Economic Trends: What the Tea Leaves Tell Us About Trump’s Trade Agenda

Economic Trends: What the Tea Leaves Tell Us About Trump’s Trade Agenda

- in World Biz
10
0

Since taking office, his administration has shown signs both of hard edges and conventional stances (albeit sometimes with more public chest-thumping). Based on that evidence, here’s where Trump’s trade policy appears to be heading.

Brinkmanship on Nafta

Administration officials are signaling that they are willing to pull the United States out of the trade agreement with Canada and Mexico that has been the bedrock of North American commerce for nearly a quarter century. But do they mean it?

In late April, President Trump was apparently on the verge of signing an executive order that would have begun the process of exiting the agreement. He said later that he held off after phone calls from the presidents of Canada and Mexico urging him not to.

He also would have faced intense pressure if he had moved forward, including from agriculture interests, the auto industry and the broader business community. It would have raised thorny legal questions about the president’s authority, and faced blowback from Republicans in Congress.

But a hallmark of Mr. Trump’s negotiating style is to make big threats to try to force action. And Nafta has been a favorite target. As recently as late April he said that Nafta has been “very, very bad for our companies and for our workers, and we’re going to make some very big changes, or we are going to get rid of Nafta once and for all.”

In other words, don’t be surprised if he keeps using Nafta withdrawal as a cudgel to try to push renegotiation along.

“I don’t think that was the last time we’ll see that possibility get floated,” said Tim Keeler, a partner at the law firm Mayer Brown and an official in George W. Bush’s trade representatives’ office. “The president is clearly focused on doing Nafta renegotiation and doing it quickly. That typically would take a couple of years, but that doesn’t appear to be the timeline he has in his head.”

With Mr. Lighthizer in place, the gears can now be put in motion for that deal making to begin — but figuring out exactly what the United States is asking for and what it will seek in return is less clear.

National security as a rationale for action

The Commerce Department has begun investigations into whether the United States’ national security is endangered by current trade practices around steel and aluminum.

Robert Lighthizer has been confirmed as lead trade negotiator in the Trump administration.

Credit
Manuel Balce Ceneta/Associated Press

The implicit allegation is that by subsidizing domestic metals production, China and other countries hurt American producers, which could leave the United States with inadequate supplies of steel and aluminum in the event of a war.

This is easily the weightiest step the administration has taken.

Invoking national security concerns can be a potential get-out-of-jail-free card at the World Trade Organization. Trade treaties don’t overrule countries’ national security interests. So if it formally invokes national security concerns, under so-called Section 232 authority, the Trump administration might be able to administer tariffs or other penalties against China that might otherwise be illegal under W.T.O. rules.

But because of the authority’s power, countries have been reluctant to use it outside of very specific cases where the security interests are obvious. If the United States takes action that obliterates that norm, other countries might start to use national security concerns as an excuse to implement tariffs and other trade barriers, undermining a global trade system created in no small part by the United States.

“Because of diplomatic sensitivity, this has been invoked very rarely and never really litigated at the W.T.O.,” said Scott Lincicome, a trade lawyer at White & Case. “It raises a question: If the U.S. can touch the third rail of global trade policy, will other W.T.O. members do the same?”

More public relations around routine moves

The invocation of national security concerns on steel and aluminum is an action that could prove substantively significant but has received modest public attention. Other trade moves are the opposite.

The prime example is the imposition of tariffs on Canadian softwood lumber, announced in late April with great fanfare, including a White House briefing with Commerce Secretary Wilbur Ross.

To trade professionals, it was an odd move — not in its substance, but in its optics. This has been a long-simmering dispute driven by the United States’ conviction that Canada unfairly subsidizes its lumber industry. But this type of action would usually happen quietly, in the form of a little-read announcement and fact sheet on the Commerce Department’s web page.

What is surprising, said Chad Bown, a senior fellow at the Peterson Institute for International Economics, is “escalating to the level of the secretary of commerce and the president a technocratic decision.”

It could even haunt the administration, Mr. Bown argues. Should the dispute end up in a W.T.O. tribunal, the Canadians could cite the White House news conference as evidence that the decision was driven not by a legalistic analysis of the facts, but by the desire to score political points.

Willingness to compromise for broader diplomatic goals

Every administration must weigh the pursuit of more favorable trade deals versus its other goals in global affairs. Indeed, the two can go hand in hand; Nafta is a big part of the closer relationship between the United States and Mexico in recent decades.

But when trade imperatives and diplomatic imperatives collide, someone has to choose, and that someone is often the president.

“It is quite a normal dynamic when you have difficult trade negotiations,” said Mr. Keeler, “that the U.S. trade rep is fighting for a hard line on beef access in country X, and somebody from the State Department shows up and says, ‘How can we let our relationship with country X be defined by beef?’ ”

To an unusual degree, Mr. Trump has been willing to openly put trade and national securities on the table and state explicitly that other countries can gain leverage in one area for cooperation in another.

After spending the entire campaign complaining of the unfairness of trade relations with China, Mr. Trump said on Twitter in April that “I explained to the president of China that a trade deal with the U.S. will be far better for them if they solve the North Korean problem!”

In other words, there is a pathway for China, and presumably any country, to get more kid-glove treatment on trade negotiations, and the president isn’t afraid to talk about it.

Continue reading the main story

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

You may also like

Book Entry: Review: The Scandalous Friendship That Shaped Adam Smith

The field of political economy was a branch