Elephants in the Room

Trump Is Losing His Own 3D Chess Game

Trade is a complex global system. The White House has misidentified the problem—and created much bigger ones.

A preserved human specimen plays chess at the Plastinarium in Guben, Germany on Nov. 16, 2006. (Photo by Andreas Rentz/Getty Images)
A preserved human specimen plays chess at the Plastinarium in Guben, Germany on Nov. 16, 2006. (Photo by Andreas Rentz/Getty Images)

For fans of U.S. President Donald Trump who still retained a modicum of fondness for markets, last week looked like vindication. After months of mounting trade wars, rising prices on imported parts, and business disruptions, an agreement with the European Union on trade seemed to offer the promise of a new, previously unattainable market opening.

Washington Post columnist Marc Thiessen trumpeted the apparent achievement: “Wednesday’s breakthrough with the European Union shows that, contrary to what his critics allege, Trump is not a protectionist; rather, he is using tariffs as a tool to advance a radical free-trade agenda.” He interpreted Europe’s suggestion that it would buy more soybeans as evidence of “three-dimensional trade chess.” He concluded that Trump “may end up being one of the greatest free-trade presidents in history.”

If only any part of that analysis were correct.

Start with Thiessen’s opening premise: that Europe has high tariffs and Trump has finally found an aggressive and effective way to address the issue.

In reality, before the president’s recent bout of trade protectionism and the retaliation it induced, U.S. tariffs were low and EU tariffs were lower: In 2016, U.S. applied tariffs averaged 2.9 percent, while EU applied tariffs averaged 2.5 percent. Contrast that with the 25 percent tariffs Trump slapped on EU steel imports on June 1. The antebellum tariffs were this low exactly because of the years of reciprocal trade liberalization that Trump derides.

What about the fact that Trump has brought Europe to the negotiating table? No credit earned. That was where Europe was at the end of the Obama administration—in the midst of Transatlantic Trade and Investment Partnership talks. It was Trump that discontinued the negotiations upon taking office.

What of Trump’s radical proposal for zero tariffs, subsidies, or barriers? First, dropping from a 2.9 percent average tariff to zero is not really that radical. Second, the president’s offer is not credible. Unlike with the application of protection, any serious U.S. trade liberalization would require Congress to pass a free trade agreement, like the Transatlantic Trade and Investment Partnership. That would require substantial notification of and consultation with Congress, including formal notice 90 days before negotiations begin. Trump’s team has not done any of this. Hence, other countries know he has no ability to follow through on his promises, even if he were so inclined.

There was a reason the European delegation showed up with brightly colored flashcards and European Commission President Jean-Claude Juncker told the U.S. leader, “If you want to be stupid, I can be stupid as well.” It was not because they were awed by Trump’s negotiating acumen.

The president’s aggressive embrace of tariffs on dubious national security grounds has also called into question the value of striking trade deals with the United States. If Trump feels unconstrained by past U.S. commitments—such as World Trade Organization promises not to place tariffs on steel, aluminum, or cars—then why should anyone see new commitments as worthwhile?

But what, one might ask, of the EU offer to purchase more U.S. soybeans? Surely that is evidence of some achievement. Actually: No. That is an example of either naiveté on the part of Trump or a common desire by both sides to give the appearance of achievement when there really was none. The European Commission is not in the business of purchasing soybeans; private businesses across Europe do that. Nor did the deal drop EU soybean tariffs, since there weren’t any in the first place. It is true that Europe had already been buying higher numbers of U.S. soybeans—that is because Chinese retaliation against Trump’s tariffs had dramatically driven down U.S. soybean prices and pushed up prices in Brazil, where EU purchasers had traditionally shopped. Even if Trump did deserve credit for swapping the European soybean market for the Chinese one, it would be a poor trade. China imports more than four times as many soybeans as the EU, so he switched a big market for a smaller one and stuck U.S. farmers with lower prices.

For the most part, the deal between Trump and the EU was nothing more than an agreement to postpone escalation of the conflict while they talked about talking. It was successful only to the extent that it persuaded believers in the House of Representatives to leave for the summer without taking action to constrain the president on trade.

Trump’s belligerence has eroded trade relations, not advanced the country toward radical free trade. There are no serious trade negotiations underway that offer the promise of returning to the trade peace Trump inherited, much less advancing a new constructive agenda. The president has misidentified the problems, damaged the U.S. economy, alienated allies, and failed to propose any effective solution. If this is three-dimensional chess, it may be time to play a different game.

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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