By Peter Debaere and Manuela Achilles
It sometimes pays to look back in time. Albert Hirschman’s National Power and the Structure of Foreign Trade (1945) is once again attracting attention.[1] Written as a series of linked essays, the book provides a strikingly relevant framework for understanding the trade policies of the Trump administration—policies that are disrupting the rules-based GATT/WTO trade regime governing global trade since the end of the Second World War. Hirschman’s analysis was inspired by pre-WWI trade aggression, the instability of the interwar years, and, most centrally, the foreign trade strategy of Nazi Germany. While his economic modeling and empirical analysis are dated, Hirschman’s central insight has stood the test of time:[2] Trade policy can serve as a deliberate instrument of political power even when it runs counter to the economic interests of the country imposing it. In Hirschman’s terms, tariffs and related measures can be wielded strategically to create or exploit international dependency, thereby extending a nation’s political leverage over others.
This article first describes the Trump administration’s trade policies and why they have puzzled economists. It then turns to Hirschman’s concepts—particularly the “influence effect of trade”—to show how a large country can use economic interdependence to pressure its trading partners. We also examine his emphasis on the critical role of bilateralism, his ideas on containing power-hungry states, and the open question as to what ends national power ultimately serves. Irrespective of how the Supreme Court ultimately rules on President Trump’s tariffs, we argue that they demonstrate his administration’s use of trade policy as a strategic tool of power à la Hirschman.[3] While our focus is on the United States, Hirschman’s framework also applies to other large economies, including China, whose trade policies invite a geoeconomic interpretation.[4]
Trump’s Extraordinary Tariffs
On April 2, 2025—his so-called “Liberation Day”—President Trump announced a broad package of unilateral “reciprocal” tariffs: among them 34 percent for China, 20 percent for the EU, and 46 percent for Vietnam. The tariffs were intended, according to the administration, to correct the US trade imbalance with the rest of the world. No country escaped an increased tariff; even those that imported more from the United States than they exported (i.e., those with a bilateral deficit) faced a 10 percent levy. These tariffs followed an initial salvo of 25 percent levies on cars, car parts, and steel and aluminum—including on imports from Canada and Mexico, with which President Trump had already renegotiated a free trade agreement during his first term. An escalating tariff war with China followed, in which, in tit-for-tat fashion, tariffs ratcheted up above 100 percent, effectively halting trade altogether, until a truce brought them back down to much lower levels (for now). Other nations were promised temporary relief from the tariffs (10 percent plus the 25 percent sectoral tariffs) as an incentive to negotiate.
Since then, individual “deals” have been announced with the UK, Japan, the EU, South Korea, and others; those without such “deals” simply received a formal letter from the administration stating what their new rate would be. In August, further tariff schedules were announced. At the time of writing, in August 2025, tariffs on most goods from the UK stand at 10 percent. The EU, Japan, and South Korea face a tariff rate of 15 percent, Laos 40 percent, and Switzerland—unexpectedly—39 percent. Brazil may be looking at 50 percent. These “deals” are closer to framework agreements, lacking the usual (and necessary) details of typical trade agreements.[5] In many respects, these are extraordinary levies. The average tariff on imports from all US trading partners is now in the 15–20 percent range—the highest since the Great Depression. By comparison, average tariffs in advanced economies are below 5 percent, and they are only slightly higher in emerging economies. Most importantly, the tariffs openly disregard the WTO/GATT rules that have governed international trade since the Second World War. They are unilaterally implemented (often without legal rationale or under the pretext of national security or national emergency) and differentiate by trading partner for the same products, violating the principle of non-discrimination and most favored nation (MFN).[6] They defy economic logic and US economic interests.
Economics and US Economic Interest Defying Tariffs
The announced tariffs have left economists puzzled. Their stated rationales—reducing the US trade deficit or reshoring manufacturing—seem intuitive, but as many have pointed out, they defy sound economic analysis (Mitra 2025; Autor and Hanson 2025; Debaere 2025). The United States has run a trade deficit with the rest of the world for decades, importing more than it exports. Former Federal Reserve Chair Ben Bernanke explained in 2005 that tariffs are inadequate to reduce the overall trade deficit, which is driven by macroeconomic factors such as US saving and investment rates. If the Trump administration were serious about reducing the deficit, it would address budget deficits exacerbated by large-scale tax cuts. Yes, tariffs reduce imports. But they also raise domestic prices and hurt the competitiveness of US exports. Because tariffs likely shrink both exports and imports, any improvement in the trade deficit is likely to be marginal.
