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While Trump Isolates the U.S., It’s ‘Let’s Make a Deal’ for the Rest of the World
Globalization is alive and well. It’s just the United States sitting on the sidelines.
Donald Trump may be withdrawing from the world, but almost no one else is following suit.
While the Trump administration walks away from trade deals and throws up ever more barriers to free trade, the rest of the world is racing headlong to deepen globalization. That means that as U.S. consumers pay higher prices at home, and U.S. producers face greater obstacles for their exports, their counterparts around the world will reap the benefits.
Over the weekend, while Trump made headlines for not pouring more gasoline on his trade war with China (even while maintaining tariffs on hundreds of billions of dollars’ worth of Chinese goods), the European Union inked two landmark trade deals that will open markets with hundreds of millions of people.
After 20 years of trying, the EU and four Latin American countries making up the Mercosur customs union finally completed a sweeping trade deal covering almost $100 billion worth of bilateral trade a year. Days later, even as the Trump administration vilified Vietnam as “even worse than China” and hit Hanoi with fresh tariffs, the EU and Vietnam announced a new free trade deal as well—Europe’s “most ambitious” such pact with an emerging economy.
“We reinforce multilateral agreements whilst others rip them up,” EU Trade Commissioner Cecilia Malmstrom said on Twitter Wednesday about the Mercosur accord.
America’s sudden retreat into old-fashioned protectionism, and Washington’s frontal assault on the World Trade Organization and the decades-old rules that have upheld the world trading order, has fueled fears that globalization is dead. In reality, outside of the United States, most other countries are racing to tear down barriers and embrace free trade with an urgency not seen in decades.
“The U.S. is withdrawing from globalization,” said Joel Trachtman, an international law professor at Tufts University’s Fletcher School. Meanwhile, “the EU and Japan, our competitors, are entering into free trade agreements that will make them more competitive.”
Europe has been among the most active. Since Trump took office, in addition to the latest two accords, the European Union has inked free trade deals with Canada, Mexico, Japan, and Singapore and is deep in talks with India, Australia, New Zealand, and Chile. To some extent, Europe’s push for more free trade around the world is a response to U.S. protectionism—a way to ensure that even as the architect of the global trading order walks away from its own creation, Europe can buttress the trade edifice.
As part of its three-legged strategy for dealing with U.S. tariffs and trade aggression, “Europe is accelerating trade deals so that any of the losses that we incur from the U.S. trade war is made up for, at least in part,” said Maria Demertzis, the deputy director at Bruegel, a think tank in Brussels. That helps explain why after two decades of stalemate, Europe and Mercosur countries finally reached agreement on what she calls an “insurance policy.”
But it’s not just Europe scrambling to save free trade. Most notably, after Trump walked away from the Trans-Pacific Partnership (TPP), a massive 12-nation trade deal originally encompassing 40 percent of global GDP, the other 11 countries concluded the pact anyway, and it went into effect late last year. Countries inside the newly named Comprehensive and Progressive Agreement for Trans-Pacific Partnership such as Australia, Canada, and Japan are also working on a flurry of other bilateral and multilateral trade pacts.
Australia has trade accords pending with Indonesia, Peru, and Hong Kong and is in advanced talks with several other blocs, including Europe. Canada is working on trade deals with Japan, Singapore, India, and many countries in Africa and Central America. Japan inked a deal with Mexico and is in talks for a sweeping agreement including South Korea and China. The Mercosur countries that just inked the deal with Europe are now eyeing accords with Canada and South Korea, among others.
All the while, talks continue among 16 Asian countries to form the Regional Comprehensive Economic Partnership, which would deepen trade ties between Southeast Asian nations and economic giants like India and China. African nations, too, are coming closer to completing their own trade grouping.
Meanwhile, the Trump administration has invoked national security fears to levy tariffs on friends and allies and is threatening to levy tariffs on imported cars on national security grounds. Since Trump took office, the United States has managed to secure only some minor revisions to the existing trade deal with South Korea and update the existing trade pact with Canada and Mexico, which still must be approved by Congress.
“The U.S. doesn’t have a lot to show—not in terms of treaties or reduced trade barriers or reduced problems, as with China,” Trachtman said.
The upshot for the United States is that while firms and consumers in Europe, Canada, Japan, and elsewhere will see tariffs fall and bilateral trade increase, U.S. businesses will find themselves playing at a growing disadvantage in markets they’ve long coveted. American farmers and ranchers, for example, dearly wanted the access to Japan offered by the TPP; instead, Australian ranchers get the benefits, and American farmers have meanwhile lost much of their Chinese market. With the Mercosur deal, Latin American farmers and ranchers gain access to the European market—still an uphill climb for Americans—while Europe gets preferential access for its industrial exports like cars and machinery.
The EU-Mercosur deal “means big opportunities for our firms and their workers,” Malmstrom continued on Twitter. “A market of almost [300 million] people open to us but effectively closed to our competitors.”
“When we don’t make progress and others do, that puts us in a worse position in terms of market access,” Trachtman said. “It’s not a pretty picture.”
Prospects for a return to free trading in the United States appear bleak. Protectionism has suddenly become the default position of most Republican voters, if not yet Republican lawmakers. And recent research by the Peterson Institute for International Economics suggests that the lurch toward protectionism owes less to anxiety over globalization and trade and more to insularity and xenophobia. That means that economic remedies to address concerns over globalization—from trade adjustment assistance to job retraining—will do little to move the needle.
And Democrats have traditionally been even more suspicious of free trade than Republicans; independent Sen. Bernie Sanders, among other candidates vying for the Democratic presidential nomination, is using trade as a cudgel, while Sen. Elizabeth Warren is offering her own version of Trump’s “economic nationalism” as a remedy.
“In sum, it appears unlikely that the United States will return to liberal trade policies any time soon,” concluded Marcus Noland in the recent Peterson paper.
What that means in practical terms is that while huge chunks of the global economy continue tearing down barriers to trade, fueling economic growth and job creation, the United States could find itself on the outside looking in. Much like Great Britain, which led the charge for free trade in the 19th century, only to retreat decades later behind a wall of imperial preferences as the world moved on, the United States may soon find itself alone bucking the tide.