Donald Trump’s determination to stamp his mark on US trade policy “would be horribly destructive”, according to the most exhaustive assessment of his pre-election tweets, speeches and declarations in Fox News interviews.
Among the more consistent themes in his various pronouncements, the president-elect said he would tear up the Nafta agreement that gives Mexico tariff-free access to US markets on about half of its goods.
Trump also threatened to impose tariffs on China, which he said could be as much as 35%, to punish the Beijing for a policy of “currency manipulation”.
The Trans-Pacific Partnership (TPP) agreement, president Obama’s hard-won free trade agreement with Japan, Australia and much of the Pacific rim, which lowers tariffs on a wide range of goods, will be thrown in the Oval Office bin, if a Trump video outlining his policies in the first 100 days is anything to go by.
The Peterson Institute, a non-partisan thinktank in Washington, said in its September report assessing trade agendas in the US presidential campaign that the sum of all these moves would bring the US recovery to a juddering halt, and possibly plunge it into recession.
The institute’s chairman, Adam Posen, a former Bank of England policymaker, said in his foreword to the report: “The belligerent trade policies proposed by Trump would devastate viable American businesses and their vicinities.”
But as the inauguration nears, it looks like the doomsday scenario put forward not just by Posen, but also in the pages of Forbes, Fortune and much of the US media, can be put on ice.
Just as Trump is turning his attention away from prosecuting Hillary Clinton, so a trade war with the Chinese and Mexicans is no longer a priority.
Of the three main threats to trade, only axing the TPP agreement looks likely to happen, since it has yet to be ratified by Congress and remains, like the Paris climate deal, a White House policy, not a US policy.
Marcus Noland, an author of the Peterson Institute report, says signals from the Trump camp indicate he has also shelved his threatened war on China and Japan while he focuses on domestic concerns.
That will be a relief to the International Monetary Fund and the Organisation of Economic Cooperation and Development (OECD), which have spent the last couple of years wringing their hands over a sharp decline in trade.
In October, the IMF said the sum of trade across the world had grown by just over 3% per year since 2012, less than half the average rate of expansion during the previous three decades.
“The slowdown in trade growth is remarkable, especially when set against the historical relationship between growth in trade and global economic activity. Between 1985 and 2007, real world trade grew on average twice as fast as global GDP, whereas over the past four years it has barely kept pace. Such prolonged sluggish growth in trade volumes relative to economic activity has few historical precedents during the past five decades.”
In a barely disguised attack on Trump and fellow protectionists, it warned leaders to put more effort into mitigating the effects of globalisation. “An increasingly popular narrative that sees the benefits of globalisation and trade accrue only to a fortunate few is also gaining traction. Policymakers need to address the concerns of trade-affected workers, including effective support for retraining, skill building and occupational and geographic mobility, to mitigate the downsides of further trade integration for the trade agenda to revive.”
Noland says Trump’s first term could still be scarred by battles with China.
“Let’s say the president wins approval from the Republican-dominated Congress for a large fiscal stimulus with a mixture of tax cuts and infrastructure spending. If this boom sucks in more imports and increases the balance of payments deficit, as everyone expects, Trump will come under renewed pressure to act,” he said. “This could be a couple of years down the line, but would mean him pursuing all the protectionist threats he made in the campaign.”
Swati Dhingra, a trade specialist at the London School of Economics’ Centre for Economic Performance, says there could be some easy wins for Trump if he needs them. “The Nafta agreement has an inbuilt annual renegotiation clause, so there is the potential for the president to secure changes to tariffs with Canada and Mexico without throwing out the whole thing,” she says.
“But it’s scary when Trump starts to attack China. Who knows how bad things will get if he imposes tariffs against World Trade Organisation rules.”
China could appeal against them to the WTO board, though Trump has said he would quit the WTO rather than step back from a fight.
A more likely reaction from Beijing would be tit-for-tat tariffs. The Global Times, a newspaper seen by many as a vehicle for the Chinese leadership to float ideas and respond to sensitive political issues, said earlier this month that China could easily favour Airbus over Boeing when it buys aircraft.
“US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the US,” it said.
President Obama has already been down this road. Not long after he took office, he imposed a 35% import tariff on Chinese tyres to protect Firestone and other domestic suppliers. But one study estimated it saved a maximum 1,200 jobs and cost US consumers $1.1bn in higher prices. In addition, China reacted by slapping tariffs on US chicken and car parts, costing US businesses millions of dollars in lost revenue.
Worse, the US economy was growing strongly and adding jobs in the tyre industry, so the 1,200 jobs were probably in the pipeline anyway.
Mitt Romney, the Republican’s losing presidential candidate in 2012, was damning in his criticism of Obama and the way he allowed auto workers to bully him into raising protectionist tariffs.
The former Massachusetts governor will need to eat his words should he become Trump’s secretary of state and join an administration only too keen to upset free trade advocates. But then he will need to apologise for calling Trump a fraud and a phoney during the campaign, so maybe ditching his free-trade principles will be the least of his worries.
The deals under threat
TPP The Trans-Pacific Partnership (TPP) would cut tariffs and deepen economic ties between the US, Japan, Australia, New Zealand, Canada, Malaysia, Vietnam, Singapore, Brunei, Mexico, Peru and Chile. It also aims to simplify regulations and copyright laws so that member countries would have a more or less unified system. Overall, more than 18,000 tariffs would be affected, and though some will take more than 10 years to disappear, the result could be a new single market, similar to the European Union, with the current signatories comprising about 40% of the global economy.
Nafta Opinion is divided over success of the North American Free Trade Agreement, a deal between Mexico, Canada and the US signed by Bill Clinton in 1994. Its critics say it meant millions of poor Mexicans became servants of a northern power that exported its 2008 financial crisis and not much else. Supporters say it bolstered the rule of law, and kept democracy afloat and the generals and dictators at bay. Maintaining strong links with the US is a top priority for the Mexican government.
TTIP The Transatlantic Trade and Investment Partnership is a series of negotiations between the EU and US that aims to cut tariffs on everything from cars to beef. It is a bigger version of the TPP: the US wanted agriculture and financial services included. But it was put on hold following a rebellion by German MPs and disquiet in France over the use of secret courts to resolve trade disputes. Critics say the courts allow large, mainly US multinationals to sue governments when policy changes hit their profits. Trump, however, believes it will favour EU companies and undermine US jobs, so it is probably dead, rather than on hold.
Ceta The Comprehensive Economic and Trade Agreement is a mini-me deal between Canada and the EU that was supposed to pave the way for the much bigger TTIP, but now it looks like being the only scheme for lower tariffs with another country to secure approval in Brussels. It must now be ratified by all 28 members of the EU, including Britain, though Theresa May could well abstain.