As for reshoring manufacturing, the United States is first and foremost a service economy (manufacturing accounts for less than 15 percent of GDP) with a comparative advantage in producing skill-intensive products. The idea that Apple could produce the iPhone and all its components domestically at competitive prices is unrealistic. There is also little reason to levy tariffs for the purpose of attracting low-value textile production from countries such as Bangladesh. Even more strikingly, the Trump administration’s industrial focus is backward-looking. Earlier this year in the New York Times, economists David Autor and Gordon Hanson (2025) noted its emphasis on “old” manufacturing instead of future-oriented sectors such as aviation, AI, telecommunications, microprocessors, robotics, nuclear and fusion power, biotech, solar, and battery technologies. Competing in these areas, as China does, requires cohesive industrial policy and close coordination between industry, government, and research, including at universities—not just higher tariffs.
Finally, much of the administration’s ire is directed at China. While the WTO has shortcomings in addressing China’s trade practices, would it not be more effective to join forces with the EU, Japan, and other partners to push for better rules, rather than alienating potential allies and breaking those rules? In sum, the Trump tariffs defy economic reasoning and US economic interests. Making matters worse, the administration has emphasized bilateral trade, seeking to balance exports and imports with individual countries. From a macroeconomic perspective in a multilateral world, this makes little sense. Add to this that the administration’s reciprocal tariff formula is arbitrary at best, applying only to goods and ignoring services. No wonder economist Devashish Mitra titled his recent TIME article “The Chaotic, Fantastical World of Donald Trump’s Tariffs.” This leaves the question: Why impose them? Hirschman’s framework offers an answer.
Trade as an Instrument of Power
Different disciplines—even ones as closely linked as international trade economics and international politics—often fail to cross-pollinate. But for economist Hirschman, the link between politics and economics was personal. Born in Berlin in 1915 to a Jewish family, he left Germany in 1933, fought in the Spanish Civil War, took part in anti-fascist activities in Italy, and, before emigrating to the United States in 1941, helped Jewish refugees escape from France.[7] His National Power and the Structure of Foreign Trade (1945) examines how a power-seeking state can weaponize trade to extend its political influence. The book helps to explain the deeper rationale behind the Trump administration’s bilateral approach. This emerging economic policy is not primarily—if at all—about economics. It is about asserting political power.
Nazi Germany provided Hirschman’s central case study. The interwar years revealed both the ambition and the limits of multilateralism. The League of Nations—the first international organization to unite cultural, technical, economic, political, and military cooperation—never gained universal support. The United States never joined, and in the 1930s Japan, Germany, and Italy withdrew, as belligerent state nationalism intensified in Europe.[8] At the same time, the economic basis of multilateral trade was collapsing. Pre-WWI free trade gave way to protectionism, the Great Depression, and the breakdown of international lending. From the 1930s onward, bilateralism—centered on balancing the mutual value of trade between pairs of countries—increasingly replaced multilateral exchange.[9] Redirecting its trade toward smaller or poorer nations, Germany built a system of bilateral trade agreements with eastern European and Latin American nations.[10] With the support of IG Farben, Bosch, and heavy industry, and while shielding domestic farmers, the Nazis locked weaker economies into asymmetric relationships.[11]
Beyond preferential tariffs, Germany in the 1930s relied on a wide range of tools: bilateral clearing agreements, currency controls, quotas, and, in some cases, the promise of agricultural and raw material imports above world prices. These measures compelled trading partners to accept matching volumes of German industrial exports,[12] discouraging local industrialization and making switching to other (Western) partners prohibitively costly. For Hirschman, this illustrated how trade dependence could be converted into political leverage.
Hirschman emphasized that other large, power-seeking nations, such as Britain, also used trade to assert national dominance. In his view, sovereign states seek power, which by its very nature is a zero-sum game: One country’s gain is another’s loss. To be sure, free trade (in theory) generates gains from trade for all, as countries specialize and export what they produce relatively cost-efficiently and import what is costlier for them to produce. Yet, trade and specialization also expose nations, making them more vulnerable and dependent on others. For Hirschman, the key question is how states navigate and exploit this interdependence to their own political advantage and to the detriment of others. He doubts that the cherished gains from trade can tame power-hungry nations’ aggression.[13] Predatory behavior is always possible. Sovereign nations can seek to exploit others’ trade exposure to dominate them. In such contexts, economics does not have the last word.[14]
Trade to Inflict Damage
Hirschman distinguishes between the “supply effect” and the “influence effect” of trade. The supply effect, less relevant here, concerns a country’s ability to secure vital imports for its economy, stockpile strategic materials, and reorient trade toward partners unlikely to cut it off in wartime. The influence effect of trade is the more direct tool to assert power: A country can deliberately create conditions in which “the interruption of trade [is] a much graver concern to its trading partners than to itself.” This ability to interrupt commerce is “the root cause of the influence or power relation which a country acquires over other countries.”[15] The inflicted pain goes beyond the loss of goods and includes short-term adjustment costs as a targeted country scrambles to find new export markets or replace interrupted imports.
