The art of a trade deal

On April 15, 1994, in Marrakesh, Morocco, trade ministers from 123 countries concluded the last major round of global trade negotiations, establishing the World Trade Organization — the first of its kind. They declared that the new agreement "will strengthen the world economy and lead to more trade, investment, employment and income growth throughout the world."

That vision, however, never fully materialized. Over the next three decades, trade and investment surged, but the promised broad-based gains in jobs and income remained elusive. In many regions, globalization brought not prosperity but unemployment, wage stagnation, and industrial hollowing out. A key driver of this imbalance was the rise of China’s state capitalism — a system that fused the coercive power of the state with market tools to siphon off capital and jobs from the West while flooding the world with underpriced exports, distorting markets and corroding trust in the global trading system. For example, Autor, Dorn, and Hanson estimated in their 2016 "China Shock" paper that increased Chinese import competition following China’s WTO accession displaced approximately 2 to 2.4 million US manufacturing jobs between 1999 and 2011, particularly in industries like textiles, furniture, and electronics, with the Rust Belt and the Southeast hit hardest. This massive offshoring of American manufacturing didn’t take place by itself; American multinational companies provided all the requisite foreign direct investment into China including the transfer of intellectual property, management training, and access to well-developed sales distribution channels to help it happen.

The pressing questions now are: what should these reciprocal tariff agreements (RTAs) encompass? And how can the United States possibly negotiate such complex agreements with every trading partner in the world in just 90 days?

What’s in the deal?

By announcing, and then temporarily pausing, universal tariffs on all countries on Liberation Day, Trump effectively reset the global trade agenda, initiating the largest round of trade negotiations since the launch of the Doha Round in 2001. While the tariffs were widely criticized until the pause, as I noted earlier, the key objective was not the tariffs or the methodology, but the creation of leverage to compel every country to negotiate new bilateral trade deals with the United States which would be more mutually beneficial.

Unlike traditional trade agreements, which often focus narrowly on tariffs, these bilateral agreements can address trade between nations more broadly and are directed toward a better global trading system. To do this well, these RTAs must address three crucial areas: tariffs and related issues, non-tariff barriers (NTBs), and specific provisions to counter China’s economic strategies.

The United States should start with a zero-for-zero tariff offer — an approach first proposed in negotiations with the European Union during the first Trump Administration — which reduces tariffs to zero, provided that trade partners do the same. While few countries aside from Singapore are reportedly ready to eliminate tariffs entirely, talks could converge around the US average pre-Liberation Day tariff rate of 3.4%. This would reduce global tariffs while keeping US concessions minimal, avoiding the need for congressional approval and sidestepping unnecessary political hurdles.

While all NTBs are important, the United States should tailor its priorities based on the type of trading partner. With developed economies like the European Union and Australia, the main concern often lies in overregulation, particularly technical barriers to trade, sanitary measures, and restrictions on data flows such as localization requirements. Such overly restrictive regulations make it difficult for American firms to export a wide range of products — from corn and chicken to automobiles. New digital services taxes and regulations are also specifically designed to target US companies — one of the few sectors where the United States actually runs a surplus (services). In contrast, for developing countries, the focus should shift to improving labor and environmental standards, simplifying import licensing regimes, and enhancing trade facilitation to reduce bureaucratic inefficiencies and corruption at the border. Removing these barriers would reduce red tape and create a more level playing field for American firms, while also preventing a race to the bottom, where countries sidestep labor and environmental standards to gain a trade advantage.

Negotiating such a wide range of NTBs may seem like a daunting task, especially in 90 days, but the good news is that the US doesn’t need to start from scratch. Many of the necessary provisions already exist in trade agreements like the TPP and USMCA, which reflect longstanding American positions on what we expect from our trading partners. For instance, the US can draw from the TPP — even though the US withdrew from it in 2017 — rules on state-owned enterprises to ensure transparency and non-discrimination, and level the playing field by requiring state-owned enterprises to make decisions based on commercial considerations; on adopting and enforcing competition laws; on allowing free cross-border data flows and banning data localization requirements in digital trade; and on transparent, non-discriminatory government procurement with minimum market access commitments. These provisions would eliminate the key trade barriers US firms face in foreign markets and help ensure a fair and competitive environment. Likewise, USMCA offers ready-made language on labor standards, including sector-specific minimum wage provisions to avoid a race to the bottom on workers, and a rapid response mechanism for labor violations — particularly those concerning freedom of association and collective bargaining.

This challenge, however, is far from insurmountable. A combination of existing tools and innovative strategies can be deployed in concert with new RTAs to counter these tactics. The response, working with our allies, should center on two priorities: first, cutting China out of critical global supply chains for security-related products and services; and second, establishing a collective response mechanism to counter China’s use of economic coercion against our trade partners.

Supply chain realignment

One of the most important issues in international trade is determining a product’s "rules of origin" — figuring out where it was made — before deciding which tariff rate applies. This has become increasingly complex due to today’s global supply chains, in which products are often assembled using parts from many different companies across multiple countries. When it comes to supply chains for textiles, the Trans-Pacific Partnership has a rule called the "yarn-forward rule." This rule says that if you want to sell clothes or textiles under the deal’s benefits, the yarn used to make them must come from countries that are part of the TPP. That means materials from countries like China, which isn’t in the deal, can’t be used — making it a way to keep Chinese products out of the supply chain.

