Donald Trump is well known for his vociferous complaints about foreign trade. Trump has also gained notoriety for offering very vague policy proposals, and trade is no exception. This has left observers knowing that Trump wants to do something big on trade but without much sense of what, specifically, that will be. Now that Trump is president-elect of the United States, that uncertainty is bound to vanish as Trump’s plans and intentions necessarily become more concrete.
For the moment, however, we are left to speculate based on Trump’s vague and bellicose announcements. The most reliable indicator of Trump’s plans is probably Trump’s “100-day action plan to Make America Great Again” he produced in the closing weeks of his campaign. That plan has reportedly been fleshed out a bit by his transition team. The plan includes numerous executive actions and a list of legislative proposals.
In one section, Trump lists “Seven actions to protect American workers,” four of which directly involve trade. Let’s go through them one by one.
Renegotiate of Withdraw from NAFTA
It’s no secret Donald Trump really doesn’t like NAFTA. He has said that NAFTA “destroyed our country.” It’s safe to assume Trump means to act on this. According to Politico, the longer version of Trump’s 100-day plan specifies that Trump will start renegotiating NAFTA on day one and withdraw from NAFTA “by day 200” if he hasn’t gotten what he wants yet.
Claims that NAFTA should be renegotiated are not unique to Trump. Both Barack Obama and Hillary Clinton promised to renegotiate NAFTA. Their concern, however, was that NAFTA doesn’t have strong enough provisions on labor and environment regulation. Obama even claimed that the TPP—which does have stronger labor and environment provisions and includes all three NAFTA countries—is the embodiment of his promise to renegotiate NAFTA.
But for all the complaining Trump does about NAFTA, we don’t really know specifically what he doesn’t like about the agreement. He has misguided concerns about bilateral trade deficits, so he probably wants to raise U.S. tariffs while keeping Mexican tariffs low. Mexico, of course, will not want to do that.
The only leverage he seems to have to get Mexico to agree to those terms is the threat to withdraw from NAFTA. And withdrawing from NAFTA is something Trump has the power to do. Under the terms of the treaty, any member can withdraw after giving six months’ notice. This sort of thing has never happened before and it’s not clear exactly what legal authority Trump will use to raise U.S. tariffs after withdrawing or what he will raise them to.
What we do know is that ending NAFTA would be disastrous. Americans conduct more than $3 billion per day worth of trade with Canada and Mexico. Withdrawing from NAFTA would severely disrupt integrated North American supply chains that depend on zero tariffs and predictable trade laws. Ironically, the only way Trump can “fix” NAFTA is by threatening to eliminate its many benefits.
So we need to seriously consider the possibility that Trump has no real intention of withdrawing from NAFTA. It would make a lot of sense for him to secure some minor concession from Mexico and play it up like a big achievement. That may be the best possible outcome for everyone.
Withdraw from TPP
This is action is pretty simple and straightforward. Trump referred to the TPP as “a rape of our country” and shows no sign of letting up on his opposition.
The TPP has already been signed by the United States but has not been ratified or entered into force. President Trump could simply refuse to submit it to Congress and the agreement would die. He’s bound to make an official announcement though, probably in the first few days of his presidency. What the rest of the members of the TPP do afterwards will be interesting to watch, but it will happen without the United States.
Neither Trump nor his surrogates have said what he will do about the ongoing free trade negotiations with the European Union or various agreements in the works at the WTO. That will be something to watch over the coming months. As we learn who will fill key positions in Trump’s administration, we will learn more about the probable fate of these projects.
Label China a Currency Manipulator
Thankfully, labeling China a currency manipulator has little to no meaning for actual trade policy. It won’t raise tariffs or impact in any way the right of Americans to trade with people in China.
Unlike ripping up trade agreements, it’s also not an especially radical thing to do. Mitt Romney made the same promise during the 2012 campaign and Hillary Clinton promised this year to crack down on foreign currency manipulation.
It will certainly be worth watching how the Trump administration deals with the issue of currency manipulation in the future, but labeling China a currency manipulator simply scores domestic political points and antagonizes the Chinese government.
“Use every tool under American and international law” to “end foreign trading abuses”
On one level, this is just a plan to maintain the status quo. We have trade laws in the United States and agencies that exist to protect rent-seeking U.S. industries from foreign “abuses.” Contrary to Trump’s campaign rhetoric, those agencies are not incompetent or failing to do their job. Trump’s plan to support the use of trade remedies and bring challenges at the World Trade Organization simply continues a longstanding policy of previous administrations.
But there’s also a more alarming possibility. There are a number of dormant U.S. trade laws that grant the President the power to raise trade barriers under various circumstances, and some of these laws are worded broadly enough to be used beyond their original purposes. Gary Huffbauer at the Peterson Institute has provided a thorough explanation of how Trump might use these laws to impose high tariffs on goods from China or Mexico. There’s a lot of uncertainty as to how this would all play out because, thankfully, past presidents have not been belligerent mercantilists.
Considering the sort of promises Trump made during the campaign to keep Carrier and Ford from moving manufacturing operations to Mexico, it’s not unreasonable to fear Trump will use whatever powers he has available to punish U.S. companies that invest in foreign manufacturing. There’s no indication that Trump already plans to do anything like that in his first hundred days, however.
The most ambitious and defining part of Trump’s trade plans will be his effort to renegotiate NAFTA. If he succeeds, U.S. tariffs may go up and we will all be a little worse off. If he fails and follows through on his promise to withdraw from NAFTA, we will all be even more worse off.
It’s going to be an interesting year.