Since returning to the White House, U.S. President Donald Trump has unleashed a whirlwind of policy shifts, territorial claims, and economic threats. In his first few weeks in office, Trump has expressed a desire to bring Canada, Greenland, the Panama Canal, and the Gaza Strip under direct American control. He has also expanded his trade offensive against China to include Canada and Mexico, the United States’ two largest trading partners. In the case of Canada, Trump tied his commercial pressure to the stunning demand that the nation itself go out of existence. “Canada should become our Cherished 51st State. Much lower taxes, and far better military protection for the people of Canada — AND NO TARIFFS!” he wrote on Truth Social. On top of all this, Trump made a dramatic turn against Ukraine, suspending all U.S. aid.
Many commentators have been at once disturbed and baffled by these moves. In January, The Wall Street Journal derided Trump’s threat to impose 25 percent tariffs on Canada and Mexico as the opening salvo of the “The Dumbest Trade War in History.” Yet Trump’s economic coercing and cajoling is not as inexplicable as it seems. Historically, directing economic coercion against allies—rather than adversaries—has been a remarkably successful policy: since the world’s economy integrated during the nineteenth century, tools of economic coercion have frequently become more effective when deployed against diplomatic and economic partners than against hostile states.
During the Cold War, Washington regularly used economic coercion against allies. Previous administrations differed from Trump in tone, but the substance of the threats was often similar: follow U.S. policy priorities or face serious economic damage. Trump is attempting to exploit this underappreciated power in his bid to break up multilateral alliances and craft a new U.S.-led sphere of influence in which Washington enjoys unfettered primacy in its dealings with individual states. Trump has a crude diplomatic manner and deficient strategic foresight. But he has an intuitive grasp of how to use leverage in bilateral negotiations in which his opponent holds a weaker hand. In Trump’s first term, his team learned that the commercial bullying of rival countries is often ineffective but that it can quickly force U.S. allies to submit. Now, he appears to be doubling down on attempts to shore up American power by pushing friendly countries into deeper dependence on the U.S. market and the dollar.
This strategy, however, is only likely to work in bilateral relationships in which the United States is unquestionably economically dominant. As the global economic order moves in a more protectionist, mercantilist, and multipolar direction, it is increasingly uncertain how many countries will fall into this category. The calculus looks different for the United States’ neighbors in North America—or countries deeply dependent on U.S. assistance for their survival, such as Ukraine—than it does for other European and Asian economies. Trump’s efforts to boss around Canada and Mexico may well continue to work, but for the economies of Eurasia, the appeal of alternatives, such as greater interregional exchange and integration into Chinese supply chains, will rise rapidly.
ECONOMIC PRESSURE PARADOX
To understand Trump’s trade offensive, it is helpful to grasp why economic pressure can have such different effects on countries exposed to it. What makes pressure successful is not just the target country’s degree of material interdependence but its expectations and priorities. States that do not expect or desire a better future relationship with the United States are less likely to bow to pressure even when it is severe; they may be prepared to pay considerable economic costs to pursue their strategic goals. Indeed, U.S. economic sanctions have a poor record when it comes to forcing adversaries into political concessions. The web of sanctions that President Joe Biden’s administration coordinated to constrain Russia has thus far not forced a Russian retreat on the battlefield, raised the cost of the war to Moscow to intolerable levels, or compelled Russian President Vladimir Putin to drop his maximalist demands. Nor has the United States’ growing thicket of export controls and sanctions on Chinese firms and technology imports extracted significant concessions from Beijing. To the contrary, these curbs have motivated China to double down on its ambition to achieve technological self-sufficiency—an effort that has yielded notable advances in chips, electric vehicles, fighter jets, renewable energy, and artificial intelligence.
But the response of countries with close economic and security ties to Washington has been quite different. Canada, Mexico, and other allies are more likely to give in to threats and pressure precisely because they prize their deep links with the United States. The paradox of economic pressure is that Washington enjoys a much greater degree of leverage over countries that are invested in a long-term alliance with it.
