Is Trump Right on Trade?
WHY YOU SHOULD CARE
Because a global shift is coming if Trump wins, and this is what it might look like.
It’s been perhaps the most consistent pillar of an erratic campaign: Donald Trump opposing longstanding U.S. trade policy. In one recent speech, Trump said of the 22-year-old North American Free Trade Agreement: “If we don’t get a better deal, we will walk away.” He’s also threatened the same fate for the 164-member World Trade Organization. And he rejects the pending Trans-Pacific Partnership. So if President Trump gets his way, he could usher in a new era — by dumping the U.S. from a global menu of alphabet soup: NAFTA, WTO and TPP, to name just a few.
The bravado-driven talk is meant to re-incentivize American manufacturers to produce domestically, of course, reversing a long trend of companies sourcing goods and services overseas to save money. Trump’s economic plan proposes to do this on two fronts: reduce business burdens in the U.S., such as environmental standards, while raising them abroad, including stiffer punishment for countries that skirt the rules. To his credit, some say, there would likely be certain benefits for the U.S. Erecting new and unpredictable tariffs, for example, could boost domestic manufacturing in the future, says Gary Clyde Hufbauer, of the Peterson Institute for International Economics in Washington, D.C. Meanwhile, pulling out of NAFTA would give the U.S. leverage to negotiate better conditions — such as greater punishment for establishing non-tariff trade barriers, says Peter Navarro, a business professor at the University of California, Irvine, and a Trump policy adviser.
Along with Mexico, China is Trump’s other chief culprit for American manufacturing woes, which he’s said stem from the Asian giant joining the WTO in 2001. But while there is evidence that normalized trade with China has contributed to job losses since 2001, automation and efficiency gains share the blame. Trump has also criticized American leaders for not being tough enough against currency manipulation and intellectual property theft, yet he’s coming under fire for that argument. Robert Manning, a resident senior fellow at the Atlantic Council think tank on international affairs, points out that the WTO imposes rules on China, the world’s largest trader. When the U.S. has brought cases against China to the international body, for instance, “we’ve won most of those,” says Manning.
Withdrawing from painstakingly negotiated deals, in which no one gets everything they want but they all sign, could cost the U.S. credibility.
As the world has seen in the fallout of the Brexit vote, major trade deal withdrawals would likely shake the global financial markets. New tariffs on foreign goods would beget the same treatment from other nations. Many American factories are cogs in an increasingly complex global supply chain — for example, foreign automakers have built plants across the American South — and isolationism could spark a destructive trade war. Hufbauer recalls the brief land-border shutdown after the 9/11 attacks that caused the U.S. auto industry to grind to a halt. “There would be a lot of Americans unemployed as a result of retaliation from abroad,” he says. Boeing airplanes, Caterpillar tractors and GE locomotives would become more expensive abroad and would likely lose market share.
These effects also carry over to foreign policy. Withdrawing from painstakingly negotiated deals, in which no one gets everything they want but everyone signs on the dotted line, could cost the U.S. long-term credibility. “Countries have to be as good as their word,” Kim Campbell, the former prime minister of Canada, tells OZY. “The fact of the matter is these trade deals are good for both countries.” But some experts cast aside diplomatic concerns. “Our trading partners have been playing us for fools,” Navarro argues. “They will respect Donald Trump for standing up for Americans against unfair trade practices.”
As the rhetoric heats up, the Trans-Pacific Partnership hangs in the balance. President Barack Obama has pushed a skeptical Congress to ratify the 12-nation pact, and now both Trump and Hillary Clinton have come out against it — with the left’s anti-trade rhetoric forcing a turnabout from the Democratic nominee who helped sell the deal as secretary of state. Amid concerns about whether she would stick to her primary stance, Clinton recently said of the TPP: “I oppose it now. I’ll oppose it after the election. And I’ll oppose it as president.” Clinton’s foes have accused her of insincerity given her and her advisers’ prior support, and Navarro pointed out in a press release after her trade speech that Clinton never said she would withdraw from TPP if Obama is able to push it through a lame-duck Congress.
What does that mean for North America’s future? A TPP deal would impose new labor and environmental standards on member states Canada and Mexico, going beyond NAFTA. And the pact is most important for who’s not within it: China. If Congress or the next president blocks the deal, Pacific nations would inevitably move more under the influence of one of Trump’s favorite foils: “China will write the rules,” Manning says.
Trump’s stance on trade should also be seen through the lens of his real estate career, as an extreme starting point for negotiations. Instead of nuking whole deals, Hufbauer says a President Trump could narrowly target his demands to, say, trying to make Mexican state-owned oil giant Pemex buy equipment from U.S. companies first. He could also threaten specific American companies with targeted tariffs unless they agree to build plants at home. It would be a striking use of executive power, but one perhaps well-suited to Trump.