International Trade in the Trump Era
In his inaugural address, U.S. President Donald Trump said, “We will follow two simple rules: Buy American and hire American. We will seek friendship and goodwill with the nations of the world, but we do so with the understanding that it is the right of all nations to put their own interests first.”
President Trump’s “Contract with the American Voter” stated that on his first day in office, he would take several actions to protect American workers. The President indeed wasted little time. On January 23, he signed an executive order to withdraw from the Trans Pacific Partnership (TPP), announced his intent to renegotiate the North American Free Trade Agreement (NAFTA), and Treasury Secretary nominee Steve Mnuchin pledged to investigate Chinese currency policy. President Trump’s promise to identify and immediately end trade practices that are abusive to American workers is next on the agenda, and will be more complicated.
President Trump is quickly demonstrating that he is America’s Dealmaker-in-Chief, and will pursue “free and fair” international trade agreements on behalf of American workers. Defining fair trade in the 21st century global economy will be the central challenge of Trump’s trade policy.
Fair trade for mutual benefit
Throughout his campaign, President Trump articulated his philosophy of America First—a concept that recognizes trade agreements that advantage the American worker, while acknowledging other nations will do the same for their own citizens, thus resulting in the prospect of mutually beneficial trade agreements.
Looking forward, the Trump Administration must clearly and carefully articulate its concept of “Buy American and Hire American,” and clarify “fair trade” so as to inspire international cooperation and market based competition, and avoid international confrontation and dangerous, unintended consequences.
For President Trump’s “free and fair trade” policy to effectively promote friendship and goodwill depends upon how closely it adheres to rules-based agreements, as opposed to becoming rhetoric driven, populist and protectionist.
In rules-based fair trade, “fair” is defined as nations voluntarily entering agreements based on their national interests, adhering to agreed rules and international norms of economic behavior and enforcing and renegotiating trade rules through previously agreed means of recourse. Rules-based “fair trade” takes on a legal, objectively defined outlook, where international cooperation drives market-based competition.
In such a construct, determinations of “unfair” or “abusive” trade tactics are based solely on analysis of economic evidence, in the context of the previously agreed agreements. Any declaration of abuse and change in trade practices would not be a vote against free trade, but a vote for playing by the rules. Simply put, free trade does not mean a free-for-all.
Unfortunately, fair trade in the Trump Era risks becoming rhetoric-driven and protectionist if existing agreements get labelled abusive in whichever industries American workers are not experiencing gains or wherever cities are in decline, regardless of what other technological and global economic forces might be at work. In this context, emphasis on anecdotal rather than statistical evidence is quite common. Everyone in America seems to have heard of someone who “lost a job to China,” or a company that moved to Mexico, but not every American can name someone who found a job selling goods and services to the Chinese, or a company which hired American workers while also hiring Mexican workers. There is a fine line between protecting American workers, which is rules-based, and protectionism, which is rhetoric driven.
It is important to note that President Trump has selected Cabinet members and trade advisers who clearly intend to engage China and other nations on matters of possible trade violations, but who have primarily advocated a rules-based fair trade agenda during their careers. If their past work is any indicator, arguably President Trump’s trade team seems more likely to adhere to the rules-based definition of fair trade in actually determining what trade practices have been abusive and pursuing rules-based solutions to end them.
The key trend to watch now is whether a border tax favored by President Trump, which is selectively administered on certain companies and countries believed to be unfairly and unreasonably moving American jobs offshore, or a border adjustment favored by some House Republicans and levied on all companies, will be promoted. Moreover, President Trump has indicated trade agreements are better pursued in bilateral rather than multilateral forums, so this will also be a trend to watch.
To craft trade policy in the 21st century, it is crucial to recall that the livelihoods and living standards of America’s 325 million citizens, and the world’s 7.4 billion people, increasingly depend not only on their own local capabilities and resources, but also on their access to global networks and markets.
The prospect of an increasingly populist, protectionist approach toward a more rhetoric-based “fair” trade policy are building, which endanger the very notion of mutually beneficial, free and fair trade. Further, this type of mentality could incite international confrontation and unleash conflict over trade and jobs, should other countries follow suit and seek to close their markets.
International trade policy that aims to be free and fair has served America well. For President Trump to build goodwill between nations, he can aspire to make international trade even more beneficial by communicating and pursuing rules-based solutions.