Until recently, American trade policy had been anchored in a particular vision of the nation’s role in the world: as the stabilizer of the global economic system. Since the end of the Second World War, this role was grounded in both ideology and strategic necessity. The thinking for almost eighty years was simple: if the United States provided open markets, supported free trade, and underwrote the institutions that kept the global economy functioning, the whole system would remain stable, and that stability would serve U.S. interests over the long term.

But Donald Trump returned to the White House with different ideas about America’s role in the world. And to understand how far things have shifted, it’s worth taking a moment to revisit the intellectual foundation of U.S. postwar trade policy: Hegemonic Stability Theory.

In international political economy, this theory argues that the global trading system is most stable—and most prosperous—when it is led by a single, dominant power willing and able to enforce rules, provide public goods, and absorb certain costs to maintain order.

Historically, the hegemon’s contributions take several forms:

• Security Provision– Maintaining a military umbrella under which allies and trading partners can operate without fear of major conflict. In the U.S. case, this meant NATO, security guarantees in Asia, and freedom of navigation for global shipping lanes.
• Market Openness– Keeping the hegemon’s own market relatively open to imports, even when short‑term domestic interests might argue for protectionism. The U.S. played this role through successive rounds of GATT and WTO negotiations.
• Rule-Making and Institution-Building– Creating and enforcing the rules of the game through institutions like the IMF, World Bank, and the GATT/WTO.
• Crisis Management– Acting as a lender of last resort in financial crises and as a coordinator of collective responses to global disruptions.

The hegemon’s motivation is not purely altruistic. Stability in the system enhances its own economic and security interests. Open markets abroad create opportunities for exports and investment; predictable rules reduce transaction costs; and a stable system reduces the likelihood of wars that could disrupt trade.

From 1945 through the early 21st century, the United States largely accepted this role. Yes, there were periods of protectionism and moments of tension with allies, but the overall thrust of U.S. policy was to keep the system open, predictable, and rules‑based—even if that meant absorbing costs in the short term.

From stabilizer to economic prizefighter

President Trump has decisively rejected that stabilizer role. Instead, the United States is now acting as an economic prizefighter—throwing punches, feinting, intimidating opponents, and demanding concessions before agreeing to anything resembling “peace” in trade relations.

The shift is rooted in three factors:

1. The U.S. economy’s relative strength — Since the pandemic, our economy has recovered faster than almost every other advanced economy. GDP growth has been impressive, unemployment—at least until recently—has been historically low, and the dollar remains the world’s safe-haven currency.
2. A worldview that sees trade as a zero-sum game — The administration is operating from a mercantilist and nationalist playbook: what’s good for the United States must come directly at someone else’s expense.
3. Political alignment with “America First” — This is not just campaign rhetoric. It is now the core operating principle of U.S. trade policy.

Brinkmanship as strategy

At the heart of the second Trump administration’s trade policy is a deliberate, calculated use of brinkmanship—a negotiation tactic in which one party pushes a situation to the edge of disaster to force the other side to concede.

In diplomacy, brinkmanship is often associated with nuclear crises, military standoffs, or high-stakes summits. In Trump’s trade policy, the same principle is applied to the global economy. The administration is signaling, repeatedly and unmistakably, that it is willing to risk severe economic dislocation—both domestically and internationally—to achieve favorable outcomes for the United States.

This approach rests on three operational pillars:

1. Threatening the Collapse of Trade Relationships: The administration has made it clear that no agreement is sacred. Even cornerstone trade frameworks like the USMCA and CAFTA are not immune. By openly questioning their value, threatening withdrawal, or imposing punitive tariffs within their scope, Trump creates uncertainty that puts partners on the defensive. These threats are not empty posturing; they are backed by a record of following through when challenged.
2. Risking Recession at Home and Abroad: Conventional U.S. trade policy since the postwar era has sought to avoid triggering recessions, understanding that global downturns damage not only American interests but also the stability of the broader system. In stark contrast, Trump has shown a willingness to gamble that short-term pain will be outweighed by long-term gains. The implicit message to partners is: We can take the hit. Can you?
3. Accepting—and Even Weaponizing—Market Volatility: The administration views stock market swings not as a measure of economic health but as leverage in negotiation. Sudden tariff announcements, unpredictable reversals, and aggressive rhetoric often trigger sharp market drops, erasing billions in value in a matter of hours. Rather than trying to reassure investors, the White House treats this volatility as a demonstration of resolve—proof that it is prepared to endure, and inflict, economic discomfort to secure better terms.

