Trump and Trade in an In­creas­ingly Dis­parate World

Policy - - In This Issue - Sarah Goldfeder

Since 1947, when the Gen­eral Agree­ment on Tar­iffs and Trade was struck in the spirit of post-war mul­ti­lat­eral in­sti­tu­tions de­signed to cod­ify col­lab­o­ra­tion among na­tions, in­ter­na­tional trade has been at the in­ter­sec­tion of po­lit­i­cal sta­bil­ity and eco­nomic pros­per­ity. Among the pil­lars of the rules-based in­ter­na­tional or­der that Don­ald Trump has been tar­get­ing is that Amer­i­can-an­chored mul­ti­lat­eral trade regime.

Pres­i­dent Don­ald Trump is an un­equiv­o­cal trade skep­tic. Af­ter a cam­paign spent ac­cus­ing China of un­fair trade prac­tices, one of his first acts as pres­i­dent was to scrap the Trans-Pa­cific Part­ner­ship (TPP), a deal de­signed to iso­late China un­til it agreed to play­ing by a set of agreedupon rules. Trump has since moved on to re­ject mul­ti­lat­eral trade agree­ments writ large, in­clud­ing the tri­lat­eral North Amer­i­can Free Trade Agree­ment (NAFTA). The core of his

crit­i­cism? The United States is get­ting a raw deal.

This pres­i­dent’s trade pol­icy can­not be di­vorced from his pol­i­tics. His base equates trade with job loss, and im­mi­gra­tion with in­equity. The be­lief that the United States is al­ways at risk of be­ing taken ad­van­tage of beats at the heart of the Trump doc­trine. That he him­self has made mil­lions while tak­ing ad­van­tage of the op­tions free trade pro­vides is his own proof point for na­tion­al­ist eco­nomic pol­icy.

The foun­da­tion of Pres­i­dent Trump’s trade and eco­nomic pol­icy is a re­turn to mer­can­tilist ten­den­cies de­bunked and dis­carded in the more than 250 years since the United States de­clared its in­de­pen­dence from the Crown. He has re­jected free mar­kets, the pre­vail­ing the­o­ries of “soft power,” and in­deed even the tra­di­tional no­tions of cap­i­tal­ism. In a sense, Trump’s vi­sion re­sem­bles King Ge­orge III, the very leader the Amer­i­cans re­jected in 1776. The re­lent­less de­mo­niza­tion of trade deficits and con­trol of trad­ing re­la­tion­ships, see­ing the re­sults as zero-sum, all re­flect an era pre-Adam Smith and his in­vis­i­ble hand.

The ar­gu­ment for global trade is that the more that goods, ser­vices, and cap­i­tal cir­cu­late, the tighter the threads of in­ter­de­pen­dency are spun. The re­sult­ing web cre­ates ties among the par­tic­i­pat­ing coun­tries and en­cour­ages a level of sta­bil­ity via eco­nomic means. In this model, com­pro­mises are made, wealth is shared, and while there may not be one dis­tinct win­ner at the end of the day, all ben­e­fit. Ben­e­fits may ap­pear to ac­crue in more sig­nif­i­cant fash­ion to de­vel­op­ing economies than to de­vel­oped, mostly be­cause of the gap between where they both start from.

But Trump is not in­ter­ested in equal­ity, or in bring­ing de­vel­op­ing economies into the de­vel­oped world. He is in­ter­ested in right­ing what he be­lieves are the dam­ages done to the U.S. econ­omy as it has given up some of that gap. That other economies are catch­ing up with the Amer­i­cans is not seen as a net ben­e­fit, in­stead those economies are viewed as chal­lengers, as com­pe­ti­tion in a win­ner-take-all world. The fo­cus on trade deficits fur­ther speaks to a be­lief in build­ing an em­pire rather than a com­mit­ment to steady­ing the world.

While there has al­ways been ten­sion between what the United States un­der­takes as a diplo­matic im­per­a­tive to pro­tect Amer­i­can in­ter­ests abroad and cir­cling the wag­ons closer to home, the cur­rent de­bate about trade dis­counts eco­nomic fun­da­men­tals that have been taken for granted for hun­dreds of years. For ex­am­ple, that ac­cess to global mar­kets fu­els eco­nomic growth and pros­per­ity by fa­cil­i­tat­ing ef­fi­cien­cies and al­low­ing economies to spe­cial­ize. Act­ing as a pro­tec­tion­ist, iso­la­tion­ist eco­nomic power has im­pli­ca­tions in many ar­eas be­yond trade.

