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The argument over whether governments should intervene in trade is, for better or worse, settled. Political leaders are energetically deploying new tools to reshape global commerce—not just tariffs, but also export controls, investment screening, sanctions, and subsidies—and they are unlikely to stop.
Many of the underlying motives are legitimate. National security broadly defined now includes supply-chain resilience, the danger of depending on a single foreign supplier who may one day turn off the tap, and the race to stay ahead in dual-use technologies where commercial and military advantage have become inseparable. The climate transition demands a wholesale reordering of industrial capacity, and absent carbon pricing, market interventions to achieve it. And against a crisis of political legitimacy in democratic countries, the call for markets to deliver fairer outcomes is reasonable.
While there is room to debate the temptation to serve every goal at once, and the extent of the market failures in practice, we grant these basic motives. The harder problem is the means, not the ends: the new, often unprecedented, trade interventions wielded today are more complicated than they look, the collateral damage often hard to predict and contain. Even familiar tools like tariffs can trigger cascading disruptions through the global economy.
This essay is about the challenge of predicting the consequences of trade policy in the modern economy, and thus how (or whether) to deploy these tools in the first place. When production is fragmented across borders via global value chains (GVCs), the ultimate effects of market interventions can badly miss the mark. A tariff meant to protect an industry can end up taxing it; an export control meant to slow a rival can handicap the domestic firms it was meant to strengthen. The consequences of trade policies land where production networks send them, not necessarily where policymakers aimed.
Global value chains link the world
To see why, start with the linkages. For nearly three decades, the defining feature of the global economy was the growing fragmentation of production across borders. A finished good—a car, a phone, even a pair of denim jeans or a chocolate bar—is the assembled output of a chain of suppliers in many countries, each adding a sliver of value, each buying inputs from others who did the same. The breaking-apart of production via GVCs was a powerful engine of inclusion: a country no longer needed the heft to build a passenger jet from nose to tail, or a semiconductor from silicon to chip; it needed only the capacity to make the landing gear, etch the wafer, or stitch the seams. Global value chains allowed comparative advantage to be sliced ever finer, and more of the world could share in the gains from trade. This was the promise of the modern global economy.
The politics of trade policy ran the same direction. As countries’ producers wove themselves into cross-border supply chains, selling components into others’ exports and buying inputs from abroad, the case for protection weakened, because the cost of trade barriers fell on their own integrated global firms. The global web of supply chains held the liberal trading order in place. Until it didn’t.
A decade ago this summer, Brexit marked a resurgent economic nationalism, followed in short order by the first tariff salvo of America’s trade war with China. A few years later, the supply shocks of the pandemic broke what remained of the old consensus. Today, for a growing number of governments, intervention has moved from last resort to first, the interests of global firms a secondary consideration to the larger goals now driving policy.
The GVC linkages that once made openness self-reinforcing now make intervention self-defeating. The mechanisms are the same, but the consequences flow in reverse.
Take tariffs as an example. Headline tariff rates are a poor guide to what an intervention accomplishes. Put a tariff on cars and you help carmakers; put a tariff on the steel they bend into fenders and you raise their costs. What matters is the net of the two—the effective rate of protection. In a fragmented economy, that net effect is surprisingly hard to calculate: a domestic car now carries components that have crossed borders three or four times before final assembly, drawn from suppliers whose own costs turn on tariffs set by other governments, possibly in retaliation to one’s own.
Trade protection does not sit politely in the sector where it was applied. It propagates backward to suppliers, forward to customers and their customers, and outward across borders, through the global value chains that organize modern production. Trace those networks, weighting each linkage by how much each sector buys from every other and by how readily buyers and sellers switch partners when prices move, and two things become clear:
First, the effective protection an industry receives can differ sharply from its headline rate, and can even reverse sign, so that a nominally protected sector is on net taxed.
Second, none of this appears on the policy label; you have to do the math to know what you are actually protecting.
The US experiment and how it fizzled
The United States ran the experiment in 2025. In recent work with Mitchell Boice, we traced the effects of that year’s sweeping tariff schedule changes through the global production network—broad-based duties stacked on most trading partners under the IEEPA “reciprocal” framework, sectoral rates of 25 percent on autos and 50 percent on steel, aluminum, and copper, and steep additional levies on China.
The administration sold these tariffs as a revival of American manufacturing, with advanced manufacturing—autos, machinery, the industrial base—as the marquee beneficiaries. Our estimates suggest otherwise.
In upstream, input-supplying sectors, GVC backward linkages amplified the effective protection beyond even the headline tariff rates—the network pulled more protection toward primary materials than the sticker price implied. In the downstream manufacturing sectors the policy was built to champion, the reverse happened: input cost increases, propagating forward through the same GVC linkages, eroded the protection the output tariffs appeared to provide.
Nowhere more so than in autos. Once the tariffs on imported parts and upstream inputs are accounted for—and because auto parts are themselves made from upstream components, many sourced through global value chains, the cost compounding with every border crossing—our estimate of the effective protection for motor vehicles falls to well under 8 percent, a fraction of what the headline rates advertised.