Nazi Germany refined this logic in the 1930s by fostering reliance on German markets and products in ways that were increasingly costly to replace. It concentrated on smaller, poorer economies in the East, exporting differentiated manufacturing and capital goods while importing commodities—food, cotton, oilseeds, low-grade minerals—that in many cases had limited markets elsewhere. By 1939, eastern European countries’ exports and imports were tied to Germany at rates from 35 percent (Romania) to 65 percent (Bulgaria).[16] Arms exports deepened military dependence, as switching suppliers became expensive and politically fraught. This system worked as both a complement to and a substitute for military aggression. Economic coercion enabled Germany to expand its influence and secure strategic resources without direct conflict, while shedding its financial entanglements with Western creditor nations. In one telling instance of predatory bilateralism, Germany forced Balkan countries to renegotiate their bilateral trade after imposing prohibitively high tariffs on their exports, revealing their vulnerability.[17] Unable to control oceanic trade routes, Germany also pursued greater self-sufficiency.[18]
The parallels between interwar Germany and the Trump administration are not exact—Germany then is not the United States now—but the underlying logic is comparable. Both cases show how trade can be turned into a tool of political leverage rather than economic efficiency. In Trump’s case, the strategy of bilateralism resembles Germany’s earlier use of trade to dominate weaker partners. Economists often overlook this political logic, focusing instead on whether tariffs improve economic outcomes. Yet by framing trade relations in terms of bilateral balance—equating exports and imports between individual countries, which in a multilateral world with capital mobility is economically meaningless—the Trump administration has amplified US bargaining power. In this way, the United States exploits its asymmetry of size. Its own trade dependence (exports equal 12 percent of GDP) is far lower than that in small countries (e.g., Denmark, at 70 percent). Smaller economies depend far more on access to the US market than the reverse. For instance, 13 percent of Swiss exports in 2024 went to the United States, yet Swiss goods accounted for only 1.5 percent of total US imports. Rather than banding together, most countries have accepted the Trump administration’s country-by-country negotiations and even subscribed to the meaningless notion of bilateral balance in a multilateral world. Switzerland, Laos, and others have little recourse, while neighboring Canada—which sent 80 percent of its exports to the United States in 2024—is uniquely exposed. The Trump administration has also sought to limit targeted countries’ exchanges with third parties, further increasing dependence. Over time, however, the ability of countries to diversify and substitute suppliers erodes this leverage.
An Actionable Program to Exploit Power Through Trade?
A weakness of Hirschman’s analysis is that it does not fully explain how a country reaches a position of strength in which others become maximally dependent on its trade. Is such dominance the result of deliberate policy, or does it emerge from structural conditions such as size, geography, or economic strength? Hirschman’s empirical work does not establish a causal link between policy choices and trade dependence. He even concedes this point. Free trade can produce dependence, but such dependence is not always the outcome of a conscious policy by the stronger partner.[19] With a view to his interwar case, Hirschman notes that “the initial impetus to German policies in the thirties was given even before Hitler’s advent to power, not by political motives, but by the economic fact that Germany, a debtor country with a weak currency, found herself attracted to the central and southeastern regions.”[20] Here Hirschman refers to Germany’s obligation to serve war reparations in hard currency, the Depression-era collapse of international lending, and loss of access to Western markets. These economic pressures had direct political consequences.
At the same time, Weimar Germany did not abandon broader international aspirations. Before the Depression, the Republic deployed the “soft power” of cultural diplomacy and business networks to sustain long-standing ambitions in eastern Europe, even as its official orientation leaned toward integration with the West.[21] The Weimar case highlights the volatility of interwar trade policy: Born of economic vulnerability and political isolation, the Republic combined democratic aspirations for international cooperation with imperial legacies that reached back into the nineteenth century. It was this instability between cooperation and coercion that Hirschman took as his analytical point of departure. For him, trade relations could shift rapidly depending on circumstance: What began as a strategy of survival for Weimar could, under the Nazis, be transformed into an instrument of domination. In this sense, Hirschman saw that coercive trade strategies were most effective when a particular confluence of historical circumstances created opportunities for decisive political action.[22]
Hirschman’s open-ended approach helps explain the extraordinary position of the United States at the center of a multilateral system—a position the Trump administration now leverages with bilateral tariffs and threats. It would be misleading to argue that the United States has long pursued the dependence of others with the explicit aim of later asserting dominance. Its current position of strength is instead the outcome of postwar efforts to build a liberal international economic order through the GATT (now WTO), the International Monetary Fund (IMF), and the World Bank. These institutions were designed in part to prevent the coercive bilateralism of the 1930s. They liberalized trade, lowered barriers, and embedded countries in a shared, multilateral framework. Together with the political stability of the Pax Americana, these developments explain why the United States became so deeply intertwined with the world economy through trade, investment, and the dollar as the dominant reserve currency. Such deep exposure would have been unlikely in a world more suspicious of US coercion.[23] That trust is now being tested.