Most chill­ing in the new era of eco­nomic na­tion­al­ism is the re­dis­tri­bu­tion of wealth within the United States it­self and power in the world writ large. As the United States turns in­ward, goods and ser­vices be­come scarcer and there­fore more ex­pen­sive. Jobs may re­turn, but the wages as­so­ci­ated with those jobs are very likely not go­ing to be suf­fi­cient for fam­i­lies to en­joy the level of com­fort and as­set own­er­ship the Amer­i­can dream has al­ways promised. Pres­i­dent Trump has em­braced poli­cies that will grow the gulf between the haves and havenots, not cor­rect the in­ad­e­qua­cies of the cur­rent sys­tem.

The eco­nomic and po­lit­i­cal di­vi­sions within the U.S. have only grown more sig­nif­i­cant in the past 50 years. Whereas there was a vi­brant mid­dle­class that grew rapidly in the in­dus­trial boom post-war, in the in­ter­ven­ing years, the mid­dle-class has con­tin­ued to shrink at an ever-in­creas­ing pace. The re­sult is that lead­ing into the 2016 elec­tion, the low­est 50 per cent of wage earn­ers in Amer­ica were in year 45 (roughly) of a wage slump, while in the past 25 years the top 1 per cent saw their in­comes grow 200 per cent.

Mean­while, the po­lit­i­cal cen­tre has dis­si­pated, mov­ing po­lit­i­cal power to the ex­tremes. Amer­i­cans have lost sight of each other, with the di­vi­sions only deep­en­ing and the ten­sion in­ten­si­fy­ing.

On the global stage, the ram­i­fi­ca­tions of an eco­nom­i­cally na­tion­al­ist United States are also dra­matic and con­cern­ing. A world ab­sent the benev­o­lence of a demo­cratic pow­er­house, with­out con­cern for the de­vel­op­ment of nascent economies and democ­ra­cies, be­comes a less se­cure place for all. A United States that be­lieves it must fear the very coun­tries it should be try­ing to of­fer a help­ing hand is some­thing that the world has not had to con­tend with since the mid-20th cen­tury.

The TPP was widely agreed upon to be ground­break­ing; the first trade agree­ment ne­go­ti­ated for the 21st cen­tury econ­omy. Through­out the talks, the ques­tion that drove ne­go­tia­tors was not what did the econ­omy need now, but what would the econ­omy of the fu­ture re­quire. The end re­sult, ex­pan­sive and re­quir­ing com­pro­mise from all play­ers, was truly a first of its kind. The cor­ner­stone of a “pivot to Asia” that in­cluded iso­lat­ing an econ­omy that was tak­ing ad­van­tage of its WTO sta­tus to flood the U.S. mar­ket with cheap im­ports.

The foun­da­tion of Pres­i­dent Trump’s trade and eco­nomic pol­icy is a re­turn to mer­can­tilist ten­den­cies de­bunked and dis­carded in the more than 250 years since the United States de­clared its in­de­pen­dence from the Crown.

TPP was a strate­gic play, about far more than trade, and Pres­i­dent Trump’s re­jec­tion of it sets the stage for China’s re­gional domination. In the ab­sence of U.S. lead­er­ship, the Ja­panese have pushed the re­main­ing 11 part­ners to re­main com­mit­ted to the agree­ment. The agree­ment may have ini­tially ap­peared to be un­ten­able with­out ac­cess to the United States mar­ket, but in the end, it has been the U.S. po­si­tions on trade that have driven the re­main­ing part­ners to­gether.

Mex­ico and Canada, most no­tably, now see the re­named Com­pre­hen­sive and Pro­gres­sive Tran­spa­cific Part­ner­ship (CPTPP) as a key part of their post-NAFTA di­ver­si­fi­ca­tion of trade poli­cies. While Canada may be com­mit­ted to a pro­gres­sive trade agenda that causes their part­ners to pause, at the end of the day, the smart money is on both NAFTA part­ners build­ing a ro­bust and di­verse list of free trade agree­ments that will re­main an im­por­tant part of their economies for the long-run.

The legacy of Pres­i­dent Trump may have al­ready been writ­ten. In his re­cent visit to Asia, while the pres­i­dent talked a good game about the many bi­lat­eral trade deals that the United States would have with Asian part­ners, the re­al­ity is that few, if any, of those coun­tries are in­ter­ested in ne­go­ti­at­ing bi­lat­er­ally with the largest econ­omy in the world. The sovereign­tist speeches the pres­i­dent de­liv­ered first in New York at the United Na­tions and then in Viet­nam at the Asian Pa­cific Eco­nomic Co­op­er­a­tion sum­mit make glar­ingly clear his phi­los­o­phy.

