Please excuse the haste, as I’ve spent the last week ignoring the “impossible,” focused instead on writing about the likely direction—including the copious double-talk and rhetorical pirouettes—of President Clinton’s trade policy. If you’re a sucker for transparency, congratulations! You’ll get that in spades from President Trump’s trade policy. It will be transparently awful—for a while, at least.
Having a Republican president and GOP control of both chambers of Congress was once the ideal formulation for successfully negotiating and ratifying trade agreements. That all changed when Donald Trump, an avowed critic of U.S. trade agreements, rose to the top of the party’s ticket. As of last night, there is no longer any realistic chance that the Trans-Pacific Partnership agreement will be ratified in the Lame Duck session of Congress; there is no chance that the TPP will be implemented over the next four years without the deal first being reopened and revised to reflect terms desired by President Trump; there is much greater scope for trade frictions, especially with China, to erupt into deleterious rounds of tit for tat protectionism; and there is the distinct risk that policies intended to punish U.S. companies for outsourcing will slow inward foreign direct investment (insourcing) and chase U.S. companies off-shore, altogether, depleting capital, driving up interest rates, and hamstringing prospects for growth.
But there is a silver lining, which is that the worldviews of presidents tend to be more outward, engaging, and accommodating than the worldviews of presidential candidates. After repeatedly pledging to force Canada and Mexico back to the table to renegotiate the North American Free Trade Agreement during his bid for the White House, President Obama phoned the Canadian prime minister and Mexican president within one week of his 2009 inauguration to reassure them that he had had a change of heart.
President-elect Trump’s hardline, isolationist, nationalistic, protectionist proposals may be more difficult to walk back, especially if he fails to excommunicate some of his current advisors and branch out to obtain the counsel of economists and policy specialists who have a better understanding of international economics and the rules of global trade. If he is able to expand and diversify the pool of people advising him, there is a reasonable chance that President Trump’s actions will be less bellicose than his rhetoric has been. After all, as someone who wants to make America “great again,” President-elect Trump will want the policies implemented by his administration to help grow the economy. Trade agreements have succeeded in that regard and, in addition to the TPP, there are plenty of countries and regions willing to partner, including the European Union and the United Kingdom (separately), and plenty of alternative negotiating platforms for accomplishing trade and investment liberalization.
In the short term, if President-elect Trump wants to encourage U.S. manufacturing to produce and hire more, he should ask Congress to eliminate tariffs on all imported intermediate goods – components and raw materials that go into U.S. production. That would immediately reduce U.S. manufacturing costs, which would give the sector a leg up in its competition for U.S. and foreign investment.
Trump might quickly grasp that removing tariffs—rather than imposing them—is the kind of protectionism we can afford.