To Contain National Power
By studying interwar trade, Hirschman sought to understand how power-hungry states might be contained in the future. He wrote National Power and the Structure of Foreign Trade before the creation of the GATT, the IMF, and the World Bank. Yet even then, he anticipated the need for international mechanisms to constrain coercive action in the economic realm. His proposal was deliberately radical. What was needed, he wrote, was
a frontal attack upon the institution which is at the root of the possible use of international economic relations for national power aims—the institution of national economic sovereignty. (…) the exclusive power to organize, regulate, and interfere with trade must be taken away from the hands of a single nation. It must be transferred to an international authority able to exercise this power as a sanction against an aggressor nation.[24]
While this radical vision of supranational control was never realized, the postwar multilateral trade institutions—notably the GATT/WTO—nonetheless embodied a core lesson of the interwar period: that unregulated bilateralism can be exploited for coercive purposes, as Nazi Germany had demonstrated in the 1930s. The WTO’s principles of non-discrimination (Most Favored Nation status) and reciprocity (sharing the gains from trade) were meant to prevent dominant states from using trade asymmetries to their own advantage.
The strength of these institutions did not rely on strong supranational enforcement. As Kyle Bagwell and Robert W. Staiger showed in their 2002 book, The Economics of the World Trading System, the structure of the WTO encourages self-restraint. Powerful countries gain the most economically by adhering to rules that promote stability and predictability. Such self-limitation reassures smaller countries and encourages broad participation. In the past, US restraint opened global markets and deepened economic interdependence. Without it, dominance is asserted through coercion, and smaller states are likely to reduce exposure and diversify away from the United States.
International organizations are not immune to political shifts. They require consensus, often operate slowly, and cannot prevent determined countries from acting unilaterally. The Trump administration, for example, has claimed that the WTO is ill-equipped to deal with China’s state-led model—a critique with some merit.[25] The WTO’s enforcement tools were designed for market economies with clear separation between state policies and private enterprises. In China’s hybrid system, where subsidies and industrial policy blur those lines, verifying whether subsidies are distributed or whether technology transfers are coerced is extremely difficult and often impossible. Others argue that it is precisely China’s rise—and the threat it poses to long-standing US dominance—that motivates Washington’s willingness to sidestep WTO rules.[26]
The Way Forward and the Question of Power to What End
For Hirschman, nations seek power at the expense of others. Trade can be an alternative to war, a means of asserting dominance, or a tool to intimidate and discipline adversaries. Writing in the shadow of the Second World War, he remained deliberately vague about whether and how trade policy might also serve more constructive or cooperative goals. By levying sweeping tariffs on all its trading partners, the United States has inflicted real damage on many of them. Since US tariff policy does not make sound economic sense, a political interpretation of its bilateral focus as an assertion of power is warranted.
Hirschman’s classic analysis complements an emerging literature on geoeconomics that more formally and precisely examines how states assert influence by making others do what they otherwise would not. Clayton et al. (2025), for example, model the costs of punishment (e.g., higher tariffs) and the costs of complying with a power-hungry state’s demands. As long as a targeted country’s welfare when complying is higher than its welfare loss from punishment, it is likely to give in. The difference between the “ask” and the “threat” defines the aggressor’s leverage. This insight sheds light on current US trade negotiations. To avoid the “Liberation Day” tariffs, countries like the UK, Japan, and others have entered bilateral talks. These talks not only yield tariff reductions (of 10–15 percent) but also extract additional concessions: investment promises, expanded access for US firms, and politically symbolic purchases of US goods. Sometimes the “asks” are quite specific: Brazil must favor a political ally of President Trump; Canada must stop fentanyl exports (though it is hardly responsible for them); Russia must enter negotiations over Ukraine. The Trump administration’s message has been clear enough: Accept, or we will escalate. The threat of more damage is itself an assertion of power, even when it wanes over time as countries diversify—and it has worked.
