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