Amidst all the celebrations, the US 250th anniversary this year should also be a time for reflection. Might the American economy be about to lose its dominance? The future for global trade - as new alliances emerge – looks set to become less favourable to the US. Already, President Trump’s enthusiasm for tariffs and military threats is actually weakening US influence in many areas, losing friends and soft power. Quietly, trade with the US is shifting; China and the EU are busy with alternative plans that will inevitably impact the UK and the Scottish economy.
For most of the last eighty years the United States led the world towards more open markets. Now it is doing the opposite. High tariffs, a push to make more goods at home, and a wariness of China have become policy in Washington. However, a clumsy belligerent approach to reconstructing its terms of trade has opened opportunity for the rest of the world.
Other nations are not sitting still as their US trade is hit. The European Union has responded by developing radical new trade deals. Brussels has struck a long-delayed agreement with the South American trading bloc that includes Brazil and Argentina, and is now pushing to close deals with India, Australia, the Gulf states, Indonesia, Malaysia and Thailand. Economists calculate they could offset most of the harm done by American tariffs. In time that would leave the EU better off than before, because the barriers being removed with these new partners are far higher than the American ones.
China, for its part, continues to spread its trade across more countries rather than depending on any single market. It is investing heavily through its Belt and Road Initiative in ports, railways and factories from Africa to South East Asia, and its trade with these partners is growing rapidly. Chinese firms are also setting up factories abroad, both to get around tariffs and because wages at home have risen.
Developing countries, too, are adjusting. Rather than waiting on Western nations to buy their goods, more of them are trading with each other. Trade within Asia now makes up a majority of that region's total trade, and that share is growing. Countries such as Vietnam, India and Indonesia are attracting factories and investment that once would have gone to China alone.
This is not without strain, since competing for the same investment can set developing nations against each other. China's subsidised exports are also squeezing manufacturers in poorer countries. But the direction of travel is clear: less reliance on any single superpower, and more trading among themselves.
There are good reasons to think the current determination by many to replace US trade will become a sustained trend. Tariffs introduced by the current Washington administration have stuck around far longer than many expected, surviving legal challenges. A tenth of the value of nearly everything America buys from abroad now carries an extra charge, and the tax on Chinese goods has been far steeper still. Trade between America and China has changed shape rather than disappeared.
American firms have been shifting where they buy parts and finished goods from, moving away from China towards Vietnam, India, and Mexico. Investment into Chinese factories has fallen sharply. Some assembly work has moved for countries such as Vietnam and India. However, Chinese firms still supply many of the parts that go into goods now assembled in Vietnam or Mexico before being sold on to the American market.
It is questionable whether this has improved US employment or resilience – China has responded to restrictions on US use of China’s technology by imposing licensing controls on exports of rare earth elements and the critical minerals used in semiconductors. China processes roughly 90% of the world's rare earths, and for some time will be a factor in the supply chains of Western defence, semiconductor, and electric vehicle sectors.
The push for resilience is not just about trade barriers. Vice President, JD Vance, has entered the debate on whether rich countries should simply want less, not just make more at home. He notes the weakness of conventional growth measures, like Gross Domestic Product (GDP), in capturing quality of life. The debate shows that the retreat from open trade is being driven by more than tariffs alone. There is a broader argument in the West about what a healthy, secure economy should look like. Scotland has already contributed to this debate with its emphasis on sustainable inclusive growth. Certainly, economic activity may be better with a sense of community, but most social programmes require prosperity. Citizens still tend to see wellbeing improvement in terms of progress in GDP per head, and that is reflected at the ballot box.
What does this all mean for the world economy? A less integrated trading system tends to mean higher prices for shoppers, since goods no longer flow to wherever they can be made most cheaply. It is likely to mean slower global growth, because duplicating supply chains in the name of security is expensive. And it tends to reward countries that can offer stability and skilled workers as alternatives to China, which is why nations such as Vietnam, India and Mexico are gaining ground.
At the same time, there is a genuine case for less concentration of manufacturing in one place. A world with several reliable suppliers of important goods, even if slightly costlier, may in the end prove stronger. Unfortunately, de-globalisation means that in recent years the world has seen an increase in fragmentation of finance and a decline in mobility and collaboration.
Scotland sits unusually exposed to decisions made in Washington; whisky and salmon exports to the US have dropped sharply this year. But some help has come from Asian markets, with Scottish firms recognising the need to diversify demand, rather than rely on America. Scotland has weathered change in the global economy before. New trade deals between the UK, the EU and fast-growing economies should broaden global growth and offer Scottish exporters attractive alternative markets in the years ahead