Brinksmanship in trade negotiations works because it shifts the psychological burden onto the other side. Most governments, and indeed most private sectors, are risk-averse when it comes to economic disruption. By making clear that Washington is prepared to go further, faster, and with less concern for collateral damage, Trump changes the default assumption of trade talks. Partners no longer assume that “failure to reach a deal” is unthinkable for the United States; they now must reckon with the possibility that it is an acceptable, even intentional, outcome.

This tactic is amplified by the asymmetries in global economic dependence. Many U.S. trading partners are far more reliant on the American market than the U.S. is on theirs. When brinkmanship raises the stakes to the point of economic pain, the side with more to lose tends to blink first.

Historical parallels

While Trump’s style is uniquely his own, his brinkmanship strategy draws on precedents in U.S. foreign policy:

• Nixon’s “Madman Theory”– President Richard Nixon encouraged adversaries to believe he might act irrationally, making his threats more credible. Trump’s unpredictable tariff announcements and sudden reversals create similar uncertainty, forcing other governments to prepare for worst-case scenarios.
• Reagan’s Trade Pressure on Japan– In the 1980s, Ronald Reagan used the threat of tariffs and import quotas to force Japan into “voluntary” export restraints on cars and semiconductors. While Reagan’s style was more polished, the willingness to leverage U.S. market power against a close ally bears striking resemblance to Trump’s pressure campaigns.
• Cold War Brinkmanship– The Cuban Missile Crisis exemplified the art of pushing an adversary to the edge to extract concessions. While the stakes then were nuclear, the logic today in trade—create a credible threat, hold firm, and make the other side believe you’re ready to endure the consequences—is fundamentally the same.

The difference today is that in trade, brinkmanship is not a one-time gambit—it’s a recurring tool. Trump deploys it repeatedly, normalizing a level of uncertainty that would have been unthinkable for past administrations. And while effective in extracting concessions in the short term, this strategy carries significant risks:

• Escalation Beyond Control– Once markets or supply chains are destabilized, recovery can take far longer than anticipated, especially if other actors retaliate or lose faith in U.S. commitments.
• Reputation Costs– Constant brinkmanship erodes trust, making allies less likely to invest in long-term cooperation with the United States.
• Domestic Political Fallout– Economic pain is a blunt instrument. While it may pressure foreign leaders, it also impacts U.S. farmers, manufacturers, and consumers—creating domestic opposition that can undermine the administration’s leverage.

In sum, Trump’s brinkmanship is not a side tactic—it is the core operating method of his trade policy. It reflects a worldview that prizes short-term, tangible wins over the maintenance of predictable, long-term frameworks. Whether this approach will ultimately enhance U.S. economic power or erode it will depend on how many times Washington can bring partners to the brink without pushing the global economy over the edge.

As things stand, we are seeing a pattern across the globe: America’s trade partners grumble, issue statements, perhaps retaliate in small ways—but in the end, they come to the table for three core reasons:

1. Fear of Retaliation – Tariffs can be announced and implemented in a matter of days. The U.S. can target politically sensitive sectors—steel in Canada, autos in Japan, wine in Europe—and create immediate political pain for foreign leaders.
2. Economic Dependence – The U.S. market remains indispensable. For many countries, losing even a fraction of their U.S. export market would trigger job losses and GDP contractions they cannot afford.
3. Security Dependence – Many of these same countries rely on the U.S. security umbrella, whether through NATO or bilateral alliances. They may dislike Trump’s tactics, but they know they cannot jeopardize the defense relationship.

But while much of Trump’s brinkmanship has been directed at allies, China remains the central target of his trade strategy. The administration’s approach toward Beijing is built on tariffs, export controls, and investment restrictions, all timed to exploit China’s current economic vulnerabilities—sluggish growth, a real estate crisis, and declining foreign investment. The goal appears to be forcing a “grand bargain” that would rebalance trade terms in America’s favor.

Trump’s goal appears to be nothing less than a grand bargain with China—one that addresses not only the trade deficit but also intellectual property theft, technology transfer, and perhaps even Beijing’s industrial policy. By applying pressure when China is economically fragile, Trump hopes to secure terms that would have been unattainable five years ago.

