SFC Correspondent Zheng Qingting, Intern Fan Shuqing in Tianjin
In a recent interview with Southern Finance, Robert B. Koopman, former Chief Economist at the World Trade Organization, cautioned that former President Donald Trump’s trade and economic policies could significantly slow U.S. economic growth. Koopman estimated that tariffs could shave 0.5% to 0.75% off U.S. GDP growth, with indirect effects from reduced investment posing an even greater risk. Despite recent U.S. growth near 3%, he warned that uncertainty from tariffs and geopolitical policies could deter domestic and foreign investment, impacting both the U.S. and global economies.
Koopman highlighted that global trade, while resilient, faces a period of slower growth as supply chains adapt to new trading partners and routes. He noted that the U.S.’s role as a global trade hub may diminish, with long-term damage to its reputation as a reliable trading partner. On reshoring, Koopman acknowledged a potential increase in U.S. manufacturing but emphasized its high costs and limited benefits for economic growth, as it diverts resources from areas of comparative advantage.
SFC Markets and Finance: With Trump’s economic agenda—like tariffs and tax cuts—stirring up debate, how do you see the U.S. economy heading, and what ripple effects might we see globally, especially with figures like Ray Dalio warning about a downturn worse than a recession?
Koopman: Trump’s current trade, domestic economic, and geopolitical policies are likely to result in slower U.S. economic growth. The U.S. economy has been dynamic and innovative over the last 10 to 15 years, except during COVID. However, these policies create uncertainty in both domestic and global markets. Tariffs will raise prices for goods and components used by firms to produce other goods, including exports. Uncertainty about tariff levels and international relationships has led many domestic and foreign companies to pause significant investments in new factories, products, or marketing strategies. This slowdown in investment will likely to have a larger impact on U.S. economic growth than the direct effects of tariffs.
jrhz.infoMy work suggests tariffs may reduce U.S. growth by 0.5% to 0.75%. Globally, the impact might be around 0.1%. With U.S. growth near 3% last year, this isn’t a recession but a slowdown. However, the indirect effects of reduced investment could have a bigger impact than the tariffs themselves. We’ll need to monitor firms’ investment decisions moving forward.
SFC Markets and Finance: Trump’s moves on tariffs are shaking up global supply chains. What do you think the long-term fallout will be for international trade?
Koopman: International trade will likely experience a period of slower growth. The duration depends on how quickly supply chains adapt. Past shocks, like the financial crisis, COVID, or the Russia-Ukraine war, show global trade is remarkably flexible. Negative effects occur, but trade finds new paths, partners, and investment flows. Globalization hasn’t been reversed, but it has slowed or reorganized, with new trading connections forming. Trade eventually recovers, though connections differ. With Trump’s tariffs, we’ll likely see similar reconnections, but trade with the U.S. will decline. The U.S. role as a global trade hub will likely diminish, though it won’t be isolated.
SFC Markets and Finance: What will be the consequences after Trump’s term? Is this a temporary issue, or will it leave long-term scars on global trade?
Koopman: There will be long-term scars from two sources. First, as seen in Trump’s first term, his aggressive, unilateral trade policies were partially retained by the Biden administration. I suspect the next administration will maintain some of these policies, though not all.
Second, the U.S. brand as a trusted trading partner has been damaged. Post-World War II, the U.S. championed a rules-based multilateral trading system, fostering goodwill as a stable, reliable place to invest. Trump’s policies create uncertainty about investment and trade rules, reducing confidence in the U.S. as a predictable partner. Companies and countries will view the U.S. with greater skepticism, wary of policy changes that could threaten their economic activities.
SFC Markets and Finance: Let’s zoom in on global value chains, an area you’ve studied extensively. How is the U.S. doing with its push for onshoring and nearshoring?
Koopman: Trump’s trade policies will likely increase U.S. manufacturing to meet domestic demand, or reshoring. I was skeptical, but the persistence of these tariff policies will likely result in a small increase in the U.S. share of production for domestic consumption. Much of U.S. final demand is already met domestically, through manufacturing or services, as we’re largely a services-based economy.
However, reshoring comes at a high cost,reallocating capital and labor from existing opportunities to new ones where the U.S. lacks comparative advantage. Other countries can produce these goods more cheaply, as demonstrated. While reshoring may increase domestic production, it doesn’t guarantee fast economic growth. Many countries overlook that producing more domestically doesn’t inherently drive growth.
SFC Markets and Finance: The U.S. dollar remains dominant in global finance, but there’s talk of its dominance slipping. What challenges do you see, and how realistic is it that other currencies could step up?
Koopman: Most discussions suggest the U.S. dollar will remain predominant for the next 10 to 20 years, but other currencies will play larger roles, which isn’t necessarily negative. However, a faster transition could occur due to fiscal imbalances in the U.S., where government spending exceeds revenue, leading to large deficits and bond issuance. Many bonds are bought internationally, but if foreign buyers grow skeptical of U.S. debt management—fearing inflation or default—borrowing costs could rise.
Additionally, the U.S. has been a safe investment destination, with demand for dollars tied to trade and investment. Uncertainty about fiscal deficits and the U.S. as a safe investment hub could undermine the dollar’s global role. These are the two major forces I’m watching.
SFC Markets and Finance: Wrapping up, with uncertainties from U.S. policies, WTO struggles, and geopolitical flare-ups, what’s your take on building a fair and stable global trade system over the next decade?
Koopman:Two forces are at play. First, the economic force of comparative advantage is hard for governments to resist. Second, coordination and cooperation in setting rules are crucial. We may experience a period of disruption, but the difficulty of sustaining policies against comparative advantage, combined with the positive forces of cooperation and coordination around solving global challenges, are likely to bring us back at some point to a conversation that results in a successful reform of multilateral trading rules.
Chief Producer: Zhao Haijian
Supervising Producer: Shi Shi
Editor: Li Yinong
Reporter: Zheng Qingting, Intern Fan Shuqing, Yang Yulai
Videographer: Zheng Qingting
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Produced by: Southern Finance Omnimedia Group
