Trump pro­tec­tion­ism dam­ag­ing: Econ­o­mists

> US pres­i­dent-elect’s threats have caused harm, al­though ad­vis­ers have played down the tough talk

The Sun (Malaysia) - - SUNBIZ -

WASH­ING­TON: While his ad­vis­ers have played down some of Pres­i­dent-elect Don­ald Trump’s most ex­treme trade threats as ne­go­ti­at­ing tac­tics, econ­o­mists re­main wor­ried about the po­ten­tial to in­flict real dam­age.

The Repub­li­can bil­lion­aire has said that on his first day he will la­bel China a cur­rency ma­nip­u­la­tor, has threat­ened to pull out of free trade agree­ments like Nafta and slap puni­tive tar­iffs of up to 45% on China and Mex­ico.

And there is no ques­tion the US pres­i­dent has the power to take those ac­tions uni­lat­er­ally, with­out the con­sent of Congress, econ­o­mists say.

In a cam­paign sea­son drenched in hy­per­bolic rhetoric, those pro­tec­tion­ist threats have pushed econ­o­mists to is­sue truly apoc­a­lyp­tic pro­jec­tions, warn­ing of job losses of four mil­lion or more, since his sur­prise elec­tion win on Nov 8, Trump’s ad­vis­ers have sug­gested his threats were de­signed sim­ply to push trad­ing part­ners to agree to a bet­ter deal for the US.

Even so, econ­o­mists say Trump’s stance al­ready has done dam­age, al­though it is hard to quan­tify what might hap­pen un­til he pro­vides specifics.

The Trans-Pa­cific Part­ner­ship, which com­prised 12 economies and would have been the big­gest US trade deal, is widely con­sid­ered dead fol­low­ing Trump’s elec­tion.

US Trade Rep­re­sen­ta­tive Michael Fro­man said the deal “is in pur­ga­tory”.

“We’ve seen a rise of pop­ulism, not just in this coun­try... pol­i­tics that did not al­ways per­mit a full de­bate on the facts,” he said at a fo­rum late Mon­day.

It could be that Trump’s threats have worked to some ex­tent, since Canada and Mex­ico each an­nounced last week that they are will­ing to sit down with the new ad­min­is­tra­tion to re-ex­am­ine Nafta.

But not fac­tored in to the Trump team cal­cu­la­tion is the re­ac­tion of US trad­ing part­ners to Trump’s pro­tec­tion­ist poli­cies.

Mar­cus Noland, ex­ec­u­tive vicepres­i­dent of the Peterson In­sti­tute for International Eco­nom­ics, points out about US trad­ing part­ners: “They’ve got com­plaints too” about Nafta.

Un­der the rules of the US free trade agree­ments like Nafta, the pres­i­dent can pull out sim­ply by no­ti­fy­ing the other mem­bers. No­ti­fi­ca­tion trig­gers a 180day clock for new ne­go­ti­a­tions, but ab­sent a new agree­ment – which must be rat­i­fied by all mem­ber leg­is­la­tures – the ac­cord would dis­ap­pear.

If that oc­curs, Noland warns that Trump’s most fa­mous prom­ise to build a wall may be­come nec­es­sary quickly. As the Mex­i­can econ­omy takes a huge hit from lost trade, many more im­mi­grants may try to come to the United States in search of work.

“That is po­ten­tially a very risky move,” Noland told AFP. “There is a high de­gree of trade in­te­gra­tion be­tween the US and Mex­ico. In Texas, a lot of peo­ple make a lot of money off trade from Mex­ico, so he could get re­sis­tance.”

Ed­ward Alden, trade spe­cial­ist at the Coun­cil on For­eign Re­la­tions, said it is hard to pre­dict what could hap­pen in hy­po­thet­i­cal trade wars, but the un­cer­tainty around Trump poli­cies is con­cern­ing, what he calls the “un­known un­knowns.”

“His goal here is lever­age. He doesn’t just want to tear up Nafta, he wants to use the threat to ne­go­ti­ate some­thing bet­ter,” Alden told AFP. “The prob­lem is we don’t know what his vi­sion is of some­thing bet­ter.”

Part of the rea­son Trump’s pro­tec­tion­ist rhetoric res­onated with vot­ers is that the US has trade deficits with each of its top three trad­ing part­ners – Canada, Mex­ico and China – with China amount­ing to over UA$30 bil­lion (RM129.9 bil­lion) a month.

But China, the econ­o­mists warn, will re­act to any US moves, with di­rect and in­di­rect re­tal­i­a­tion.

“China has a long his­tory of tit-for-tat re­tal­i­a­tions to any trade re­stric­tions. While the me­dia ter­ri­bly overuses the specter of a ‘trade war’ in which coun­tries re­cip­ro­cally es­ca­late tar­iffs, that is a real pos­si­bil­ity if Trump makes good on his threats,” Alden wrote in a re­cent blog.

The econ­o­mists say Trump seems to be mod­el­ling his trade pol­icy on Ron­ald Rea­gan, who sharply cut taxes, dereg­u­lated and pushed through enor­mous increases in spend­ing (in his case on the mil­i­tary, while Trump is fo­cused on in­fra­struc­ture). This cre­ated huge fis­cal and trade deficits, which then cre­ated a pro­tec­tion­ist back­lash.

In that Cold War era, Ja­pan was seen as the trade vil­lain, and Rea­gan pres­sured Tokyo to vol­un­tar­ily re­strict some ex­ports and in­crease im­ports.

But the econ­o­mists agree Wash­ing­ton does not have that kind of lever­age with China in a mul­ti­lat­eral trad­ing sys­tem.

With US$2 tril­lion a year in ex­ports, and 14 mil­lion Amer­i­cans who owe their jobs to trade, “cut­ting off trade is the wrong rem­edy,” Fro­man said.

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