President Donald Trump’s trade war is premised on the belief that U.S. trade partners will acquiesce to higher tariffs, while lowering their own barriers, in order to maintain the benefits of access to the U.S. market.
So far, that logic has been borne out. With the exception of China, most states have either shrugged off the higher levies imposed on their exports to the U.S. or, in the case of a handful, made concessions to negotiate a lower rate than initially threatened. They have done this because the “deals” are in fact more like dueling press releases than legally binding long-term agreements, and because they know that U.S. importers and consumers will ultimately bear at least some or maybe most of the costs.
But as Trump’s threats escalate and tariffs begin to cost other countries more than just political capital, U.S. trade partners might respond to his coercive approach to negotiations not with higher tariffs of their own, but by retaliating where the U.S. is uniquely vulnerable: the knowledge economy.