Tag: TPP

Clayton Yeutter, RIP

After a long battle with cancer, Ambassador Clayton Yeutter passed away on Saturday at the age of 86 at his home in Potomac, Maryland. With his passing, the world parts not only with a brilliant, effective, accomplished leader, but an extraordinarily generous, decent man whose enduring kindness and humble demeanor made politics and policymaking in Washington more tolerable for all involved.

Clayton Yeutter had a long an illustrious career spent in both the private and public sectors, as well as in academia, but he is probably best known for his service during the Ronald Reagan and George H.W. Bush administrations.

As Reagan’s U.S. Trade Representative from 1985 to 1989, Ambassador Yeutter presided over implementation of the very first U.S. bilateral free trade agreement (with Israel) and he launched and oversaw negotiation of the U.S.-Canada Free Trade Agreement, which evolved into the North American Free Trade Agreement, to include Mexico, in 1994.

As USTR, Ambassador Yeutter also launched and advanced the “Uruguay Round” of multilateral trade negotiations in 1986, under the auspices of the General Agreement on Tariffs and Trade, which resulted in broader and deeper reductions in global barriers to trade than had previously been achieved, and it established the World Trade Organization in 1995.

During the first two years of the George H.W. Bush administration (1989-91), Yeutter served as Secretary of Agriculture, where he was instrumental in steering U.S. agricultural policy back to a more market orientation, from which it had deviated in the mid-1980s. The 1990 farm bill (The Food, Agriculture, Conservation, and Trade Act of 1990) included reductions in agricultural subsidies that were negotiated during the Uruguay Round.

Yeutter held other high-profile positions, including an eight-year stint as President and CEO of the Chicago Mercantile Exchange—a period during which the volume of trade in agricultural, currency, and interest rate futures more than tripled. He served as Republican National Committee Chairman for two years, following the death of Lee Atwater.

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Ford’s Curious Approach to Trade Policy and Customer Relations

Mark Fields, president and CEO of Ford Motor Company, celebrated President Trump’s Jan. 23, 2017, executive order withdrawing the United States from the Trans-Pacific Partnership (TPP).  In a statement the following day, Fields said, “And I would just call out yesterday, the president’s decision to withdraw from the TPP.  We’ve been very vocal, both as an industry and as a company, and we’ve repeatedly said that the mother of all trade barriers is currency manipulation, and TPP failed in meaningfully dealing with that, and we appreciate the president’s courage to walk away from a bad trade deal.”

Field’s comments are consistent with Ford’s longstanding position, so were not surprising.  What is harder to understand is that the company appears to be ignoring the economic interests of farmers and ranchers, a significant portion of its customer base for F-150 and heavier trucks.

The F-150 is the best-selling vehicle in the United States and has enjoyed that status for many years.  Some 820,000 were sold last year in this country, with another 145,000 sold in Canada.

The 2012 Census of Agriculture reported slightly more than 2.1 million farms in the United States.  Many of them are quite small, part-time operations.  However, there are more than 500,000 commercially significant farms with sales in excess of $50,000 per year.  A high percentage of farmers drive pickup trucks.

Due to relatively low commodity prices, recent years haven’t been great for farmers.  Net farm income has fallen almost by half since 2013, dropping from $123.7 billion to a forecast level of $66.9 billion in 2016.  Many farmers are putting off buying new machinery and equipment, as well as new pickups.  The farm economy really could benefit from a boost in demand for agricultural products.

Farmers expressed dismay at the president’s decision to withdraw from TPP.  An American Farm Bureau Federation study had predicted that improved access to 250 million customers in Japan, Vietnam, Malaysia, New Zealand, and Brunei would raise U.S. net farm income by $4.4 billion per year, as well as adding more than 40,000 jobs to the American economy.  (No estimate was made as to how many of those jobs would have been related to building more pickup trucks.)

Withdrawing from TPP Was a Senseless Act of Wanton Destruction

Earlier today, demonstrating his preference for action over reason, President Trump signed an executive order to officially withdraw the United States from the Trans-Pacific Partnership agreement. On the one hand, it’s refreshing to witness the rare act of a politician fulfilling a campaign pledge. On the other hand, there is nothing else good about it. Trump detonated a bomb; six years of negotiations went boom; now what?

