Is a coherent trade policy likely to emerge after the Presidential election?
The Harris-Trump campaign is notable in its lack of serious debate on the many economic issues confronting the country. Credible ideas to address the national debt overhang, with total US public debt now approaching 100% of GDP and the annual deficit running at 7% of GDP, or how to pay for the weakness of the defense industrial base in the face of two major wars and growing tensions in the Pacific rim, are notably absent from either candidate. Trade policy is no exception, with the Harris campaign consistently avoiding even the mention of trade, and Trump offering his usual array of extravagant claims and unrealistic proposals. The danger is that both the retreat from trade initiatives on the Democratic side and the aggressive threats from the Republican side tend to accelerate the decline of the Western alliance system now threatened on multiple economic and political fronts. They also erode support and credibility for the WTO system.
A look at the two campaign platforms
In the “Issues” section of the Harris campaign website the word “trade” appears once, in the following context: “Vice President Harris will not tolerate unfair trade practices from China or any competitor that undermines American workers.” In effect this “workers first” approach suggests considerable continuity with the Biden program which emerged without coherent structure or elaboration over the last four years. It offered virtually no new trade opening initiatives while a plethora of defensive actions targeted largely at China, following the Trump example, were unleashed. The latest initiative of the Biden team resulted in tariff increases to 100% on Chinese EVs, 50% on its semiconductors and solar cells, 25% on electric battery components and on other products for which China has subsidized its way to huge overcapacity and dominance of global markets. These tariff increases resulted from a mandatory review of the Trump Section 301 tariffs completed in September.
New Biden actions via subsidies, tax incentives and more tariffs to promote domestic production of green products, additionally, place European and East Asian allies at new disadvantages in the US market. Trump-era steel and aluminum tariff disputes with allies were not effectively resolved as Biden-Harris policy turned toward America-first initiatives. The Global South was largely abandoned to Chinese and Russian economic and political advances by virtue of the lack of attention to new trade, investment or aid actions.
Trump and his advisors have struggled to outbid Harris on trade proposals to punish China and allies alike, and to protect American firms and workers. Trump himself has unleashed a series of unrealistic and potentially damaging ideas centered on new and enhanced tariff actions. His threat to raise tariffs on all Chinese goods imports to 60% (sometimes raising the ante in the heat of his campaign speeches) is the headline action of the Republican platform calling for “forging an American First Trade Policy standing up to Countries that cheat and prioritizing American producers over Foreign Outsourcers.” During the long campaign he has also reiterated his threats for at least a 10% across-the-board level of tariffs on all imports, and 20% on “consistent cheaters” in global trade. He frequently mentions Germany as exemplary of this latter category.
Read also: Cycles of protectionism: repeating past mistakes
Among the more exaggerated and alarming threats from Trump is to impose a 100% across-the-board tariff on countries that discontinue or avoid using the US dollar as the primary component of their currency reserves. It is probably best to recall the admonition of the iconic serial venture capital investor Peter Thiel to take Trump “seriously” but not “literally” in view of such suggestions. His presidential administration at least pursued negotiated deals with China and an updated US-Canada-Mexico (USMCA) free trade agreement, showing some pragmatism. Moreover, his campaign platform offers “Five Pillars” for his “America First Agenda” one of which is “securing Fair Trade deals.”
Unfortunately, the various trade proposals – inasmuch as they can be taken as guidance to what the two contenders might actually do in the next four years –would harm the US economy, its ability to forge strong alliances in support of something resembling the existing rules-based trading system, and its ability to respond effectively to the Chinese economic and political challenge.
The consequences of “more of the same”
Both democratic-leaning and market-oriented economists and policy analysts have basked in the opportunity for criticism of the trade policy programs unveiled without apparent overall connections to each other by the former president. It is not difficult to predict that the tax revenues to be gained from the various Trump trade proposals cannot come close to balancing the US budget deficit or pay entirely for the tax relief he also promises in his platform. Many model-based economic studies also suggest that Americans will experience less personal and national income from increased prices due especially to the across-the -board tariff proposals. A study from the Peterson Institute for International Economics estimates lost purchasing power of up to $2600 per household from the 60% tariffs on Chinese exports plus the 20% global tariff. Goldman Sachs predicts a decline of 0.5% of total GDP from the totality of Trump economic proposals in the four years after possible enactment.
