fully redeemable for gold. After World War I, many nations moved to a gold bullion standard, in which paper money could be exchanged for large bars of gold held by central banks, but gold coins disappeared from daily use. Later, the gold exchange standard — most notably the Bretton Woods system after 1944 — linked national currencies indirectly to gold through reserve currencies such as the US dollar. Each version reflected an attempt to preserve gold’s stability while adapting to changing political and economic conditions. 

How the Gold Standard Worked

The gold standard operated through a simple but powerful mechanism: every unit of currency was a claim on a fixed quantity of gold held by the issuing authority. Central banks or treasuries maintained gold reserves to back that commitment. When a country ran a trade surplus, gold flowed in; when it ran a deficit, gold flowed out. These movements automatically regulated domestic money supplies and prices. 

This dynamic was captured in the price-specie flow mechanism, first described by the nineteenth-century economist David Hume. If a nation imported more than it exported, gold left the country to pay for those goods. The resulting contraction of the money supply reduced prices and wages, making exports cheaper and imports dearer until balance was restored. Conversely, gold inflows expanded the money supply and lifted prices, damping exports and stimulating imports. In theory, this automatic adjustment kept the global economy in equilibrium without the need for government manipulation. 

The gold standard’s self-correcting nature was both a discipline and a constraint. Governments could not simply expand credit or pursue inflationary spending without risking a drain of gold reserves. At the same time, this rigidity left little room for active responses to recession, war, or financial panic. 

By the late nineteenth century, the major industrial nations — Britain, Germany, France, Japan, and the United States — had adopted this system. Their currencies were convertible into gold at fixed rates, creating what historians call the classical gold standard (1870s–1914). The resulting predictability underpinned an era of extraordinary growth in trade, capital flows, and industrialization. 

Advantages of the Gold Standard

A number of benefits distinguished the gold standard from later fiat-money systems.

Price Stability 

Because gold production increases only slowly, the total supply of money expands at a slow and generally steady pace. This natural limitation kept long-term inflation low. Over decades, average prices under the classical gold standard remained remarkably stable, especially when compared to the persistent inflation of the fiat-currency era. 

Predictability and Confidence 

The promise that paper money could be converted into gold made currencies credible. Businesses could plan investments and trade agreements without fearing sudden currency devaluations. Fixed exchange rates reduced uncertainty in international commerce and encouraged the flow of capital across borders. 

Fiscal and Monetary Discipline 

Linking money creation to gold restrained governments from overspending or financing deficits by printing currency. Monetary policy was effectively automatic: a nation could not expand its money supply unless it acquired more gold. For this reason, advocates view the gold standard as a guardrail against political manipulation of money and a deterrent to reckless borrowing. 

Promotion of International Trade 

A universal gold anchor simplified exchange and reduced transaction costs. With stable exchange rates, traders and investors faced fewer risks, and international settlements could be made in a currency recognized everywhere. 

Protection Against Manipulation 

Unlike modern systems, in which central banks can devalue currencies or engage in “quantitative easing,” the gold standard made competitive devaluations and “currency wars” far more difficult. Its rules constrained the temptation to seek economic advantage through monetary distortion. 

Encouragement of Saving and Investment 

Stable prices preserved the purchasing power of money, fostering an environment in which long-term planning, capital accumulation, and thrift were rewarded. Investors could rely on real returns rather than on nominal gains eroded by inflation.

To the gold standard’s defenders, these traits explain why the classical gold standard coincided with rapid industrialization, robust trade expansion, and rising living standards across much of the world. 

Alleged Disadvantages of the Gold Standard: A Balanced Examination

Critics of the gold standard see those same features — discipline and rigidity — as liabilities. But many alleged flaws reflect implementation failures or modern misinterpretations, rather than inherent defects. 

Inflexibility and Limited Policy Response 

Opponents argue that tying money to gold prevents governments and central banks from acting decisively during crises. Under the gold standard, expanding the money supply or lowering interest rates risked losing gold reserves. Supporters counter that this discipline prevented the political misuse of money and forced governments to confront fiscal realities instead of masking them with currency inflation. 

Deflationary Tendencies 

Because gold supplies grow slowly, economies under the standard could face mild deflation during periods of rapid productivity growth. Critics warn that falling prices increase debt burdens and discourage investment. Much of this “deflation,” however, was of the benign kind — reflecting efficiency gains rather than collapsing demand — and often coincided with strong economic growth. 

Vulnerability to Gold Supply Shocks 

The discovery of new gold deposits could modestly increase money supplies, while scarcity could constrain growth. Still, such changes were gradual and predictable (about one percent per year) compared with the abrupt inflationary shocks that fiat regimes can unleash through policy error or political expediency. 

Constraints on Growth 

Some economists claim that a gold-based system limits credit creation. Historically, however, banking systems developed fractional-reserve practices that allowed credit to expand well beyond physical gold holdings, so long as public confidence remained intact. The industrial revolutions of Britain, Germany, and the United States unfolded entirely under gold-linked regimes. 

Difficult International Coordination 

The interwar period demonstrated how uneven adherence to gold rules could destabilize the system. Yet the problem lay in inconsistent policies — overvalued currencies, protectionist trade barriers, and poor coordination — rather than in gold itself. 

