Trump’s protectionism has historical precedent
After his inauguration, US President Donald Trump has begun to reset the White House trade policies. But the consequences of his “America First” stance could be disastrous.
After his inauguration on Friday, Trump announced the United States will withdraw from the Trans-Pacific Partnership agreement and declared the North Atlantic Free Trade Agreement will be renegotiated. If Mexico and Canada refuse to renegotiate the trade deal, he has threatened to withdraw the US from NAFTA.
Trump has also promised to renegotiate or reject other US international commitments. And he has threatened to impose 35-45 percent tariffs on imports.
His appointments also suggest potential trade friction. He has selected Peter Navarro, the author of several sensationalist China-bashing books, to head the new National Trade Council, which will oversee the US’ industrial policy. Navarro’s anti-China buddy Dan DiMicco, former CEO of the largest US steel company Nucor and a vocal free trade critic, is Trump’s trade advisor and former Reagan administration trade hawk Robert Lighthizer is his pick for US Trade Representative.
The three will work with US Secretary of Commerce, billionaire Wilbur Ross, who made a fortune by offshoring American jobs.
Targeting the US deficit, he United States’ White House with the lowforeign friends est approval ratings of any and partners had modern US president, hoped that as the which was reflected in the new US President, Donald lower-than-predicted turnTrump might temper the out along the Washington aggressive rhetoric he Mall on Friday. employed when campaignCommentators had theoing, and that somehow, as rized that, once in office, one commentator put it, Trump might use his first “the trailer would turn out speech to strike a more to be worse than the movemollient tone. That was ie” not.to be, however.
Many must have been “It was like he was still in disappointed therefore by campaign mode,” was a an inaugural speech varitypical response from one ously described as diviUS citizen interviewed. sive, isolationist and It was left to elsewhere pessimistic in headlines at in the new administration home and across the to stretch a hand of friendworld. ship to the rest of the
Setting aside the tradiworld. Retired General tion of inaugural presidenJames Mattis, sworn in on tial appeals to hope and Friday as secretary of unity, Donald defense, said: Trump present“Recognizing ed a dystopian that no nation is vision of the US secure without in which, amid friends, we will widespread work with the poverty and State Departcrime, there are ment to “rusted-out facstrengthen our tories scattered alliances.” like tombMattis therestones across by struck a softthe landscape er note than of our nation.” Trump, who had criticized
He left no doubt about NATO, questioned the who was responsible for future of the European this “carnage”: it was the Union and insulted Germafault of foreigners who had ny in the days before his stolen jobs from Ameriinauguration. cans. The enduring abrasive
The new president did ness of Trump gives no real not actually name these clue as to how his presiaggressors. But echoing dency will tackle the real accusations he leveled at challenges facing the counChina during his camtry, and he has yet to propaign, and since, he duce a coherent doctrine of warned: “We must protect foreign relations. our borders from the ravaBut how long can the ges of other countries makworld maintain this waiting our products, stealing and-see attitude toward a our companies, and man who now occupies destroying our jobs.” what is routinely can Free Trade Agreement There was also little described as the most unless it is renegotiated, it is comfort for the US’ closest powerful position in the unlikely that he will let Amerallies in Trump’s choice of world? ica exit the WTO. So both Bei“America First” as the keyThe US’ international jing and Washington can ask note slogan of his speech. partners have their own plunging Chinateam conducted a country’s core interests. the Geneva-based body to setFor European countries, challenges to deal with – US relations into rather controversial The best way for the two tle their trade disputes. the phrase echoes the isoon trade, on security, on chaos. Despite cercampaign on their countries to handle their Should the Trump adminislationism of the 1940s climate change, on comtain turbulences in march toward the trade differences is through tration resort to a trade war, when the America First bating Islamic extremism the past years, ChiWhite House. While negotiation. And if, as he says, China is likely to respond by Committee campaigned to and on reinforcing existing na and the US he has vowed to raise Trump is willing to settle disbeing equally unpleasant. keep the US out of World alliances, particularly the have largely expeEU.thestatusoftheUS,putesthroughnegotiation,IfTrumpchoosestoraisetheWarII,evenattheriskof rienced a stableT he has shown great then he should realize that he stakes even higher by using abandoning Europe to the he US has for threeand sustainable disrespect toward needs to give as well as take. Taiwan as a bargaining chip, Nazis. quarters of a century – relationship durvarious groups of For instance on trade, while then he may step into a territoHis inauguration took since an unprovoked ing the Obama presidency. Americans. And in terms of the American Chamber of ry that he is unfamiliar with. place against the backdrop attack by Japan forced it to Actually this has been the