A conservative leaning economic research group estimates an increase in inflation of almost 6% and decline in US exports of 17% if the US revokes China’s Most Favored Nation (MFN) trade status, which would raise all tariff levels on Chinese imports by considerable amounts. Both the Trump and Harris campaigns call for such an action.
Read also: The past and future impact of Trump’s tariffs
The Biden-Harris record of lack of support for new trade opening initiatives is just a starting point in the assault on the rules-based trading system. Other actions in the last four years reinforcing this trend include proposals to protect and subsidize US industry, walk back support in the WTO for pharmaceutical patent protection, and weaken uncompromising support for intellectual property protection for software and global data flows. Such actions all have a negative impact on the US economy and on the trade rules elaborated in the WTO and regional agreements over the last decade.
A better way forward?
Both campaigns obviously justify most trade actions as needed to respond to China’s initiatives to dominate the global manufacturing economy through mercantilist means and to build a new authoritarian economic bloc to undermine the Bretton Woods system. Notwithstanding the clear need to push back against these challenges, the trade policies of both campaigns will undermine the ability to effectively mount a counteroffensive to Chinese aggressive actions in the following ways.
First, the new subsidies and other policies to protect domestic industries permit the Chinese and other fellow travelers to question the United States and allies for their own economic actions which mirror in less dramatic fashion China’s mercantilism. In late September the WTO approved advancing China’s case questioning US subsidies on green technologies. Such back and forth tends to undermine US credibility in the WTO which has been earned over many decades. Second US industrial policies overtly responding to those deployed massively in China are too often applied to US allies or make it difficult for those allies to have equal access to the large US markets for green and some high technology products. The result of all these trade-related actions is erosion in the efforts of traditional Western allies to push back cohesively against China and weakening of the overall legitimacy of the WTO rules themselves.
In spite of the overheated rhetoric on trade of the Harris-Trump contest, one cannot assume that the most harmful proposals of either candidate, including the studied inattention of the Harris side, will be implemented by whoever is given the mandate to govern. In the first place, significant support remains in the United States from both the business community and influential ranks of leaders in Congress and at the state level for maintaining major institutions and means of open trade. Leading agriculture, technology and services industries will oppose policies which most clearly undermine the existing trade rules. The United States remains a leading exporter of agricultural, technological and especially services products. The latter includes dominant positions in software, intellectual property royalties, tourism and educational services. Fear of the negative economic consequences predicted by analysts provides additional support for business and other interests to push back against what they perceive as protectionist policies.
Second, there is growing awareness that the Chinese economic challenge to advanced economies in the West is rapidly becoming a broader geopolitical challenge through support for new China-led institutions such as the Belt and Road program, the BRICS alliance, the Shanghai Cooperation Organization (SCO) and various efforts to undermine the dollar-based international financial order and trade settlement system. The geopolitical element to the new alliance (or bloc) is vividly exposed by the Chinese support of Russian and Iranian territorial aggression and the reluctance of the global South to join in countering the emerging Chinese-led order. Recognition by US economic and political leaders that effective counters to the Chines challenge are much more likely to be effective when undertaken by strong alliances by market-oriented and largely democratic alliances than by go-it-alone US efforts. In this context, the benefits of expanded regional trade agreements such as the USMCA and Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), both of which welcome new like-minded members, become more evident and compelling.
Third, the recent US Supreme Court decision, Loper-Bright Enterprises vs Raimondo, popularly known as the Chevron decision, provides opponents of actions undermining existing trade agreements or new unilateral actions not explicitly authorized by the US Congress with another, potentially powerful tool to challenge some of the proposed Harris and Trump trade actions. In short, the decision empowers challenges, from the US Congress or affected private or public parties, questioning executive trade actions that are so ambiguous or explicitly counter to existing rules through the US court system. Leading legal and trade experts in the United States have argued that Trump’s proposed 10 or 20% across-the-board proposals, or other actions clearly violating existing trade rules or justified by recourse to national security, would be open to such court challenges. New Presidentially-imposed restrictions on trade based on factors not explicitly authorized by Congressional actions such as those based on putative, future environmental damage, could also be challenged. The US Constitution gives clear authority to the Congressional branch to set trade policy.
Political leaders promoting open trade, including those outside the United States, will have to be more aggressive in protecting the existing system and preventing its erosion by the Chinese axis of authoritarian, statist economies. It is clear that the whoever wins the November 5th ballot, US trade policy on China will not materially change. But given the increasing reach of the new China-led economic institutions and alliance systems, the value of strengthening and expanding trade and overall economic alliances among market economies ought to be more compelling.