To a president who seems intent on turning the country inward, raising the barricades, demanding self-sufficiency, and eschewing the outside world, the TPP was an obvious target. But what’s especially disconcerting is that the president didn’t need to go this far to keep TPP out of play. The agreement couldn’t possibly take effect without congressional passage of implementing legislation, and his signature affixed. He could have just kept TPP on the back-burner in the event that its utility, relevance, or imperative to U.S. economic and geostrategic objectives became evident, as his term progressed. Because it will.

My colleagues and I did a thorough, chapter-by-chapter assessment of the TPP and concluded that, on net, implementation would advance our economic freedoms. But there is also a geostrategic rationale for the TPP that compels beyond the text of the agreement. I presented that case in a few different articles, but here’s an excerpt from the most recent oped, in The Hill

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Reality Will Curb Trump’s Protectionist Fantasies

I said there was no way Trump would last through the early primaries.  I belittled the prospect of Trump even attending the convention, much less accepting the Republican nomination.  And I was cavalier in my certainty that Trump would be making a concession speech early Tuesday night.  In other words, by Washington’s standards, I have established credibility on the subject. 

So you should feel reassured that I am less bearish about the direction of President Trump’s trade policy than I probably should be given candidate Trump’s bellicose campaign rhetoric.

The trade policies Trump outlined in broad strokes on the campaign trail would – to put it mildly – devastate the economy.  For example, Trump has said he would:

  • impose duties on 35 percent on imports from Mexico and 45 percent on imports from China;
  • impose special taxes on U.S. companies that incorporate foreign components or labor into their production or assembly operations;
  • tear up the North American Free Trade Agreement – or at least renegotiate what he calls “the worst trade deal ever negotiated,” and abandon the Trans-Pacific Partnership, which he calls a “rape of our country”; 
  • declare China a currency manipulator and impose countervailing duties to mitigate the export price advantages that practice allegedly bestows;
  • use tax policy, protectionism, and the threat of more protectionism to compel China, Mexico, and all of the other countries with whom the United States runs bilateral trade deficits to buy more from U.S. producers and sell less to U.S. consumers in order to achieve a state of balanced trade;
  • tax manufacturing companies that lay off workers.

The list of angry, knee-jerk, foolish ideas goes on and on. If you take candidate Trump at his word, U.S. trade policy is going to be an unmitigated disaster.

100 Days of Trump Trade Policy

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.

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Shifting Gears to Contemplate Trump’s Trade Policies

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.

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“The China Shock” Implicates Domestic Policies, Not Trade

A National Bureau of Economic Research working paper by David Autor, David Dorn and Gordon Hanson, titled “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” has created Piketty-like buzz in U.S. trade policy circles this year.  Among the paper’s findings is that the growth of imports from China between 1999 and 2011 caused a U.S. employment decline of 2.4 million workers, and that wages and employment prospects for those who lost jobs remained depressed for many years after the initial effect. 

While commentators on the left have trumpeted these findings as some long-awaited refutation of Adam Smith and David Ricardo, the authors have distanced themselves from those conclusions, portraying their analysis as an indictment of a previously prevailing economic consensus that the costs of labor market adjustment to increased trade would be relatively subdued (although I’m skeptical that such a consensus ever existed). But in a year when trade has been scapegoated for nearly everything perceived to be wrong in society, the release of this paper no doubt reinforced fears – and fueled demagogic rants – about trade and globalization being scourges to contain, and even eradicate.

Last week, Alan Reynolds explained why we should take Autor, et. al.’s job-loss figures with a pinch of salt, but there is an even more fundamental point to make here. That is: Trade has one role to perform – to grow the economic pie. Trade fulfills that role by allowing us to specialize. By expanding the size of markets to enable more refined specialization and economies of scale, trade enables us to produce and, thus, consume more.  Nothing more is required of trade. Nothing!

Still, politicians, media, and other commentators blame trade for an allegedly unfair distribution of that pie and for the persistence of frictions in domestic labor markets. But reducing those frictions and managing distribution of the larger economic pie are not matters for trade policy.  They are matters for domestic policy. Trade does its job. Policymakers must do their jobs, too.

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