The sweeping tariffs announced by U.S. President Donald Trump on April 2, along with the subsequent postponements and retaliations, have unleashed an enormous amount of global uncertainty. Much of the world’s attention is on the chaotic, short-term consequences of these policies: wild stock market fluctuations, concerns about the U.S. bond market, fears of a recession, and speculation about how different countries will negotiate or react.

But whatever happens in the near term, this much is clear: Trump’s policies reflect a transformation of the global trade and capital regime that had already started. One way or another, a dramatic change of some kind was necessary to address imbalances in the global economy that have been decades in the making. Current trade tensions are the result of a disconnect between the needs of individual economies and the needs of the global system. Although the global system benefits from rising wages, which push up demand for producers everywhere, tensions arise when individual countries can grow more quickly by boosting their manufacturing sectors at the expense of wage growth—for example, by directly and indirectly suppressing growth in household income relative to growth in worker productivity. The result is a global trading system in which, to their collective detriment, countries compete by keeping wages down.

The tariff regime Trump announced earlier this month is unlikely to solve this problem. To be effective, American trade policy must either reverse the savings imbalance in the rest of the world, or it must limit Washington’s role in accommodating it. Bilateral tariffs do neither.

But because something must replace the current system, policymakers would be wise to start crafting a sensible alternative. The best outcome would be a new global trade agreement among economies that commit to managing their domestic economic imbalances rather than externalizing them in the form of trade surpluses. The result would be a customs union like the one proposed by the economist John Maynard Keynes at the Bretton Woods conference in 1944. Parties to this agreement would be required to roughly balance their exports and imports while restricting trade surpluses from countries outside the trade agreement. Such a union could gradually expand to the entire world, leading to both higher global wages and better economic growth.

Keynes’s plan failed to carry the day at Bretton Woods, largely because the United States—the leading surplus economy at the time—opposed it. Today, however, there is a chance to revive and adapt his proposal.

To understand what ails the global trading system, consider how wages shape an individual economy. Higher wages are usually good for the economy because they boost demand for businesses while increasing their incentive to invest in efficiency. The result is a virtuous cycle. The growing demand spurs increased investment into ways of producing more with fewer workers, raising economic productivity which, in turn, drives further increases in wages.

Individual businesses, however, have different incentives. They can boost profits by suppressing wages. The problem is that although lower wages can benefit an individual business, they reduce the profits of others. In an economy in which business investment is mainly constrained by whether there is demand for more production, if businesses collectively suppress wages, either household and fiscal debt must rise to replace the lost demand, or total........

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