The Trump administration is using tariffs (and tariff threats) as a blunt instrument to address not just trade imbalances but also the fentanyl crisis, misgivings over Brazil's prosecution of its former president Jair Bolsonaro, and Colombia's temporary refusal to accept deported migrants. In notionally setting tariff rates according to trade imbalances and to create diplomatic leverage, the tariffs do not differentiate between friend and foe in an increasingly geopolitically fragmented world. As such, they will make both the United States and its alliance partners worse off, eroding the economic power that underpins their collective military might. A better (but still sub-optimal) approach would be to promote free trade with established security partners, using tariffs sparingly and only in a targeted fashion.
Allies in arms, targets in trade
The US network of military alliances encompasses over 60 countries that account for about 38 percent of nominal world GDP.1 While the biggest defense spender by far, the United States benefits greatly from these relationships in the form of augmenting deterrence, capability enhancements and forward basing opportunities, and markets for costly (and costly-to-develop) US weapons and military hardware.
The US network of defensive alliances—which compel members to treat an attack on one as an attack on all—means an attack on the United States is an attack also on its North Atlantic Treaty Organization (NATO) allies and countries like Australia, Japan, and South Korea.2 In doing so, alliances multiply the costs of aggression against the United States.
US alliances also augment US capabilities by promoting specialization and information sharing. For example, the United States benefits from Norway's significant investments in cold weather naval capacity and anti-submarine countermeasures, as well as intelligence gathered by partners like the Five Eyes. It also allows the United States to position troops and equipment in forward areas—over 100,000 of them across NATO and non-NATO major allies (NNMA), giving the US military truly global reach.
There are economic benefits as well. Modern military equipment is incredibly capital intensive, with massive up-front costs. Having trusted allies creates markets for platforms—like the F-35 Joint Strike Fighter or the Aegis Combat System—that the United States would never sell on the open market. This allows the research and development costs—which, for the F35, were $46.2 billion (and counting)—to be spread over higher production volumes. The United States exports hundreds of billions of dollars worth of military hardware to allies each year.
To date, these allies have not been spared from the administration's tariffs and tariff threats. From the European Union's NATO members to Canada, Japan, South Korea, and Brazil, US allies are seeing their goods subject to tariffs or threats thereof.
While not all US allies are equally aligned—many continue to pursue balanced relations with China, particularly in the Global South, and some mutual defense pacts are more active (NATO) than others (the Rio Treaty)—tariffs that ignore even our most reliable partners undermine alliance cohesion.
The case for free trade in a polarized world
The basic case for free trade is well known: It increases economic efficiency, allows countries to specialize in producing things they are good at producing, and enhances incomes and wellbeing. In an anarchic international system, however, free trade raises questions about relative gains. A trade deal that makes both rivals better off may leave one party better off than the other, even if both are better off than they would be absent the deal. In the world of relative gains, what matters is not just absolute improvement but how gains compare to those of others. The overall pie may be bigger, but as power is an entirely relative concept, the relative shares going to particular members matters.
Globalization has lifted over a billion people out of abject poverty—a massive and unprecedentedly quick win. The problem, from some US perspectives, is that more than half of them are governed by the Chinese Communist Party, contributing to China's rise as an economic superpower and near-peer strategic competitor. While the economic effects of trade integration have been mostly positive for the United States, the security effects have been more ambiguous. Absent globalization, the United States would be economically worse off in the absolute sense but more dominant in the inherently relative security domain.
There is a middle path, however: free trade within military alliances. When allies reduce trade barriers among themselves, the externalities of that trade—more resources to invest in guns and butter—are (mostly) captured within the alliance: The extra income (mostly) accrues to friends, and the extra investment in military capacity makes the "team" better off. These gains are largest when members' factor endowments are different and therefore their exports and imports are seen as complements rather than competition.