Exposure to Crises 

Some have claimed that the gold standard worsened bank runs by restricting emergency liquidity. But under the classical system, private clearinghouses often filled that role effectively by issuing temporary certificates and policing member banks. Such crises also occur under fiat systems; their frequency since 1971 suggests that discretion is no panacea. 

Historical Instability 

The Great Depression is often cited as proof that the gold standard was fatally flawed. In fact, many economists — including Barry Eichengreen and Milton Friedman — acknowledge that poor policy choices, such as Britain’s overvalued return to pre-war parity and the Federal Reserve’s inaction in 1931-33, deepened the downturn. Nations that left gold earlier — like Britain in 1931 — recovered faster than those that clung rigidly to it. The failure was less about gold itself than about governments’ unwillingness to adapt intelligently. 

In short, while the gold standard imposed constraints, many of its supposed defects stemmed from mismanagement or misunderstanding. Every monetary system involves trade-offs; gold’s discipline may appear harsh, but it also forestalled the chronic inflation and debt accumulation that define modern economies. 

Rise of the Gold Standard

Gold has served as money for millennia because of its scarcity, divisibility, and durability. Ancient civilizations used gold coins as units of account and stores of value, but the formal linkage between gold and national currencies developed gradually with the rise of modern banking.

In early modern Europe, goldsmiths issued paper receipts for stored metal, which began circulating as money. The realization that not all depositors redeemed their gold simultaneously led to fractional-reserve banking — a key innovation that allowed credit expansion beyond physical reserves. 

Britain was the first major nation to codify a gold standard, officially adopting it in 1821 after years of wartime inflation. Its global influence ensured that others followed: Germany in 1871, the United States in 1879, France and Japan soon thereafter. By the 1870s, the classical gold standard had become the backbone of international finance. Currencies were freely convertible into gold, exchange rates were fixed, and trade imbalances were corrected through automatic gold flows. 

This system coincided with rapid globalization. Capital moved freely, shipping and communication costs fell, and international investment flourished. The gold standard’s credibility helped unify the world economy in a way unmatched until late in the twentieth century. 

Collapse of the Gold Standard

The end of the gold standard came not from economic theory, but from the pressures of war, depression, and political expedience. 

World War I (1914) 

The classical gold standard’s first collapse came when belligerent nations suspended convertibility to finance massive military spending. Paper money flooded economies, and inflation followed. By the war’s end, the system was in tatters. 

The Interwar Gold Exchange (or “Managed”) Standard (1919–1933) 

After the war, several nations tried to restore the pre-war order. Britain returned to gold in 1925 at its old parity, overvaluing the pound and triggering deflation. Other countries followed with similar missteps, attempting to maintain gold convertibility without the fiscal discipline that had once supported it. The result was a fragile and uncoordinated system that collapsed under the strain of the Great Depression. Britain abandoned gold in 1931; the United States followed in 1933 for domestic use, though it maintained limited international convertibility. 

The Bretton Woods System (1944–1971) 

In the wake of World War II, nations sought a more flexible gold-based order. The Bretton Woods agreement pegged other currencies to the US dollar, while the dollar itself was convertible into gold at $35 per ounce. For two decades, the system promoted stability and growth. Yet in its success were the seeds of its downfall. As global trade expanded, the supply of dollars grew far faster than US gold reserves. Massive spending on the military in Vietnam and on expansive social programs at home fueled deficits and inflation. Confidence in the dollar waned. 

In August 1971, President Richard Nixon suspended the dollar’s convertibility into gold — a moment known as the Nixon Shock. Within two years, the world’s major economies had shifted to floating exchange rates. By 1973, the gold standard, in all its forms, had come to an end. 

Conclusion

The gold standard shaped global economic history for nearly two centuries. It imposed a clear, transparent rule linking money to a tangible asset, thereby restraining inflation and curbing political manipulation. That very discipline, however, proved incompatible with the fiscal demands of modern warfare, welfare states, and activist monetary policy. 

The shift to fiat money systems brought flexibility to spend more but also chronic inflation, recurring financial crises, and rising public debt. Today, few economists advocate a full return to gold, recognizing that the scale and complexity of global finance make it impractical. But the gold standard remains a touchstone in debates over monetary integrity, symbolizing a time when money was anchored in something real — and when the value of currency depended less on trust in the discretion of governments than on the weight of a metal measured in ounces. 

Even if the world never returns to a gold-based system, understanding how it worked — and why it failed — offers enduring lessons. Stability and discipline come at a cost, but so does the freedom to create money without constraint. The long arc of monetary history suggests that neither extreme provides a permanent answer, yet the gold standard endures as a benchmark against which every modern experiment is, in some sense, still judged.

References

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Bordo, M. D. (1981). The classical gold standard: Some lessons for today. Federal Reserve Bank of St. Louis Review, 63(5), 2–17. 

Eichengreen, B. (1996). Globalizing Capital: A History of the International Monetary System (2nd ed.). Princeton University Press. 

Eichengreen, B., & Sachs, J. (1985). Exchange rates and economic recovery in the 1930s. Journal of Economic History, 45(4), 925–946. 

Friedman, M., & Schwartz, A. J. (1963). A Monetary History of the United States, 1867–1960. Princeton University Press. 

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