It is now about eight months into the Trump presidency, and it’s time to take stock of his trade policy and accomplishments so far. The short answer is the policy is incoherent and the accomplishments few, but both deserve a deeper dive.
The Trump trade policy began with the promise of transformation. Bad trade deals, which apparently were most of them, would be ended – torn up or renegotiated – and new ones that put America first would be reached. Those new agreements would bring manufacturing production back to the US and thereby create more jobs. Services, now some three-fourths of our economy, did not get a mention. The emphasis was on more traditional parts of our economy, primarily steel and automobiles. The measure of success would not only be job creation but also changes in bilateral trade deficits. Not surprisingly, therefore, initial focus was on the countries with whom we have the largest deficits: China, Japan, Mexico, and Germany.
Perhaps one positive result of this policy change is that it has produced a relatively well-informed – at least on one side – debate about economic theory and reality. Most economists argue that looking at bilateral trade deficits misses the point; that they are a function of larger macroeconomic conditions; that a big deficit is not “bad” just as a surplus is not “good;” that altering or eliminating trade agreements is unlikely to change the deficit; and that the solution to creating more jobs or bringing more back onshore lies in other, non-trade policies like tax reform, training and education.
These arguments, persuasive to professionals and to some in the White House, do not appear to have convinced the president, and so his policy continues to stagger forward, at least rhetorically. Even there, however, it has been handicapped by mixed signals, or more accurately, conflicting tweets. NAFTA is clearly bad in the president’s mind, but are we going to be in or out? It depends on what day it is. Likewise, some days Korea is up; some days it is down and about to be out. Early in the summer we saw the same thing with Germany and, to a lesser extent, with China. These mixed signals have confused their targets as well as the American business community, leading the former to look for other trading relationships that do not involve the US and the latter to postpone business and investment decisions until the situation clarifies. (That will probably be a long wait.) That means we do not even have to reach the question of whether it can be a successful policy; we know it is not if only because the president keeps tripping over his own words.
It also misses the point. There is nothing in the negotiating rule book that says all agreements must produce trade surpluses. Indeed, if both sides use the same book, it would be impossible. Trade agreements should promote jobs and growth and achieve other, often unmentioned, geopolitical benefits. A surplus is, at best, a happy by-product.
So, beyond generalities, how is it working out for us? TPP is gone, although it will likely be reassembled without us, further disadvantaging American exporters, particularly farmers. The president has not yet pulled the rug out from under the NAFTA negotiators, although it may only be a matter of time until he does so. As the talks have gone on it has become apparent that while there is some good to be done here – upgrades in some dated areas and new language covering new issues – USTR seems determined to raise issues like a minimum U.S. content standard for autos or eliminating the chapter 19 dispute settlement mechanism that are widely opposed in the U.S. and flatly unacceptable to Canada and Mexico. That will paint us into a corner where the president will either have to fold and accept what he normally would consider a “bad” deal (of course declaring victory nonetheless) or pull out and produce major disruption in the North American market.
Meanwhile, the 100 day China plan produced very little, and progress on the 301 case is some distance away. Europe is on ice at least until after the dust settles from the German election, and Korea, by most accounts is not going well, although the parallel North Korean crisis makes predicting an outcome unusually difficult. Finally, evidence of the oft-stated commitment to launch bilateral negotiations in lieu of multilateral or regional talks like TPP is hard to find. As noted, Korea is foundering, Japan is, as usual, politely resisting, and there are no signs of initiatives anywhere else. On top of all that, it is apparent that the president, via his tweets, remains hungry for another scalp, TPP not being enough. It’s tempting to offer up a sacrificial lamb – one of our smaller agreements – where the consequences would be fewer, both economically and geopolitically, but that would be wrong on many levels.
Where does that leave us? To use an analogy the president will certainly understand (and which I have shamelessly stolen from Matt Goodman at CSIS), he has hit the ball into the rough on the first hole and is now flailing away trying to get back on the fairway. Eventually he’ll find the hole, as all golfers do, but it may take many more strokes than we would like, plus a water hazard or two, to get there.
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.