- By Phil LevyPhil Levy is Senior Fellow on the Global Economy, The Chicago Council on Global Affairs, and teaches strategy at Northwestern University’s Kellogg Schoool of Management.
The just-concluded presidential campaigns casted trade in an unflattering spotlight. So what will happen under President-Elect Donald Trump? We have arrived a moment when President Barack Obama once hoped to have completed both Atlantic and Pacific trade deals, as well as a Bilateral Investment Treaty with China. It now appears he will conclude none of these.
Edward Alden, a senior fellow at the Council on Foreign Relations, has a fairly despondent take on trade prospects under Trump. He may be right. But the situation is not quite as novel as he suggests.
We have had a president-elect before who campaigned against the ill effects of trade, blocked completed trade agreements, stepped away from trade negotiations underway, promised withdrawal from the North American Free Trade Agreement, urged much tougher enforcement actions, committed to name China immediately as a currency manipulator, and both threatened and implemented futile tariffs against China. Obama did all of this in 2008-2009.
Dan Griswold acknowledges the parallels, but draws a distinction. He argues that Obama didn’t really believe what he was saying on trade and that the issue was not as central to his campaign as it was to Trump’s. Perhaps. But here are three things to track as the new Trump administration forms.
1. The trade and economic team. To date, President-elect Trump has surrounded himself with a distinctly heterodox bunch of trade advisers (Dan Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University, is less diplomatic). Reportedly, trade critic Dan DiMicco is leading the transition effort in this area. Commenting in August on what Trump would seek in a U.S. Trade Representative, adviser Peter Navarro said, “I can assure you it will be the toughest, smartest SOB on trade that Mr. Trump can find. That’s the job description.”
Yet there will be pressure from business and financial markets to take a more orthodox approach, and optimists may hope for greater input from Vice President-elect Mike Pence. The Financial Times quotes adviser Anthony Scaramucci, who said, “When people see that there are real adults on the team, the markets will calm down. Pence is key.”
2. Learning curve. Obama, via his Treasury Secretary nominee, Tim Geithner, seemed to “learn” on inauguration day that there was little to be gained from naming China a currency manipulator. Ultimately, he never did.
For Trump, there are at least three areas in which his campaign trade stances diverged notably from reality. First, while China is currently manipulating its currency, it is propping it up. Were it to stop, the renminbi would depreciate, making Chinese goods even cheaper. This is probably not what he wants.
Second, while Trump was highly critical of trade agreements such as NAFTA and the Trans-Pacific Partnership, he never specified how he would improve them. That is likely to prove more difficult than he expects. Note, for example, that pre-NAFTA, U.S. average tariffs on Mexico were three percent. Mexican average tariffs on the United States were 15 percent.
Finally, on bringing trade dispute cases, particularly against China, the limiting factor does not tend to be the toughness and resolve of U.S. Trade Representative staff. It tends to be the willingness of U.S. business to back a case. Without business support, it’s hard to put a case together. But businesses are wary of being seen as publicly attacking China.
3. Bargaining: Congress and diplomacy. There is a serious difference of approach on trade between Speaker Paul Ryan and President-elect Trump. In the immediate aftermath of the election, both are speaking of unity. How will this work in practice? Will this be a compromise in which each gets some of what he wants? Will it be more lopsided? Or will it descend into discord?
Similarly, with foreign countries, Trump will discover that allies are useful and that our partners care a great deal about trade. This was why Obama revived George W. Bush’s TPP proposal in 2009, when the president began his first round of late-year Asian diplomacy.
None of this is to predict an easy time for trade under Trump. There will be serious negative repercussions from the failure to fulfill Obama administration promises on the TPP, the Transatlantic Trade and Investment Partnership, and the China BIT. But that would have been true under a President Hillary Clinton as well. President-elect Trump managed to tone down his campaign rhetoric when it came to congratulating Clinton on the race she had run. It remains to be seen whether there will be any similar moderation in trade.
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