Where does this leave us? A minimal interpretation would be that saber-rattling with tariffs is primarily for domestic consumption—red meat for the base, useful for electoral purposes. A more troubling reading sees a deeper shift: the erosion of the collaborative postwar system in favor of unilateral dominance. Whether stray remarks about acquiring Greenland, Canada, or Panama are empty gestures or early signs of wider ambitions remains to be seen. Either way, Hirschman reminds us that trade—far from taming political rivalry and supporting peace—can also be a potent weapon in the arsenal of national power.
Peter Debaere is an economist and the Tipton Snavely Professor at the University of Virginia’s Darden School of Business Administration. His research on globalization and the economics of water has received funding from National Science Foundation and appears in top general interest and field journals.
Manuela Achilles is Professor of German and History at the University of Virginia. Her research centers on Weimar democracy, Nazi Germany, and sustainability in transatlantic perspective; her monograph Invisible Fatherland: Constitutional Patriotism in Weimar Germany is forthcoming with Cambridge University Press.
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[1] Hirschman (1945). See also Tett (2025), Blackhurst (2025), and Debaere (2025) in the press; Clayton et al. (2025) lists more academic references. McLaren (1997) is already informed by Hirschman (1945).
[2] The theory is essayistic and lacks formal mathematical rigor. The empirics develop indexes that were innovative for the time (Adelman, 2013) but lack causal inferences and do not control for confounding factors as standard econometric analyses now.
[3] Romm and Swanson (2025).
[4] Atkinson (2020).
[5] Gamio et al. (2025), Mitra (2025).
[6] The WTO allows exceptions to MFN tariffs—for example, in regional trade agreements or for poor countries.
[7] On Hirschman’s characteristic approach to social-scientific questions, see Alacevich (2021) and Adelman (2013).
[8] On nationalism, see Hobsbawm (1990) and Mosse (2023). On the League of Nations, see Henig (2019) and Loehr (2015).
[9] Gross (2015) reinvestigates and confirms Hirschman (1945), and to some extent Basch (1943). Ellis (1945) already saw bilateralism as “the chief peril to a large volume of free multilateral trade in the post-war world.” See also Asso (2017) and Jacks and Novy (2019).
[10] Irwin (1993, pp. 105–112). German trade with the East doubled between 1929 and 1938. On bilateral agreements with Hungary, Romania, Yugoslavia and Bulgaria between 1933 and 1936, see Chase (2005). Gross (2015, p. 191) counts 25 bilateral agreements.
[11] Chase (2005, pp. 88–104).
[12] Irwin (1993). Non-tariff measures often proved more effective instruments of discrimination tools than tariffs.
[13] Hirschman (1945, pp. 74–75). See also Martin et al. (2012) on whether trade fosters peace.
[14] National and food security considerations often override free trade. Hirschman’s argument goes further, extending beyond defense and food sectors.
[15] Hirschman (1945, p. 16).
[16] Gross (2015, table 5.12, p. 218).
[17] Mclaren (1997) referencing Basch (1943), Gross (2015, p. 176).
[18] Hirschman (1945, p. 36); Stolper et al. (1967). Germany never became autarkic. Irwin (1993) emphasizes that bilateral agreements (rather than multilateral negotiations) underpinned the 19th-century non-discriminatory “multilateral” regime, whereas the interwar “bilateral” regime relied on ineffective multilateral gatherings to discourage tariff discrimination.
[19] Hirschman (1945, p. 13)
[20] Hirschman (1945, p. 40).
[21] On Weimar’s democratic aspirations, see Achilles (2025). On Germany’s eastward orientation, see Liulevicius (2009), Fischer (1967), and Gross (2015). On Weimar’s economic strategies, see Feldman (1993). On the political impact of trade collapse, see Brey and Facchini (2024).
[22] Adelman (2013) emphasizes Hirschman’s open vision. On the volatile and contingent nature of the transition from democracy to dictatorship in Germany, see Ryback (2024). While Weimar’s eastern orientation began with economic vulnerability and remained open to broader integration, it was redefined under the Nazis as part of a coercive and ultimately murderous racist-imperialist project. On this radical transformation and the brutality of Nazi expansion eastward, see Mazower (2008), Lower (2005), and Gross (2015).
[23] Mclaren (1997) shows how irreversible trade costs make reliance on a large partner a smaller country’s nightmare: Specialization to meet the large country’s needs erodes bargaining power in future negotiations. Conversely, anticipating future trade wars, smaller countries will limit exposure.
[24] Hirschman (1945, p. 79).
[25] Wu (2019).
[26] Mattoo and Staiger (2019).
