Much as Trump might want America to go it alone behind high tariff walls, the fact of the matter is that the US economy is highly integrated in the world economy. As such, if Trump’s high tariff policy has the effect of tipping the European and Chinese economies into recession and of inviting trade retaliation, those economies troubles might come back to adversely impact both our economy and our financial markets. That could cause serious political trouble for Trump in the 2026 mid-term Congressional election.

One indication of how integrated we are with the rest of the world economy is the fact that exports currently constitute around 11 percent of our economy and a multiple of that number in the agricultural, aerospace, and pharmaceutical industries. Any marked slowing in the global economy or the resort by our foreign trade partners to retaliatory tariffs would be sorely felt in those industries.

Other indications of how interlinked we are with the rest of the world’s economy are the high percentage of the total earnings that our companies derive from abroad and the massive exposure of our financial system to foreign lending. It is estimated that foreign revenues comprise almost 30 percent of the S&P 500’s total revenues. Meanwhile, our banking system has literally trillions of dollars of foreign loans on its books. One only has to recall the shockwaves that the Asian, Russian, and the Eurozone economic crises caused to our financial system to recognize the importance of a healthy world economy for our banking system.

As we were painfully reminded during the 2020 Covid-19 pandemic, our economy is deeply intertwined with the global supply chain. We rely on imports of key raw materials like rare earth metals for electronics, renewable energy, and defense technologies. In addition, many consumer products, including automobiles, depend on components coming from abroad. This makes our economy highly vulnerable to retaliation by our trade partners in general and China in particular should they choose to withhold key materials or components needed for our production process.

[I]n 1999, when those protestors violently railed against globalization in Seattle, the value of global trade in merchandise was just over $5 trillion dollars. That was on a global GDP of about $30 trillion so trade was about one-sixth of that. In 2023, trade in merchandise was about $24 trillion on a global GDP of just over $100 trillion, making trade about a quarter that. Trade in services, which is hard to measure, is another $6-7 trillion at least, whereas in 1999, services trade was much more modest. While trade has dipped slightly in the past two years, it is now a far greater share of global economic activity than ever before.

Trade patterns are also morphing. It is no longer resource-rich countries selling oil, minerals, and commodities to the developed nations of the West and East Asia. It is now everyone selling something to everyone and everyone buying stuff from everywhere. The arrows used to be simple, with the developed world sending raw materials and the industrial powerhouses, and the U.S. most of all, selling finished goods to the world. Now the lines go from Africa to Asia, from Asia to Latin America, from Latin America to Africa, and Africa to Europe, and Europe to the United States, and the United States to everywhere. Hundreds of lines now link nations, peoples, and companies in unprecedented ways.

In the process of that explosion of commerce, the world became vastly richer, and average incomes across the world rose from about $5000 per person to about $17,000 per person in constant dollars (meaning inflation-adjusted). That tripling of income is directly correlated to trade, and hence to the very neoliberalism currently derided.