Trump trade strategy unclear

With the mercurial Donald Trump now at the helm of the world’s largest economy, Jomo Kwame Sundaram and Anis Chowdhury consider how international trade dynamics may be altered as a result.

President Donald Trump has taken the US out of the Trans-Pacific Partnership (TPP) Agreement. Now, it is widely expected that Trump’s presidency will increase US trade protectionism, and consequently protectionism by others in retaliation, possibly triggering serious trade conflicts with difficult-to-predict consequences.

After decades of denial by “free trade” advocates, it is now widely agreed that many manufacturing jobs in the US have been lost to both automation and offshore relocation by US corporations. Free trade agreements (FTAs) are also being blamed for the US’ large trade deficits.

With the global economic slowdown of the last eight years associated by many with the slowdown of trade expansion, the surprise election of Trump has generated much speculation and some dire predictions.

Many are concerned that Trump has made various contrarian pronouncements on FTAs, while his appointments to trade-related portfolios seem to contradict his trade rhetoric. In early December, the Wall Street Journal noted the unexpectedly high number of TPP advocates joining the Trump administration to serve in trade-related capacities.

While the TPP in its current form is dead in the water, there is no indication that some amended version, perhaps with a different name, will not eventually emerge in its place.

If Trump lives up to his campaign rhetoric, other plurilateral free trade agreements will also be affected. Trump has referred to the TPP and the North American Free Trade Agreement (NAFTA) as disasters for the US, and has vowed to renegotiate NAFTA.

His announced preference for negotiating “fair” bilateral trade deals favourable to the US has not given much comfort to prospective negotiating partners.

And while Trump’s main preoccupations have been with US manufacturing jobs and the related international trade in goods, he is also expected to promote US corporate interests more generally, e.g., on intellectual property, financial liberalization, investor rights and dispute settlement.

Already, most US FTAs include “non-trade issues”, many of which have raised costs to consumers, e.g., by further strengthening intellectual property monopolies typically held by powerful transnational corporations, whose chief executives seem likely to be very influential in the new administration.

Punitive trade measures

During the presidential election campaign, both Hillary Clinton and Trump accused China of being a “currency manipulator”, despite market consensus that the Chinese renminbi has been reasonably aligned for some time.

Under US law, evidence of currency manipulation could be grounds to impose additional tariffs on imports from a country. Aware that such a move could exacerbate trade conflicts, Trump’s predecessor, Barack Obama, avoided pressure to do so from many Congress members, lobbyists and economists.

However, Trump can easily revise this position on some pretext or another, by taking trade or other retaliatory actions against China on the ostensible grounds of alleged currency manipulation. This would contravene World Trade Organization (WTO) rules, allowing China to successfully take a case against the US to the WTO for such an illegal action.

Trump has also threatened to impose tariffs of as much as 45% on imports from China and Mexico. But while an across-the-board tariff hike is unlikely, as it is prohibited by the WTO, the new administration is likely to consider invoking WTO trade-remedy actions on certain products from China, Mexico and other countries by claiming they are being dumped or subsidized.

Such measures are not new, as they have previously been imposed, for example, on solar panels and wind turbines from China, raising the costs of renewable energy and thus undermining the global warming mitigation effort.

To be sure, WTO trade-remedy rules have long been widely abused for protectionist purposes. A country can impose high tariffs on an imported item from another country by claiming its price has been artificially depressed or subsidized by the government in order to export – or “dump” – the product at a price lower than the domestic price.

Even if a WTO dispute settlement panel eventually rules that the ostensibly anti-dumping tariff-raising action was wrongly taken, no deterrent is imposed against the offending country, even though the exporting country may have lost considerable export earnings in the interim. Furthermore, similar actions can be repeated with impunity with no threat of penalty.

Such ostensible trade-remedy actions are more likely than blatant tariff walls. These may, in turn, trigger retaliatory counter-actions by aggrieved governments, potentially leading to a spiral of trade protectionism, i.e., trade warfare.

Fair trade?

It is unclear how the new US administration views FTAs more generally. Trump’s objection to the TPP and NAFTA focuses on goods trade and the loss of manufacturing jobs due to cheaper imports, often brought in by the same companies which have chosen to relocate production capacities abroad and which are already mobilizing to resist actions that may jeopardize their profits.

This view does not seem to recognize that technological change, particularly with automation, has been the major source of job losses. Many jobs remaining in the US have higher skill requirements, with fewer employees producing more goods with less labour-intensive techniques.

“Fair trade” will be subject to self-serving interpretations by the governments concerned, arguably further undermining trade multilateralism.

While freer trade has undoubtedly improved consumer welfare with cheaper imports, it has seen some de-industrialization in the North and industrialization in the South in recent decades, with important employment consequences which have been a major source of the current discontent over globalization.

To be sure, the trade growth slowdown following the 2008 financial crisis suggests that the U-turn has already taken place after an extraordinary period of trade expansion due to much greater international specialization with the popularization of international value chains.

In December 2015, Obama’s United States Trade Representative (USTR) Michael Froman threatened the already difficult Doha Round of WTO trade negotiations by trying to introduce TPP issues which had been kept off the agenda of the Round from the outset after the debacle at the WTO’s 1999 ministerial meeting in Seattle.

Perhaps most worryingly, there has been no indication so far that the new US administration will not undermine multilateral trade negotiations held under the auspices of the WTO. Trump’s much-trumpeted preference for bilateral deals favourable to the US is likely to test trade multilateralism as never before.

But Trump also has a penchant for the unpredictable, and may yet surprise the world with a new commitment to trade multilateralism to advance consumer, producer and development interests for all. (IPS)                                    p

Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-15 in New York and Bangkok.