This vulnerability has long been noted by scholars. The diplomatic historian Paul Schroeder argued 50 years ago that alliances were not just “weapons of power” against opponents but also “tools of management” to coerce unruly allies. Far from being mere congenial partnerships, most nineteenth- and twentieth-century alliances were complex and multipurpose arrangements used by great powers to restrain, control, and influence other purportedly friendly states.
During the Cold War, the United States showed itself to be skilled in wielding economic pressure against allies. In the decades after World War II, the U.S. government did not hesitate to impose serious economic consequences on European imperial states whose policies diverged from its wishes. In 1948, for example, the Truman administration threatened to withdraw Marshall Plan aid from the Netherlands unless the Dutch abandoned their bloody counterinsurgency war against the Indonesian nationalist movement. American diplomats correctly estimated that the Indonesian nationalists could be counted on as allies in the Cold War and did not want the Netherlands to get in the way. Washington’s threat to cut off aid forced the Dutch government to grant Indonesian independence within a year.
Heaping economic pressure on U.S. adversaries often fails, but bullying allies can yield results.
In 1956, strong U.S. economic pressure ended another European colonial expedition: the Suez war. After France, Israel, and the United Kingdom invaded Egypt, the Eisenhower administration made it clear it would no longer economically support Britain’s fragile postwar economy unless it halted its attack. Eisenhower told British Prime Minister Anthony Eden pointedly that “if you don’t get out of Port Said tomorrow, I’ll cause a run on the pound and drive it down to zero.” Eden was in no position to resist and promptly gave way. Similar threats against Paris and Tel Aviv also secured the withdrawal of French and Israeli forces. The Suez crisis was a humiliation for London and marked the end of British imperial ambitions in the Middle East and Asia. Its swift resolution under pressure from Washington demonstrated the economic strength of the United States as a Cold War superpower.
Washington has also leveraged its trade ties and security support for East Asian and western European allies to force them into concessions. In the 1970s, when South Korean President Park Chung-hee pursued a nuclear weapons program, the Ford administration used the threats to freeze U.S. government lending and reconsider its entire security relationship with South Korea to force Seoul to give up these ambitions. In the 1980s, the Reagan administration did not shy away from using the threat of commercial penalties and trade sanctions against Japan, another ally, to prevent the country from flooding the U.S. market with its goods. And more recently, the Obama and Biden administrations used extra-territorial sanctions and export controls to force European and Asian banks and firms into accepting U.S. economic warfare priorities.
The United States is, of course, not alone in exploiting the leverage that close economic and security ties provide. In his 1999 book The Sanctions Paradox: Economic Statecraft and International Relations, the political scientist Daniel Drezner showed how other large economies also benefited from this dynamic. In the 1990s, for instance, Russian President Boris Yeltsin used economic coercion to secure concessions from Central Asian and Caucasian republics that wanted to retain close links to Moscow. But the Kremlin had much less success in getting what it wanted from countries such as Ukraine and the Baltic states that aimed to orient themselves toward the West. The utility of commercial pressure on allies is a general fact of statecraft in the global economy.
TARGETING FRIENDS
During his first term, Trump initially attempted to use economic coercion against adversaries, unleashing “maximum pressure” sanctions against Iran’s and Venezuela’s oil exports. These had a crippling economic effect but produced no political shifts. He passed a major sanctions bill against Iran, North Korea, and Russia in 2017 and initiated the U.S. economic assault on Huawei, ZTE, and other Chinese tech giants. Trump’s open tariff war against China resulted in a trade deal in 2020, but Beijing did not meet its commitments to increase purchases of American goods. Eight years later, Iran, North Korea, and Russia have only drawn closer together and developed more nuclear weapons and enrichment capacity, while Chinese tech firms led by Huawei have grown stronger than ever. Almost everywhere Trump tried economic coercion against adversaries, the results were lackluster or counterproductive.