trend foreign relations, while he Commerce in China says its China has made it clear that of anti-Trump demonstraabandon America First isosince the two countries normalwants “fair” trade through members are complaining the one-China policy is nonnetions on the streets of lationism – played a cenized their relations. Beijing and negotiations with others, about an “unfavorable” gotiable. Playing with fire will Washington, and riot tral role in such global Washington do compete in especially China, he has investment environment in not make the US great again. police had to use tear gas issues. many areas, but they also coopattempted to gain an advanChina, Chinese businesspeoTrump’s pick for Secretary and stun grenades to disNow a new president is erate in many areas. Their relatage, by threatening to disreple are also complaining of of State Rex Tillerson has statperse the crowds. More signaling an inward-looktions are based on the shared gard the one-China policy. the US’ rising protectionism ed that his position is there is than 200 people were ing retreat. But no one yet consensus that Taiwan is part Trump is known to seek the which is hurting them. no intent to change the prinarrested. quite knows what that will of one China, which has been maximum concessions from Luckily, at a time of globaliciple of one China. The Trump Organizers of Saturday’s involve, or how far the affirmed by every US administhe other party when making a zation, both China and the US administration should reafWashington Women’s checks and balances of the tration since 1979. On this basis, deal, and he may have sucare members of the World firm it unambiguously as the March, part of worldwide US system will constrain China and the US have partceeded with this approach as a Trade Organization. Despite official US policy. anti-Trump demonstrahim from doing anything nered on various issues, in parbusinessman. However, he Trump announcing he is withtions, were predicting that rash. ticular on nuclear proliferation needs to understand that as a drawing the US from the as many people would turn and anti-terrorism, and notably statesman he is playing for Trans-Pacific Partnership out as attended the inauguclimate change. much higher stakes, especially agreement and he is threatenration the previous day.
However, Trump and his when it comes to another ing to quit the North Ameri- Trump has entered the Trump has named Japan as one of the deficit contributors, which Japan’s Finance Minister Taro Aso considered inappropriate. In terms of trade imbalances, “China is No 1,” Aso said.
But in protectionist initiatives, blame is in the eye of the beholder as one country’s deficit is another’s surplus. Trump’s trade warriors will begin by singling out nations that have a large trade surplus with the US. That makes big trading economies obvious targets. In 2015, the list was topped by China ($367 billion), Japan ($69 billion), Mexico ($61 billion) and Germany ($60 billion)
However, they are likely to ignore the size of these surpluses on a per capita basis. If we take into account population size, Germany ($720) is the deficit leader followed by Japan ($543) and Mexico ($488), with China ($262) far behind.
And if the Trump administration really is serious about targeting the deficit leaders, it should probably consider a trade war with Ireland. After all, the US has a deficit of $30 billion with Ireland, which translates to $6,380 in per capita terms – that’s nine times that of Germany and 24 times the Chinese figure.
In reality, trade deficits are likely to serve as pretexts for protectionism – even if such policies penalize the rest of the world.
Trump’s goals may well be dictated by realpolitik. Deficit criticism serves largely as an effort to undermine European unity (hence his anti-Merkel tirade), the rise of China and Mexico, and Japanese reforms. In such a win-lose world, “America First” is not possible through cooperation or even competition, but only by winning and harming perceived adversaries.
And yet, historically, US trade deficits did not start with China, or any other single country. Rather, they are regional and have prevailed for more than 41 years with Asia – first with Japan, then with newly-industrialized Asian tigers and recently with China and emerging Asia.
A single-minded focus on trade deficits ignores the fact that global economic cooperation is not just about trade in goods, but about trade in services and high-technology. It also includes investment, which Trump would like to attract from the very same countries that he risks alienating with his trade policy. And it includes migration flows, which Trump would like to restrict dramatically, which would hurt US’ long-term growth, reduce remittances to poorer nations and boost antiUS resentment particularly in the Middle East.
Trump’s stated protectionism does have a historical precedent. In 1930, the US Congress passed the notorious Smoot-Hawley Tariff Act, which sharply raised the cost of foreign imports. While it seemed to work initially, it soon caused other nations to retaliate. Rounds of tit-for-tat retaliation contributed to the Great Depression, and the way was paved for another world war.
Trumping world trade is a bad idea, but its timing is even worse.
The author is the founder of the Difference Group and he has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). The author is a professor and associate dean of the Institute of International Studies at Fudan University. The writer is a senior media consultant to China Daily UK.