{
  "title": "Rethinking Free Trade",
  "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2026/06/point-of-view-rethinking-free-trade-kim-ruhl",
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  "summary": "US policymakers are rebalancing economic efficiency with national security amid rising geopolitical risk",
  "sections": [
    {
      "heading": "Overview",
      "content": "- 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.\n- 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.\n- 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."
    },
    {
      "heading": "Drivers of the reassessment of free trade",
      "content": "- Supply-chain fragility revealed by recent events:\n  - COVID-19 made clear that critical goods—pharmaceuticals, semiconductors, medical supplies—came from a handful of countries.\n  - A Deloitte survey found that only 15 percent of chief procurement officers could see the risks beyond their direct suppliers.\n- Energy dependence and geopolitical leverage:\n  - In 2022 Russia accounted for 27 percent of EU oil imports and 45 percent of gas imports, according to the European Commission.\n  - By 2025, Russia accounted for 3 percent of oil and 13 percent of gas imports.\n  - The Commission estimates higher energy bills cut incomes by about €1,000 per person in 2021–22.\n- Export controls and strategic bottlenecks:\n  - 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.\n  - Six months later, China threatened to expand the scope and scale of its export controls."
    },
    {
      "heading": "US policy response and strategic aims",
      "content": "- 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.\n- 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.\n- 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."
    },
    {
      "heading": "Analytical needs and economic tools",
      "content": "- Required frameworks and questions for policymakers:\n  - Does a policy build leverage for the US or vulnerability?\n  - Which goods should be controlled for national security reasons while avoiding unnecessary protectionism?\n  - Which goods must be sourced domestically, and which can be imported from allies?\n  - How can a domestic industry be restarted as efficiently as possible?\n  - How to identify trade-offs between economic efficiency and strategic objectives?\n- Relevant policy instruments (beyond tariffs and sanctions):\n  - Price floors, stockpiles, export restrictions, investment agreements.\n  - Tax policy, industrial policy, and regulatory infrastructure as instruments of economic statecraft.\n- Role of economists and research:\n  - Economists already possess many analytical tools; more engagement with geoeconomic topics is needed.\n  - Conferences and academic policy circles (The National Bureau of Economic Research and the American Economic Association) increasingly feature geoeconomic sessions.\n  - Economic research tends to lag large events but can catch up quickly to inform policy."
    },
    {
      "heading": "Short-term costs and long-term transition",
      "content": "- Transition characteristics:\n  - Redirecting supply chains and relocating production across countries will take decades.\n  - Short-term consequences may include price increases, scarcity of some goods, and costly investments.\n  - Political economy constraint: US democratic turnover can impede long-term commitment when short-term costs accumulate.\n- 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."
    },
    {
      "heading": "Policy implications and guardrails",
      "content": "- Minimize unnecessary costs:\n  - Aim to ensure that resilience measures do not become crude protectionism enacted in the guise of national security.\n- Analytical emphasis:\n  - Develop tools that clearly identify trade-offs and unintended consequences.\n  - Study deliberate nonmarket forces—strategic state direction, subsidies, financial repression, protectionism, regulatory arbitrage—as these distort production and consumption.\n- Strategic breadth:\n  - Geoeconomics extends beyond trade to include control of international payment networks, critical minerals, and future-defining technologies such as AI, quantum computing, and biotech.\n  - Nonaligned countries are creating alternative payment networks and insulation from potential loss of access to the US-led financial system.\n\nSource: Rethinking Free Trade, F&D Magazine, KIM RUHL, June 2026.\n\n---\n\n Content in this bundle\n\n- Rethinking Free Trade\n  - Rethinking Free Trade (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Rethinking Free Trade (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2026/06/point-of-view-rethinking-free-trade-kim-ruhl"
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    "Authors: KIM RUHL",
    "Published: June 2, 2026",
    "DOI: https://doi.org/10.21950/BBZVBN",
    "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:",
    "Energy dependence and geopolitical leverage:",
    "Export controls and strategic bottlenecks:",
    "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:",
    "Relevant policy instruments (beyond tariffs and sanctions):",
    "Role of economists and research:",
    "Transition characteristics:",
    "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:",
    "Analytical emphasis:",
    "Strategic breadth:",
    "**Rethinking Free Trade**"
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