Over the weekend Treasury Secretary Steven Mnuchin made some remarks that could be interpreted as positive for trade liberalization:
Treasury Secretary Steven Mnuchin is “very hopeful” the US can make progress brokering separate free trade deals with the European Union and Japan during a weekend summit in Buenos Aires.
“I’m encouraged by the EU’s trade agreement with Japan,” Mnuchin said Saturday in an interview with CNN at the sidelines of the G-20 meeting in Argentina.
The EU and Japan signed a massive trade deal earlier this week, cutting or eliminating tariffs on nearly all goods. The deal is in contrast to escalating trade disputes between the US and several of its major allies, including the European Union.
The EU‐Japan agreement, which covers 600 million people and almost a third of the global economy, will remove tariffs on European exports such as cheese and wine. It will also reduce barriers on Japanese automakers and electronic firms in the European Union.
President Donald Trump has imposed tariffs on a range of foreign goods from Europe, Canada, Mexico and other trading partners, and is threatening even more action.
Mnuchin said he is still reviewing the details of the EU‐Japan agreement, but stressed that any free trade deal with the EU would have to go beyond cutting tariffs on goods.
“This has to be about dropping non‐tariff barriers and subsidies as well. This has to be a deal with its entirety,” he said.
Elsewhere, it was reported that he said: “If Europe believes in free trade, we’re ready to sign a free trade agreement.”
If you haven’t been following trade policy for the last two years, you might see this as a positive and constructive approach by the Trump adminstration towards trade liberalization. But the broader context makes clear that this is not the case. Among other things, the Trump administration has imposed new tariffs on the EU, Japan, and others; and while there have been offhand remarks about trade liberalization (see similar remarks from President Trump and National Economic Council Director Larry Kudlow here), the administration has not made any formal efforts to get such a process started. In short, and contrary to Mnuchin’s statements, the Trump administration does not seem the least bit ready to sign a new free trade agreement, with the EU or anyone else (it is, however, revisiting some older trade agreements).
Of course, the Trump administration could, if it wanted to, negotiate free trade agreements with the EU, Japan, and others. These agreements are not a panacea for eliminating protectionism, but they do achieve significant liberalization. As long as expectations on both sides are kept at reasonable levels (in terms of timing and scope), deals are possible. Through these agreements, most tariffs on trade between the parties could be eliminated, and some non‐tariff barriers could be reduced (subsidies, by contrast, are rarely addressed in bilateral deals).
However, aside from occasional offhand remarks, the Trump administration is not taking any steps towards starting these negotiations, and instead is making the possibility of deals less likely through its confrontational and unjustified Section 232 tariffs on steel and aluminum (and possibly soon, on cars). As the EU and Japan have just shown, these trade deals are possible. It remains to be seen if the Trump administration is willing and able to negotate them.