Trump is a protectionist? So was Reagan
When Donald Trump was elected president, critics warned that the “America First” candidate would turn the US to a dangerous protectionist direction after entering office.
Candidate Trump did threaten to revoke the North American Free Trade Agreement (NAFTA) and to impose a 45% tariff on Chinese exports to the United States, claiming that the Chinese were “killing” the US on trade. “We can’t continue to allow China to rape our country,” he stated at one campaign stop.
He accused China of manipulating its currency to make its exports more competitive and vowed to label China as a currency manipulator in his first day in office.
So it wasn’t surprising, perhaps, that the same people who had predicted that Trump wouldn’t win the presidency warned that President Trump would end the world as we knew it.
A Trump presidency would ignite a costly trade war between the United States and China and posed a top-10 risk event that could disrupt the world economy, forecast the Economist Intelligence Unit last year, reflecting the consensus in Washington that President Trump planned to undo the global trade system.
Trump’s choice of a longtime free-trade skeptic, Robert Lighthizer, as his top trade negotiator, and the establishment of a new National Trade Council headed by a staunch critic of China, Peter Navarro, only helped to heighten concerns that new White House occupant was intent on implementing his economic nationalist agenda.
But one year into the Trump presidency and as he completes a 12-day trip to Asia during which he made a commitment to strengthen ties with the region’s economies, it seems that the liberal international economic order remains in place.
Gone is the complete rejection of NAFTA. Instead, the Trump administration has targeted for renegotiation several clauses of the trade deal with Mexico and Canada and is also seeking to renegotiate the US-Korea Free Trade Agreement (KORUS).
The administration has discarded the moribund Trans-Pacific Partnership (TPP) agreement that both Democratic presidential candidate Hillary Clinton and her rival, US Senator Bernie Sanders, had rejected.
Some observers had expected that if elected, Clinton would have attempted to renegotiate the TPP. But even if that would have happened, it is doubtful that she could have gotten it approved by Congress, where she would have faced opposition from both progressive Democrats and anti-Hillary Republicans.
The Trump administration has also decided to put on hold a proposed US-European Transatlantic Trade and Investment Partnership (TTIP) that would have had little chance of being adopted by the European Union in light of the anti-Trump sentiments in Germany.
At the same time, President Trump has flip-flopped on his election promise to call China a currency manipulator and has curbed his threats to impede Chinese imports, postponing moves to restrict US purchases of cheap Chinese steel and aluminum foil.
In fact, the only country the Trump administration has declared a trade war (sort of) against is Canada (with which the United States runs a trade surplus) by tagging Canadian lumber and planes with duties in response to what it considered to be unfair government subsidies by that country, hardly a sign that Trump was pursuing an aggressive economic nationalist strategy.
During the Reagan presidency Washington pursued a series of ad hoc mechanisms restricting imports in a number of industries and employed its power to force its trading partners to curb their exports by signing ‘voluntary restraint agreements’
Yet members of the foreign establishment in Washington reflecting the conventional wisdom emanating from leading think-tanks have continued to lambast Trump as a protectionist, accusing him of abandoning the free-trade policies of his predecessors.
Many Republican critics contrast the economic nationalist Trump policies with the free-trade agenda that was promoted by the late president Ronald Reagan.
Yet during the Reagan presidency Washington pursued a series of ad hoc mechanisms restricting imports in a number of industries and employed its power to force its trading partners to curb their exports by signing “voluntary restraint agreements,” pressing Japan to curb the exports of its cars and demanding that 15 countries restrict their steel imports, a strategy advanced by the same Lighthizer who now negotiates trade deals under Trump.
Moreover, a key trade legislation, the 1988 Omnibus Trade Act, mandated action to address unfair trade barriers under the so-called Super 301 provision, leading to growing criticism of US trade unilateralism among the country’s trade partners that continued into the administration of Bill Clinton, who took aggressive action to deal with trade barriers abroad, targeting both Japan and China.
No one disputes that Candidate Trump had run an economic nationalist campaign, espousing a protectionist and mercantilist approach to dealing with international trade policies. But it is also becoming clear that President Trump has not followed through on the economic nationalist impulses he exhibited during the campaign.
Reality bites, and pressure from pragmatic economic advisers with ties to Wall Street, led by his chief economic advisor Gary Cohn, as well as from members of his foreign-policy team and Republican leaders in Congress, warning Trump of the costs of a trade war with China and of repealing NAFTA, have helped counter policy initiatives by economic nationalists like Lighthizer and Navarro.
The result: President Trump ended up pursuing the same mixture of internationalist and mercantilist trade policies that had been embraced by other Republican presidents.
The only concrete change that Trump has brought to US trade policy seems to be his preference for bilateral deals over multilateral agreements. Or as he recently told Republican lawmakers, “Believe me, we’re going to have a lot of trade deals. But they’ll be one-on-one. There won’t be a whole big mash pot.”
President Trump and Commerce Secretary Wilbur Ross share the view that multilateral trade deals that involve several governments, and which have been pursued by the US since the 1990s, allowed other countries to make gains at America’s expense.
The bilateral setting, on the other hand, permits US negotiators to apply leverage more effectively during negotiations and to shape future trade agreements in America’s own interests. They are supposedly more manageable and make it easier for the US to withdraw from deals that hurt its interests compared with, say, the lengthier process provided by the World Trade Organization.
Critics would argue that Trump seems to be minimizing the power the Americans can use in multilateral negotiations while exaggerating the gains that the US would supposedly win in bilateral talks.
Moreover, Trump’s bilateral trade approach fails to consider the way the global economy works today with companies taking part in global value chains, and stages of production split among numerous countries.
And such a strategy could also undermine the efforts to harmonize international regulations while creating a “spaghetti bowl” of overlapping standards.
Moreover, it’s not clear how many governments would be open to bilateral deals with the US. The United Kingdom, India, Taiwan, Vietnam and Russia seem to be on the Trump administration’s list of candidates, as is Japan. But then the Japanese have hinted that if they negotiate a bilateral trade deal with the US, they would not agree to open their agriculture more than they would have done under the TPP.
Similarly, US officials have suggested that the concessions they would ask Mexico and Canada to make as part of the renegotiation of NAFTA would be closely aligned with those the two countries have made under the TPP.
That raises the intriguing prospect that the Trump administration would end up signing bilateral trade agreements with Asian governments with provisions that would look quite similar to those that would be included in the TPP deal that the remaining 11 signatories to the agreement are expected to ratify.
Whether that happens or not, Trump will probably continue to sound like the economic nationalist candidate of his presidential campaign and will still be bashed by critics as a protectionist.
In reality those who should probably complain about his trade policy will be the “forgotten men and women” in Ohio and Pennsylvania to whom he pledged to return the lost manufacturing jobs from Mexico and China.