Below, Soumaya Keynes and Chad Bown share five key insights from their new book, How to Win a Trade War: An Optimistic Guide to an Anxious Global Economy.
Soumaya is a columnist at the Financial Times and host of The Economics Show with Soumaya Keynes podcast. Her coauthor, Chad, is the Reginald Jones Senior Fellow at the Peterson Institute for International Economics and host of the Trade Talks podcast.
What’s the big idea?
Economic conflict is now a permanent feature of global politics. Countries must think strategically about resilience, supply chains, stockpiles, tariffs, and adaptation if they want to protect their interests in a trade war.
Listen to the audio version of this Book Bite—read by Soumaya—in the Next Big Idea App, or buy the book.
1. You can win a trade war.
If I had a cookie for every time someone told us, “No one wins a trade war,” my clothes wouldn’t fit. And look, I get it. Tariffs are destructive. Economic warfare is bad. It makes us stressed, poorer, and it could even start the kind of war that involves real bombs. I would love it if world leaders could just get in a room, shake hands, maybe exchange a hug, and cooperate.
But the bad news is, we’re not in that world anymore and the trading system isn’t going back to the way it used to be. We are in an era of economic conflict. So, we’re going to have to roll up our sleeves and engage with the fight.
We’re also going to need a broader definition of “winning” a trade war. Maybe it means you’re the one best able to preserve your own economic model, or the one least vulnerable to being told what to do. Maybe “winning” means losing less than a rival or just minimizing your own wounds.
How do you win then? Well, if logistics win real wars, trade wars are just the same. Winning takes preparation. It means acquiring deep knowledge of the stakes, the players, the rules, the defense, and then the attack. It means learning from history—and each other—when working out what to do. It’s possible to win a trade war, but it’s not easy.
2. Working out your strengths is as important as working out your weaknesses.
In 1903, the British government set up the Royal Commission on Supply of Food and Raw Material in Time of War. They wanted to identify their vulnerabilities in the event of a conflict. Which meant working out, product by product, where there was a single dominant supplier. A dominant supplier who, in a conflict, might shut off their supplies. Armed with this information, the government might be able to protect itself by weaning off its dependency proactively.
Governments around the world, including the U.S., tried this kind of analysis after the pandemic, when they worried about supply chains being disrupted. None of these exercises was easy. You need to know what you’re importing and whether there are substitutes at home or abroad. You need to know about vulnerabilities in supply chains. You need a lot of data from companies that may not even know where their suppliers are getting components from.
“A dominant supplier who, in a conflict, might shut off their supplies.”
The British government gave it their best shot before the World Wars, effectively quizzing experts on the egg-laying habits of British hens. But what felt like a massive exercise was too narrow. The Royal Commission focused on more basic materials and underestimated how important it would be for the chemicals used for explosives and the optical glass used to see military targets to be dominated by Germany. They also misjudged the enemy’s willingness to disrupt international shipping.
More recently, vulnerability mapping exercises identified some vulnerabilities: For products in pharmaceuticals, manufacturing, and mining, production seems dangerously concentrated. But given how hard it is to see every single vulnerability in the data—and given that it’s probably impossible to fix every single one—it’s better to identify and promote your strengths. The British economy was ultimately flexible enough to cope with a conflict. And in an economic war, even powerful players have weaknesses too.
3. Paranoia can be productive.
In 1981, the U.S. was adding 20 million pounds of cheese to its stockpile each week. In the mid-1980s, the Irish were storing so much butter that they ran out of space and had to call in two Greek ships to store it. Governments around the world were taking on the role of “state cheesemonger.” This gave stockpiling a terrible reputation for waste and excess, much like people snicker at preppers (those survivalists who store enough freeze-dried food to survive the apocalypse).
Are we really going to start hoarding stuff? Well… yes. Stockpiling is back in fashion. From health supplies, which were shut off during the pandemic, to items that have been at the center of economic conflicts, like rare earths. In an era of economic conflict, having stocks of something an adversary might weaponize can come in handy. If you’ve got enough, the adversary might not bother to cut off their supplies. If supplies do get shut off, the stockpile could be the bridge until you get more.
The stockpiles that got such a bad reputation earlier in the 20th century were designed to keep prices high. They were there to make sure the market didn’t get flooded with, say, cheap butter. But stockpiles in economic warfare are different. When you’re hoarding critical minerals, vaccines, or oil, you’re trying to compensate for the fact that there might be too little supply in an emergency. So, let’s mock preppers a little less and listen a little more.
4. Tariffs are like drugs.
President Trump treats tariffs, or taxes on imports, like party drugs, promising incredible highs. Remember Liberation Day, when he promised tariffs would revive U.S. manufacturing, generate revenue, and extract concessions from trading partners? He failed to mention the comedowns: higher prices for Americans, harm to allies, and squashed competition.
It’s easy to criticize tariffs. Just like real drugs, they’re blunt and it’s just a bad look to be too reliant on them for growth, tax revenue, or making other countries do what you want. Instead, think of tariffs like caffeine, energizing the fight against a dominant actor. Suppose you’ve identified a vulnerability: your adversary dominates supplies of a critical product. By penalizing companies buying from the dominant supplier, a tariff could send the signal that they should diversify their operations.
“He failed to mention the comedowns: higher prices for Americans, harm to allies, and squashed competition.”
Proceed with caution: when caffeinating, there’s a sweet spot between “my brain is barely running” and “I’ve got the runs.” One risk is that when you shut out imports from one country, companies manage to wriggle around the barriers, leaving the vulnerabilities unchanged. This is exactly what happened after President Trump’s first round of tariffs, when rerouting was so extreme that a few years after the tariffs took effect, the share of value coming into the U.S. from China actually increased.
These problems don’t mean that you have to cut out all caffeine. Just use it responsibly.
5. Trade wars are dynamic.
In the late 1800s, the German government was frustrated. The British were dominant in international communication and effectively controlled vast networks of telegraph cables. They also abused their power, censoring and spying on other governments’ communications. So, the Germans took matters into their own hands and tried to set up their own networks. They also pushed an alternative technology: wireless radio.
When you go on the attack in a trade war, this sort of reaction is a risk. What if you restrict sales of some item or service, only to push your adversary to develop alternative sources of supply? Trade wars are dynamic. And some weapons might only work once, as targets respond by protecting themselves against repeated hits. This is the argument some companies caught up in trade wars make: that by cutting off supplies to an adversary, you only make that adversary stronger in the long term.
What happened in the case of those telegraph cables? When Germany tried to set up a rival network, the Brits leaned on other countries to stop them. Germany’s wireless communications got intercepted by the Brits, and their cables were cut once the fighting started. They never did manage to topple British dominance. That happened decades later, by the U.S.
As your target moves, you can move too. Winning a trade war isn’t easy. It takes work. But equipped with history and lessons from other countries, we can all improve our chances.
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