international analysis and commentary

Trump’s take on global trade


One thing is certain about what to expect from the new Trump administration concerning global trade policy: There will be great uncertainty.

Donald Trump talked tough on trade throughout the US presidential campaign. He singled out some countries, specifically China and Mexico, as having taken advantage of the US by engaging in unfair trade policies. With China, he followed in the path of many past presidential candidates in declaring it a currency manipulator. He also decried its government subsidies and threatened to impose 45% tariffs on Chinese imports. With respect to Mexico, he called the North American Free Trade Agreement (NAFTA) a disaster and vowed to renegotiate it in favor of the US. He is also opposed to the Trans-Pacific Partnership (TPP) trade deal that would expand free trade, among NAFTA and other free trade area partners, to five additional Pacific Rim countries including Japan. With respect to Europe, Trump supported the UK’s decision to exit the European Union and believes that other nations will and should follow.

One of Trump’s main support groups is workers whose jobs are threatened either because of import competition or because US firms chose to move assembly plants abroad. Trump has vowed repeatedly to protect these jobs for US workers by threatening action against the firms themselves. He began during the presidential campaign by suggesting that if he were president he would not allow a company like Carrier Air Conditioners to close a plant in the US and move to Mexico. After winning the race for the presidency, he met with Carrier management and officials from the State of Indiana to broker a deal that would keep some of those jobs in the US. Later, when Trump learned of General Motor’s plans to build the Chevy Cruze in Mexico and sell it in the US, he said the company would face a big border tax if it did so.

Trump’s cabinet nominees and appointed advisors share some of these same views. Robert Lighthizer, the US Trade Representative nominee, has been described as skeptical of the advantages of free trade. He has represented the US steel industry on antidumping cases against China which may explain why he believes China takes unfair advantage of other countries. He sees the World Trade Organization as pursuing a goal of global government rather than simply promoting freer trade. Trump’s pick for Commerce Secretary, Wilbur Ross, is a billionaire investor who has benefited from the antidumping actions against China that have improved his steel companies. He stated that his first task as Commerce Secretary would be the renegotiation of NAFTA. Finally, Peter Navarro, an economics professor, has been appointed to head the newly-created White House National Trade Council. Navarro has been a strong critic of China having published a book titled “Death by China”. Trump seems to have been greatly influenced by Navarro’s views, so much so that this new advisory position has been created.

All of this is especially worrisome for anyone who recognizes that the benefits from trade accrue to the vast majority of consumers and that the sum of these benefits will outweigh the losses to those who suffer temporary job dislocations. As a result, open markets sustain better standards of living for the same lower income households that are demanding protection. And many of those benefits could quickly disappear if Trump takes action on all of the things he has proposed and thereby undermines the global commitment to US trade agreements.

However, the most worrisome outcome presumes that all of what Trump has said will become US policy. Fortunately, there are several reasons to believe that Trump will not achieve all of these stated objectives and that some positive outcomes may result as well.

Recently, a Trump spokesperson, Anthony Scaramucci, commented at Davos that Trump supports free trade as long as it is fair. Trump himself suggested the possibility of negotiating a quick free trade agreement with the UK after Brexit. Such a move could maintain some momentum towards trade liberalization even while other initiatives like the TPP are closed down. Ross was a TTP supporter before coming out against it and he had also previously said back in 2012 that China bashing was overdone. Some have pointed out that the TPP, which includes the three NAFTA countries and offers US companies many new advantages, is really the renegotiated NAFTA that Trump himself is seeking. Thus, the TPP could conceivably be revived in some form, if adjusted slightly with a Trump stamp on it.

One other Trump appointee that may help prevent a backlash against open trade is his pick for Ambassador to China, Iowa Governor Terry Branstad. Branstad has known Chinese President Xi Jinping since he was an agriculture official in Hebei province in the 1980s. During one of Trump’s campaign appearances in Iowa, Branstad warned Trump not to say anything bad about China. Branstad had also come out in favor of the TPP in the past.

During confirmation hearings for some of Trump’s other cabinet nominees, many expressed opinions that contradicted Trump’s pronouncements on the campaign trail. Only time will reveal the extent to which these voices are heard by Trump, but it has been clear that Trump often softens from his original stark position on many issues.

The one other reason for hope in global trade is that even if Trump does not listen to his advisors, there are a limited number of things he can do without legislative approval. For example, he could initiate many more antidumping actions against countries like China. However, that is likely to cause swift repercussions in the form of retaliations that will have visibly negative effects on US firms. He may also continue to strong-arm companies to keep jobs in the US, but if he tries to implement direct punishments, he will discover how that threatens the entire rules-based trading system. And if he tries to pursue actions against Chinese currency manipulation, he will discover from the Treasury Department how weak the current case for this really is.

Checks and balances are the hallmark of the US political system. They arise when the president’s advisors do not share the same views as the president and have the opportunity to persuade him otherwise. Checks and balances also arise because the legislature must first pass new laws before the president can implement them and thus the president’s power to affect the economy is limited. Trump’s presidency will give us a chance to see how effectively those checks and balances can work. Until then we must continue in a haze of uncertainty.