This logic has long underpinned US trade leadership and defense policy. It was a central impetus for the US-led negotiations that yielded the General Agreement on Tariffs and Trade. Of the 23 original members, 163 were US-aligned and/or receiving assistance under the Marshall Plan. It was understood that US security would depend on rebuilding Western Europe and East Asia, and peace would increase markets for US goods to boot. It was also understood that not allying with the United States would leave countries exposed to Soviet aggression or influence.4
As Joanne Gowa and Edward Mansfield argue, this type of alliance-based free trade is most likely to develop under bipolarity. In a bipolar system—like the Cold War—the battle lines are clearly drawn, so distinguishing friend from potential foe is straightforward. In multipolar systems, alliance patterns and cooperation tend to be more fluid—today's friend might be tomorrow's foe—and trade becomes more of a hedge against the risks of autarky.
Thus, one relevant (and open) question is whether the international system is evolving toward bipolarity or multipolarity. Reasonable analysts will disagree. But the US administration is acting as if the conclusion is foregone: We are headed toward a world without poles.
No friends, just enemies you haven't fought (yet)
The Trump administration's strategic approach is premised in a Hobbesian, multipolar/a-polar worldview: there are no friends, only potential adversaries you haven't crossed swords with (yet). It envisions a zero-sum world focused on relative gains—where states care not just about what they get from trade but how much they gain relative to others, especially rivals. And since everyone is a potential rival, cooperation in both trade and security should be purely transactional—and, above all, the United States must win.
This perspective is hard to square with the reality of US national defense policy, which benefits and is designed around the US's network of alliances and capability enhancements. The cornerstone of this network is NATO, whose members have recently committed to significantly boost military and dual-use infrastructure spending. And this commitment, which the Trump administration requested, illustrates exactly why: These additional expenditures will make the alliance collectively stronger and boost demand for US defense exports.
But asking alliance partners to sustain that level of expenditure while damaging their (and the US) economies with higher tariffs will be challenging, given budget constraints and commitments to social spending. It will also raise the "with friends like these …" question. Threats to tariff Japan—which hosts over 60,000 US troops and had been a key partner in semiconductor-related export controls against China—at a 25 percent rate but impose only 10 percent on Singapore—which maintains a much more balanced posture with respect to China, is not an MNNA, and hosts few US troops5—raises basic issues of fairness. And these signals matter. Alliances are based on assurance. Threatening and imposing tariffs on trading partners, including free trade agreement partners, already erodes trust in US commitments. Treating alliance partners like trade adversaries will further increase intra-alliance frictions, weaken collective deterrence, and invite potential adversaries—none better positioned than China—to exploit these divisions.
A better path forward
The United States has real enemies and competitors, and some sector-based de-coupling from these rivals is necessary, especially in areas like critical minerals and sensitive manufacturing sectors where reliance on imports creates significant strategic vulnerabilities.6 But the US administration's approach to trade policy does little to distinguish between allies, rivals/enemies, and the truly unaligned.
Tariffs are not a first-best tool for de-risking, but they are clearly the administration's weapon of choice. Wielding them against allies and adversaries alike will make the United States less well-off—and less secure. US security and prosperity are best served by robust alliances and predictable, rules-based trade with security partners. This moment—with more active armed conflicts than at any point since the end of the Cold War and an uncertain global economic outlook—is exactly the wrong time to erode trust further through blanket tariffs. This is a time for clear strategic signals and tariff restraint—especially vis-à-vis US allies.
Notes
1. Including the United States increases the share to 64 percent. This number includes the entire European Union; EUs members in the North Atlantic Treaty Organization (NATO) account for approximately 90 percent of EU GDP.
2. And vice versa—the proportional benefits are larger for smaller, less powerful allies.
3. Nineteen if one includes pre-revolutionary China and Cuba and pre-Communist takeover Czechoslovakia.
4. Absent the focus on market exchange, the same could be said of the Soviet Union's establishment of the Council for Mutual Economic Assistance (COMECON).
5. To be exact, 423. The term "troop" here refers more broadly to active duty service members, reservists, and Department of Defense employees.
6. And a point of continuity between recent Democratic and Republican administrations.
Data Disclosure
This publication does not include a replication package.
