The free trade myth: how the US manipulates global markets for economic supremacy

By Jostein Hauge, University of Cambridge

US president, Joe Biden, raised tariffs on Chinese-made goods sharply in May, claiming that the “Chinese government has cheated by pouring money into Chinese companies … hurting competitors who play by the rules”. The tariffs are 25% on steel and aluminium, 50% on semiconductors and solar panels, and 100% on electric vehicles.

Under Biden’s presidency the US has embarked on an ambitious strategy to revive American high-tech industries and become less reliant on foreign imports, especially from China. This strategy has included pumping massive subsidies into the renewables and semiconductor industries. The tariff hikes are clearly part of this strategy and shouldn’t come as a surprise to those who have followed US trade and industrial policy in recent years.

But the double standards of these policies, particularly the recent tariffs, need to be addressed. For years, Democratic and Republican administrations in the US have touted the virtues of free trade to the rest of the world, working towards establishing a multilateral trading system that limits the use of protectionist policies.

The formation of the World Trade Organization (WTO) is a great example of this. During the years of negotiations in the 1980s and 1990s that led to the formation of the WTO, a small group of powerful countries – led by the US and influenced by large corporations based in the US – used their power and influence to rewrite the rules of international trade to their advantage.

The system they established was publicly marketed as a system of “fair play” in the global economy that would benefit all countries that took part in it. However, in reality, WTO rules clearly made it easier for US-based corporations to expand their dominance in the world economy. Limiting protectionism, especially in developing countries, has enabled US-based corporations to grow their control.

The income that US-based transnational corporations have collected from their foreign affiliates, measured as a share of their total worldwide net income, increased from 17% in 1977 to 49% in 2006.

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