Those are just the direct effects on producers. They leave out the cost to consumers of more expensive vehicles—a real burden on households and the many businesses that depend on them. They also leave out the broader competition for resources: in an economy where metals are heavily protected and autos much less so, labor and capital flow toward the smelter, not the assembly line. The net effect on American manufacturing could be considerably worse than even the effective protection numbers suggest.
Nor do the effects stop at the border. Because the 2025 schedule left the preferences for Canada and Mexico largely intact while raising the wall against everyone else, and because North American production is so tightly interwoven, the policy inadvertently raised effective protection for Canadian and Mexican producers—not an outcome the administration had in mind, given the pointed pressure it was simultaneously applying to both neighbors. In sectors like textiles, electronics, and electrical equipment, the widened preference margin effectively subsidized demand for their value added.
None of this followed from unusually clumsy drafting. The reciprocal tariffs were nearly uniform across sectors; the wild dispersion in outcomes came almost entirely from the network structure. Global value chains, not policymakers, decided where the protection went.
Rules and bargains
It would be comforting to file all this under incompetence—a single badly drafted schedule, fixable with better staff work. The effective incidence of these tariffs was, as far as we can tell, never computed by anyone in a position to act on it—not least because doing so requires a model of the network and estimates of the elasticity with which global value chains respond to shocks, estimates that are rough and contested even among specialists, when they exist at all. At the best of times, this would be hard. Using tariffs in a world of GVCs is like carving a roast with a blender: you will remove meat from the bone, but not without spraying it across the counter, the ceiling, and well beyond the plate you were trying to fill. This is why these tools should be reserved for when the urgency is real and no better instrument is available—and wielded, even then, with care.
And tariffs, it bears noting, are the instrument we understand best. The tools now proliferating across economic statecraft—export controls, investment screening, industrial subsidies, sanctions, procurement rules, and the technical standards that determine whose products clear which borders—are newer and less studied, yet deployed with growing confidence and frequency. Every one of them propagates through the same global production networks, generating spillovers that are at least as hard to trace as those from tariffs, and in most cases harder. And beyond the static reallocation of resources, they shape where firms choose to invest, innovate, and build capacity—dynamic effects that are even harder to trace and slower to reveal themselves. We understand how all of these consequences will shake out far less well than we understand tariffs’ effects—which is to say: not well.
The rules-based trading system, built over seventy years through the GATT and the WTO, rested on a specific bargain: countries could pursue domestic goals as they saw fit, provided they did not export the costs onto others. Nondiscrimination and reciprocity were deliberately designed to contain international spillovers, ensuring that what one country did inside its borders stayed, as much as possible, inside its borders.
That architecture is now failing from two directions. The first, which this essay has largely been about, is inadvertent—the unintended cross-border consequences of interventions whose incidence was neither computed nor anticipated. The second is deliberate: governments acting intentionally to reshape the global pattern of production and trade—deploying export controls on critical minerals and technologies, blocking rivals’ access to frontier inputs, reaching across borders to shape how things are made elsewhere.
Some of the deliberate interventions are defensible. Denying an aggressor the microprocessors needed to produce precision weapons is not the same as curbing trade to boost a national champion’s profitability. Restricting imports linked to forced labor rests on a legitimate moral claim. Measures like the EU’s deforestation regulation and carbon border adjustment mechanism cross a line the trading system was designed to protect—reaching beyond the border to shape production methods elsewhere—but in service of goals, limiting deforestation and mitigating carbon leakage, that are not easily dismissed. The WTO has always accommodated narrow exceptions for national security and basic human rights.
What is new is the scale, and the casualness with which cross-border consequences are left unexamined.
Wisdom and discipline
A functioning global commons—one that lets countries pursue legitimate goals without systematically exporting the costs or dismantling the production networks that underpin global prosperity—demands the same discipline regardless of intent: do the analysis before acting, justify the measure with evidence, pursue the means least likely to impose costs on others, and build in review and sunset. The WTO’s sanitary and phytosanitary framework offers a model: governments that invoke these measures must demonstrate the risk, show the measure does not exceed what the problem requires, and accept that it will be revisited.
That standard, applied to the sprawling new toolkit of economic statecraft, is what responsible policy looks like, and what any durable commons will require. Acting without such understanding and discipline is a gamble that risks retaliation, instability, and the unraveling of global value chains that took decades to build and are too valuable to lose.
Emily J. Blanchard is Professor of International Economics, Tuck School of Business, at Dartmouth College. She is a research fellow with the Centre for Economic Policy Research and a member of the CESifo research network. She served as chief economist of the US Department of State from January 2022 to November 2023.
Robert C. Johnson is the Brian and Jeannelle Brady Associate Professor in the Department of Economics at the University of Notre Dame. He is a research associate at the National Bureau of Economic Research and an associate editor at the Journal of International Economics and the Journal of Development Economics.