US tactics on trade are direct state intervention

From the beginning of Donald Trump’s presidential campaign, he has said he wants to make trade “fair”. For too long, he argued, American companies and workers suffered as trading partners used tactics that stole jobs, damaged US industry and widened deficits.

The implication was that he’d work to strip away the remaining tariffs and other hurdles that tilted the playing field.

Now we’ve seen Trump’s policy in action, it turns out he’s doing the opposite. There’s a hypocrisy at the core of his administration’s approach. Rather than knocking down state-imposed barriers, he’s pressuring governments to intervene to achieve specific outcomes — for the most part, protecting or aiding specific US industries and companies.

The result isn’t freer trade, but more unfair trade. Look at the relationship with China. Trump is threatening to impose broad tariffs on imports to compel Beijing to reduce its surplus with the US. The ultimatum is: Intervene to manipulate trade in our favour, or we’ll intervene to manipulate trade in our favour.

China’s negotiators appeared to cave on this point by offering to buy more from the US, most likely energy and agricultural products, though the outlines of a compromise are in flux.

US Treasury Secretary Steven Mnuchin recently said that “this is not a giant purchase order government to government.” But let’s not pretend Beijing isn’t directly involved. Chinese officials are making the promises, not private parties, meaning any deals will be state-organised, not market-driven.

The energy sector is dominated by state-owned enterprises, so any decision to buy more US oil, for instance, is a matter of national policy. There are already reports that such enterprises are being prodded to buy American oil and soybeans.

The US did the same with

South Korea, a key ally. In agreeing to revise a freetrade pact, Seoul was in effect blackmailed into a self-imposed quota on steel exports to avoid high tariffs.

Again, Trump asked a government to achieve a specific result that the market wasn’t bringing about.

Trump is capitalising on the leverage provided by his giant home market to alter trade in ways that benefit targeted industries.

Nafta talks

Negotiations over the

North American Free Trade

Agreement show the same tendency. Trump had the gall to ask Mexico for changes that could force it to do something he’d never consider at home — effectively increase wages to a set minimum. The aim was to press the government to boost automobile manufacturing costs and push factories back into the US.

Mexico has said it’s prepared to be flexible on wages and auto content.

The bottom-line is that Trump is capitalising on the leverage provided by his giant home market to alter trade in ways that benefit targeted industries — which is what China does. He’s using state intervention to tilt the playing field toward the US and away from countries that include close allies.

The pattern of Trump’s demands also suggests that the true motivation behind his policies is not economic but political. The sectors he consistently targets for protection and perquisites — autos, steel, agriculture and energy — are all important to states that voted for him, or whose votes he’ll need.

In his quest to protect the car industry, he’s even considering throwing up new tariffs on vehicle imports, making the (ridiculous) assertion that they’re necessary for national security.

In short, it seems, Trump is using trade policy to bolster his own prospects and not necessarily those of the economy.

The way ahead is to remove the state intervention that distorts markets, not encourage more of it. Only by breaking down artificial barriers can trade become truly fair. By opening foreign markets to US business, Trump would break the fetters that prevent competitive American companies from expanding, and boosting sales, profits — and jobs.

Trump and his Republican colleagues say they favour private enterprise and the free markets that allow it to thrive. But the president is abusing the power of the state to play favourites. Does that sound fair?