These failures stand in stark contrast to Trump’s successful pressure on allies during his first term. After tearing up the North American Free Trade Agreement, he replaced it with a new pact that secured some genuine gains for U.S. firms and workers. Then, in 2019, Trump used sanctions to force Turkey, a fellow NATO member, to rein in its proxies fighting U.S.-backed Kurdish forces in Syria and obtain the release of a detained American pastor. The following year, Washington again imposed economic penalties on Turkey for buying Russian S-400 antiaircraft missiles; although no official concession has been made, Turkey seems to have quietly ditched the system.
The apparent lesson here—heaping economic pressure on U.S. adversaries often fails but bullying allies can yield results—seems to animate Trump’s current push to rein in partners who are still tied to the U.S. market. Instead of launching all-out economic warfare, the president has indicated his interest in forging a new nuclear agreement with Iran, rekindling economic ties with Russia, and inking an enlarged trade deal with China, all while putting more coercive pressure on partners dependent on U.S. security assistance and market access.
The size of the U.S. market gives Washington’s commercial threats particular potency with its North American trading partners. The Canadian economy is highly dependent on U.S. demand: three-quarters of all Canadian exports and 98 percent of its oil exports go to its southern neighbor. Mexico has been a great beneficiary of increased Chinese foreign investment, making it an obvious battleground in the new phase of the U.S.-Chinese trade war that now looms. Still, the United States remains Mexico’s largest trading partner, which gives Washington significant leverage.
Likewise, Trump enjoys a strong position in his attempts to convince Denmark to sell Greenland. The small Nordic country is reliant on the U.S. market. In recent years, the popularity of the weight loss drugs Ozempic and Wegovy in the United States has turned their manufacturer, the Danish pharmaceutical company Novo Nordisk, into the most valuable company in the European Union. Novo Nordisk’s annual sales in the U.S. market are now growing at 30 percent annually; its total net sales of $42 billion amount to ten percent of Denmark’s GDP. Such dependence on immense sales to the U.S. market make the Canadians, Mexicans, and Danes alluring targets for economic blackmail.
RISK OF OVERREACH
Yet the conditions that made threats against allies so effective after World War II have changed. On the one hand, the U.S. economy has become less dependent on trade. As the White House underscored in a February factsheet, trade constitutes only 24 percent of U.S. GDP, but it makes up 73 percent of Canadian GDP, 67 percent of Mexican GDP, and 37 percent of Chinese GDP. As a result, trade wars are likely to be less costly for the U.S. economy than they would be for the United States’ partners. The dollar’s role as the premier global reserve and trade currency continues to give Washington a powerful lever of influence over businesses worldwide.
The flipside of this low relative vulnerability, however, is that the United States has less overall commercial influence worldwide than it did in past decades. Other parts of the world are now larger trading zones, offering alternatives to countries who want to avoid being strong-armed by Washington. In the last decade, the United States’ presence in world trade has declined in all areas except tech and fossil fuels. When Trump first entered office in 2017, U.S. exports and imports accounted for roughly 6.5 percent of the world economy. By the beginning of this year, this figure had fallen by one-fifth, to 5.2 percent. In these conditions, there is a significant chance that Trump’s efforts to subordinate America’s partners will backfire by hastening the dissolution of U.S. hegemony.
Over the last eight years, the world economy has thus come to revolve less around the United States. China has become the principal trading partner to more countries in the world. There is more regional trade within the European Union, Latin America, and Southeast Asia. This weaker overall position may be precisely why Trump is seeking to exploit the United States’ advantage where it remains the greatest—with Canada and Mexico, which are uniquely vulnerable. Even large export-driven economies such as China, Germany, Italy, and Japan would lose between three and four percent of their GDP if all exports to the United States ceased overnight. That would be a serious shock but not an insurmountable one. Moreover, if these economies were to conduct a gradual diversion away from the U.S. market over several years, the adjustment would be manageable for them.
For many U.S. allies, a smaller presence in the U.S. market has ceased to be an economically existential threat. As Trump ratchets up the pressure on them, they may eventually decide that the loss of cheap access to North America is not something worth avoiding at any cost. At that point, Trump will have overplayed his hand. Instead of regaining U.S. dominance, there is a significant possibility that his actions will further accelerate the decline of American global influence, both in the economy and in other realms.
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