Yet China is not without leverage. One of its most potent tools is its dominance in the supply and processing of critical minerals, including rare earth elements essential for advanced manufacturing, defense systems, and clean energy technologies. Beijing has already demonstrated its willingness to weaponize this advantage, imposing export restrictions on gallium and germanium in 2023. Additional restrictions—particularly on rare earths, graphite, or battery metals—could disrupt U.S. industries, from electric vehicles to aerospace, and potentially inflict economic pain comparable to that of American tariffs.

This gives China a credible capacity to retaliate, and it complicates Washington’s calculations. Trump’s readiness to escalate confrontations must be weighed against the possibility of targeted, asymmetric Chinese countermeasures that exploit U.S. supply chain vulnerabilities.

At the same time, Beijing sees an opportunity to advance its international economic diplomacy. In the absence of consistent U.S. leadership on global trade governance, China can present itself as a more predictable partner to developing economies and middle powers. Through forums like the Belt and Road Initiative, BRICS, and new trade arrangements in Asia, Africa, and Latin America, Beijing can deepen its role as a rule-setter and financier in the international system.

If Trump’s brinkmanship alienates traditional U.S. allies and fragments trade coalitions, China could use that opening to build an alternative economic network—one where American influence is diminished, and Chinese preferences define the rules of the game.

Whatever happens with China, Trump’s divide-and-conquer approach is straight out of the negotiation playbook: prevent your opponents from forming a coalition, and they will undercut one another to get to the table.

We’ve seen the UK, Japan, and Vietnam rush to negotiate their own deals with Washington. The EU and South Korea are now following suit. Instead of forming a unified bloc to push back against Trump’s tariffs, these countries are competing to secure the best possible terms for themselves—often at each other’s expense.

Looking forward, one thing is already clear: the United States is setting a new baseline for tariffs. A 15 per cent across-the-board rate is becoming the standard, with higher rates—often 25 per cent, 35 per cent, or more—on politically sensitive goods like steel, aluminum, and certain agricultural products.

This is a structural change in U.S. trade policy. It is not about temporary punitive measures—it’s about establishing a new default.

The biggest question mark right now is the fate of the USMCA. Canada is already facing a 35 per cent tariff on non-USMCA-eligible goods, while Mexico is at 25 per cent, and officials there are bracing for the possibility of a jump to 35 per cent. All of this is happening just months before the six-year review of the agreement.

This raises a critical question: Will the pressure bring Canada and Mexico together to negotiate as a united front, or will Trump’s tactics fracture the trilateral framework and push each country into bilateral deals? The answer will have major consequences for North American supply chains, especially in autos, agriculture, and energy.

Emerging economic costs

Until recently, the Trump administration could point to strong growth and low unemployment as evidence that the strategy was working. But the numbers are starting to tell a different story. Job creation has fallen sharply since April, and while the stock market appears remarkably uninterested, not to mention bullish at times, it has experienced major drops as changing tariff plans shake investor confidence. Meanwhile, businesses are delaying capital investments because they don’t know what tariff regime will exist six months from now.

This is the price of brinkmanship: it works—until it doesn’t.

Which brings us to the heart of the matter, and a question that Congress—and America’s allies—must grapple with: Should the United States use its economic power primarily to stabilize the global system, or should it use that power to extract maximum advantage in the short term, even if that undermines the system in the long run?

The second Trump administration has answered this question decisively. It has chosen short-term leverage over long-term stability. It is betting that America’s economic and security dominance allows it to take more risks than any other country.

In the short term, there is evidence that the approach is delivering results: partners are making concessions, China is under pressure, and bilateral deals are being signed. But the long-term risks are serious and include:

• The erosion of trust in the U.S. as a reliable partner.
• The possible collapse of existing trade frameworks.
• The risk that other countries will adopt similar tactics, leading to a more protectionist, unstable world economy.

In many ways, this is the most significant reorientation of U.S. trade policy since the late 1940s. We are witnessing the true end of the postwar stabilizer role and the emergence of a transactional, power-maximizing America.

Whether this will ultimately strengthen U.S. leadership or diminish it will depend on whether the administration—and Congress—can balance the benefits of short-term wins against the costs of long-term instability. The stakes could not be higher, and the clock is ticking with the rest of the world watching—and deciding how to respond.

For more thought leadership on international relations and trade from Duncan Wood, subscribe to his Substack channel, where an earlier version of this article first appeared.