Rethinking Free Trade

Source details

Author: KIM RUHL; June 2026. KIM RUHL is the Curt and Sue Culver Chair of Economics at the University of Wisconsin–Madison and was a member of the White House Council of Economic Advisers from February 2025 until February 2026.
Core thesis: US policymakers are rebalancing economic efficiency with national security amid rising geopolitical risk; resilient economies require access to critical inputs and the ability to ramp up production in crises.
Historical context: World trade tripled as a share of GDP between 1950 and its peak in 2008, with about half of this trade in intermediate goods.

Supply-chain fragility revealed by recent events:
- COVID-19 made clear that critical goods—pharmaceuticals, semiconductors, medical supplies—came from a handful of countries.
- A Deloitte survey found that only 15 percent of chief procurement officers could see the risks beyond their direct suppliers.
Energy dependence and geopolitical leverage:
- In 2022 Russia accounted for 27 percent of EU oil imports and 45 percent of gas imports, according to the European Commission.
- By 2025, Russia accounted for 3 percent of oil and 13 percent of gas imports.
- The Commission estimates higher energy bills cut incomes by about €1,000 per person in 2021–22.
Export controls and strategic bottlenecks:
- Chinese export licensing controls imposed in April 2025 led to a shortage of rare earths and derivatives that threatened production lines in the US and elsewhere.
- Six months later, China threatened to expand the scope and scale of its export controls.

Policy direction: The US administration is working to de-risk supply chains and build domestic capacity in key industries to enhance economic resilience, modifying the previous policy of near unconditional openness.
Strategic objective: Ensure reliable access to medicines, microchips, critical minerals, and other vital inputs, and the ability to rapidly increase production in response to emergencies.
Acknowledged cost: These resilience-building measures will, in some cases, reduce economic efficiency relative to ignoring geopolitical risk; such reductions are framed as necessary costs.

Required frameworks and questions for policymakers:
- Does a policy build leverage for the US or vulnerability?
- Which goods should be controlled for national security reasons while avoiding unnecessary protectionism?
- Which goods must be sourced domestically, and which can be imported from allies?
- How can a domestic industry be restarted as efficiently as possible?
- How to identify trade-offs between economic efficiency and strategic objectives?
Relevant policy instruments (beyond tariffs and sanctions):
- Price floors, stockpiles, export restrictions, investment agreements.
- Tax policy, industrial policy, and regulatory infrastructure as instruments of economic statecraft.
Role of economists and research:
- Economists already possess many analytical tools; more engagement with geoeconomic topics is needed.
- Conferences and academic policy circles (The National Bureau of Economic Research and the American Economic Association) increasingly feature geoeconomic sessions.
- Economic research tends to lag large events but can catch up quickly to inform policy.

Transition characteristics:
- Redirecting supply chains and relocating production across countries will take decades.
- Short-term consequences may include price increases, scarcity of some goods, and costly investments.
- Political economy constraint: US democratic turnover can impede long-term commitment when short-term costs accumulate.
Preserved principle: Free trade in well-functioning markets remains the ideal and should be pursued wherever possible, particularly with allies; the change is a reappraisal, not a repudiation, of comparative advantage.

Minimize unnecessary costs:
- Aim to ensure that resilience measures do not become crude protectionism enacted in the guise of national security.
Analytical emphasis:
- Develop tools that clearly identify trade-offs and unintended consequences.
- Study deliberate nonmarket forces—strategic state direction, subsidies, financial repression, protectionism, regulatory arbitrage—as these distort production and consumption.
Strategic breadth:
- Geoeconomics extends beyond trade to include control of international payment networks, critical minerals, and future-defining technologies such as AI, quantum computing, and biotech.
- Nonaligned countries are creating alternative payment networks and insulation from potential loss of access to the US-led financial system.

Source: Rethinking Free Trade, F&D Magazine, KIM RUHL, June 2026.

Rethinking Free Trade
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