This concept can be extended to other sectors characterized by high levels of intra-industry trade, where the products are assembled by parts and components sourced from many different countries — such as electronics (especially mobile phones and computers) and automobiles. While such rules might initially create supply shortages due to gaps in manufacturing capacity at certain stages, the TPP addressed this with a "short-supply list," allowing countries like Vietnam to temporarily source specific inputs from outside the bloc — often including China — when no adequate alternatives existed.

But to do this well, this carrot requires a "stick" to discourage continued reliance on Chinese inputs. One option is a "subtraction" mechanism, an inverse of the above. If Chinese inputs exceed a certain threshold — say 20% — that same percentage would be deducted from the product’s overall RVC. So, a product with an initial RVC of 75% would drop to 55% if it included 20% Chinese content, thereby failing to meet the 60% threshold and losing preferential treatment. This dual approach of reward and penalty would help provide a variety of good-faith approaches to encourage trade partners to shift production away from China, while reinforcing trusted supply chain networks.

In addition, given the difficulty for the United States to unilaterally detect Chinese efforts to infiltrate supply chains in other countries, RTA partners should be required to collaborate in establishing robust systems for supply chain tracing and transshipment monitoring. Failure by a RTA country to implement or enforce such a system — resulting in illegal transshipment from China — could trigger automatic penalty tariffs on that country’s exports to the United States for a fixed duration, with the severity calibrated to the scale and frequency of the violation.

Countering economic coercion

China will not stand idly by. It is likely to leverage its economic clout to pressure countries into rejecting US-led RTAs or refusing to coordinate with Washington. To counter this, a clear mechanism to address China’s economic coercion must be built into the RTA framework.

First, there should be a collective response mechanism. When China targets an RTA member with coercive trade measures, all members should respond in kind — by, for example, jointly raising tariffs on Chinese imports. Any country that fails to participate in the collective response would forfeit preferential tariff treatment in both the United States and all other RTA countries. Conversely, countries that support a fellow member under pressure — for instance, by stepping in to purchase goods China has boycotted — should be rewarded with temporary across-the-board tariff reductions from other RTA members. More broadly, this approach could be expanded to restrict partners’ engagement with China, not only in trade but also in investment and technology. It would build on the "poison pill" clause in the USMCA — which prevents members from signing trade agreements with non-market economies like China — but with broader coverage and more rigorous, concrete provisions.

Second, to address trade diversion, if China attempts to redirect exports to a different RTA country to evade US tariffs, and that country takes a safeguard action, all other RTA countries should be allowed to replicate the safeguard immediately without having to conduct their own investigations. This coordinated safeguard approach would prevent China from playing countries against one another or exploiting procedural delays.

How to get there?

Three months is an extremely compressed timeline for negotiating trade agreements, but the United States should aim to conclude most talks within that window — not only to preempt legal and political challenges to the president’s use of emergency economic powers, but also to outpace China’s ongoing diplomatic campaign to pressure countries into rejecting the US-led effort to ring-fence its economy.

To succeed under such tight constraints, it is neither necessary nor efficient to negotiate with every country individually. Instead, the United States should prioritize fast-track negotiations with a few strategically chosen representative countries from different groups, finalize model agreements with them quickly, and then present these deals to other countries on a take-it-or-leave-it basis.

This classification would allow the United States to tailor its negotiating strategy and prioritize countries that can serve as anchors for broader regional buy-in.

What it could look like with the big guys

Among all the new RTAs to be negotiated, a deal with the European Union is likely to be the most challenging. Tariffs should not be the primary focus, as the EU’s average tariff levels are already quite low — except in agriculture, where meaningful reform would face strong political resistance given the sector’s highly protected status. Regulatory alignment will also be difficult and slow due to the complex and decentralized nature of EU governance. In the short term, the United States should prioritize securing EU cooperation on managing Chinese exports.

This should be feasible, as the EU is concerned that, with the high US tariffs, China will try to divert its exports to the EU. A recent example is the EU-China negotiations on electric vehicles, which is often misunderstood as a sign of solidarity; in reality, it reflects China’s willingness to offer price undertakings to avoid destabilizing the EU market. The United States and EU must coordinate closely on these issues — otherwise, China may exploit transatlantic divisions by redirecting exports between the two markets depending on where tariffs are lower. A key element of any deal with the EU should include provisions that revoke trade benefits for all EU members if a single member state — such as Spain — enters into a separate bilateral trade agreement with China. This would prevent Beijing from exploiting internal divisions within the EU through a "divide and rule" strategy and reinforce the need for a unified transatlantic approach towards China.

China will surely try to counter the RTAs through various initiatives, including attempting to frame these moves as part of an anti-China conspiracy — as seen in Beijing’s fierce reaction to Vice President Vance’s remark that "we borrow money from Chinese peasants to buy things those Chinese peasants manufacture." In response, the United States should communicate clearly to the Chinese people that the objective is not to isolate China, but to challenge the Chinese party-state’s exploitative model. The RTAs are meant to promote decent labor standards, better governance, and long-term prosperity.

Done well, such an approach could bind the United States and the European Union closer together and direct a focus for those nations and the rest of the free world.

[This opinion editorial is republished slightly edited with the author’s agreement from a commentary first published in Commonplace on April 16.]

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