Turf War Before Trade War
Worrisome rumblings on trade have been emanating from President-elect Donald Trump's transition team.
Worrisome rumblings on trade have been emanating from President-elect Donald Trump's transition team. First, the appointment of Peter Navarro to head a newly formed National Trade Council in the White House, followed by rumors of plans for a five percent tariff on imports.
Worrisome rumblings on trade have been emanating from President-elect Donald Trump’s transition team. First, the appointment of Peter Navarro to head a newly formed National Trade Council in the White House, followed by rumors of plans for a five percent tariff on imports.
Neither is a good idea. Navarro, though a credentialed economist, embraces a protectionist worldview that is both at odds with most economists and unsupported by evidence. A broad import tariff would be a blatant violation of U.S. international commitments, on top of doing economic damage. Perhaps on this latter point, those members of Congress who embrace strict readings of the Constitution will note that the founders assigned the legislature the power to set trade barriers, not the executive (Article 1, Section 8).
At this point in the transition, though, it may be more interesting to focus on process rather than policy. Keith Hennessey, a veteran of economic policymaking from both the George W. Bush administration and the Senate, has been providing valuable descriptions of how an economic policymaking process is supposed to work. As background to understanding the importance of Trump’s trade policy changes, he is well worth reading.
Process seems distinctly less sexy than policy. Yet, in a way, many of Trump’s critiques are really process critiques. He repeats a common claim that U.S. economic interests have been subordinated to foreign policy interests. Of course, in any well-functioning government, both economic and foreign policy interests will be represented in discussions; the question is how one will be weighed against the other.
For trade policy, the longstanding process has been to hold interagency discussions, chaired by the U.S. Trade Representative’s office (USTR). The discussions take place initially at the staff level, after which issues that are contentious or important rise up through the ranks of government — assistant, under, and deputy secretaries, then cabinet members, and ultimately the president. While USTR has been the lead agency on trade issues, other agencies play an active role as well: Agriculture, Commerce, the Council of Economic Advisers, Labor, Management and Budget, Security, State, Treasury, and sometimes Defense and Health and Human Services. Each has interests they represent and expertise they bring to the table. A good process ensures that those interests are heard and relevant expertise tapped.
The most striking process announcement this week was the creation of the National Trade Council, which is also supposed to deal with industrial policy. This new entity will presumably sit alongside the existing National Economic Council, as well as the Domestic Policy Council and the National Security Council. Three significant problems with this structure leap to mind:
Redundancy. Navarro will be a White House official tasked with overseeing trade policy and coordinating between relevant agencies. That’s almost exactly the job description of the current USTR (an agency that is in the broader White House). Issues of industrial policy are also issues of economic policy, so would presumably be in the domain of the National Economic Council, to be headed by Goldman Sachs veteran Gary Cohn. Competing policy processes sound like a prescription for confusion and turf battles.
Congress. Trump is not the first to arrive in Washington with plans to reorganize the trade policy process. His predecessor tried to do the same. As noted above, though, Congress ultimately controls trade policy and an important key to success is keeping Congress happy. Trump’s announced plans seem likely to set off alarms on Capitol Hill. Trade is overseen by the House Committee on Ways and Means and the Senate Finance Committee. They are used to having a cabinet-level principal reporting to them (the USTR). In addition to the empowerment of Navarro, who as a White House official would not have the same relationship with Congress, Trump has indicated that the Commerce Department, under Secretary-designate Wilbur Ross, would lead on trade. Commerce is primarily overseen by Senate Commerce, Science, and Transportation, and by House Energy and Commerce. If this sounds trivial, you’ve never seen a Capitol Hill turf battle.
Other countries. Trump talks of striking better deals with U.S. trading partners. The question is who will strike those deals. With an empowered USTR, this is not really a question. That person, an ambassador, both leads policy creation and flies around to conclude deals. What happens when the roles of trade policy architect and trade negotiator are separated? We don’t have to speculate; that was essentially the case in President Barack Obama’s first term, when Ron Kirk was USTR, flying around to national capitols, and Michael Froman was deputy national security advisor. Froman, sitting in the West Wing, was the true overseer of trade policy creation. Other countries quickly figured out that they were not talking to the right guy. Most of the Obama administration’s advances in trade policy had to wait for the second term, when Froman took over as USTR and the two roles were reunited. Given the announced structure of the incoming administration, the USTR may not even be the second-most important voice on trade, behind Ross and Navarro. From such a position, he or she will have a difficult time winning respect abroad when matched against ministers.
Many of Trump’s supporters were drawn to his business background. They surely hoped that, whatever his inexperience with policy issues, he could be counted on for sound management. At least on the trade front, the early signs do not bode well.
Photo credit: SCOTT OLSON/Getty Images
Phil Levy is the chief economist at Flexport and a former senior economist for trade on the Council of Economic Advisers in the George W. Bush administration. Twitter: @philipilevy
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