No one should be sur­prised when a coun­try like Sin­ga­pore, punch­ing way above its weight eco­nom­i­cally, de­clines to en­gage with an econ­omy many times its size. And for that mat­ter, even China ap­pears less and less in­ter­ested in en­gag­ing with the United States on trade. By turn­ing his back on mul­ti­lat­eral trade agree­ments, where smaller economies can build coali­tions that guar­an­tee their in­ter­ests are ad­dressed, Pres­i­dent Trump has sown the seeds of the next era of Chi­nese dom­i­nance re­sem­bling the age of the Silk Road. Iron­i­cally, the Chi­nese em­pire-build­ing poli­cies at the heart of “One Belt, One Road,” are pro­vided an as­sist by the very coun­try that was seen as the bul­wark im­ped­ing its suc­cess.

Mean­while, the pres­i­dent has en­dorsed a tax re­form plan that will make do­ing busi­ness in the U.S. more lu­cra­tive. This plan has, at its core, tools to pull in­vest­ment, man­u­fac­tur­ing and jobs out of other coun­tries and back in­side the bor­ders of the United States. The plan is a hege­monic com­bi­na­tion of car­rots and sticks to com­pel busi­nesses that want ac­cess to the U.S. mar­ket to be in the mar­ket, not just sell­ing to the mar­ket. The in­sis­tence that this is just about look­ing out for what is best for his coun­try and that all lead­ers should do the same demon­strates Trump’s lack of re­gard for the in­ter­con­nect­ed­ness that has de­fined the post-World War II world.

Canada, along with other mid­dle­sized global pow­ers, has found great suc­cess hitch­ing it­self to the Amer­i­can wagon. The re­la­tion­ship with the ele­phant next door has max­i­mized Canada’s in­flu­ence glob­ally, cre­ated a trade-based econ­omy that per­forms well be­yond ex­pec­ta­tions, pri­mar­ily be­cause of an in­te­grated sup­ply chain that weaves it­self through the NAFTA part­ner economies. What to do now with a super power at its doorstep that is less and less in­ter­ested in en­gag­ing as equals? What to do now when the very strength of that neigh­bor, the will­ing­ness to op­er­ate as the guardian of peace and se­cu­rity, has di­min­ished so sig­nif­i­cantly as to leave a vacuum on the world stage?

In the past two months, both Pres­i­dent Trump and Prime Min­is­ter Justin Trudeau have vis­ited Asia. The process and out­comes of their visits have been much the same, yet still no­tably dif­fer­ent. Pres­i­dent Trump did not go into Asia declar­ing the great things that may come from an in­creased trad­ing re­la­tion­ship, but he made much of mi­nor trade gets—mostly ne­go­ti­ated dur­ing the prior ad­min­is­tra­tion. Prime Min­is­ter Trudeau went to Viet­nam and China with ma­jor trade ne­go­ti­a­tions on both tables, and re­turned home with in­cre­men­tal vic­to­ries. Ar­guably, there could not be two more di­a­met­ri­cally op­posed lead­ers, yet the out­comes ap­pear re­mark­ably sim­i­lar. The pro­gres­sive trade agenda that the prime min­is­ter has pre­sented to the trad­ing part­ners in NAFTA, CPTPP, and then in China, ad­dresses the heart of the ar­gu­ment against free trade. In so much as it is “Canada first,” it is an agenda di­rected at the do­mes­tic au­di­ence. Make trade agree­ments in­clude guar­an­tees of a liv­ing wage, gen­der eq­uity, the in­clu­sion of un­der-re­sources com­mu­ni­ties such as In­dige­nous peo­ple, safe work­ing con­di­tions, and en­vi­ron­men­tal stew­ard­ship. Rather than scoff, the U.S. might be wise to take it to heart. While Asia balked, in the end, what will make a dif­fer­ence in all the ne­go­ti­a­tions hap­pen­ing glob­ally is whether or not the work­ers see the ben­e­fit of th­ese agree­ments. Prime Min­is­ter Trudeau’s trade pol­icy is as tar­geted and po­lit­i­cal as is Pres­i­dent Trump’s. In the end, the two are not so far apart in their in­sis­tence on trade that ben­e­fits their re­spec­tive coun­tries first.

Prime Min­is­ter Trudeau’s trade pol­icy is as tar­geted and po­lit­i­cal as is Pres­i­dent Trump’s. In the end, the two are not so far apart in their in­sis­tence on trade that ben­e­fits their re­spec­tive coun­tries first.

Adam Scotti photo

Don­ald Trump and Justin Trudeau with G7 and EU rep­re­sen­ta­tives at the G7 Sum­mit in Italy, May 2017. A very dif­fer­ent po­lit­i­cal land­scape.

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