Amid the current trade policy maelstrom, President Trump has sought to reassure the American people that all is well — or soon will be.
The administration, he says, is in the midst of making “great trade deals” that presumably will begin paying handsome dividends after their implementation. Let’s hope so. After all, much will have to be done just to return to the starting point that Trump inherited upon taking office.
Trump’s opening move on trade, only days into his presidency, was to withdraw from the Trans‐Pacific Partnership (TPP) free trade agreement. That deal would have provided the United States with expanded access to five markets that it currently does not have free trade agreements with, including Japan, the world’s third‐biggest economy.
According to one respectable estimate, the TPP would have produced income gains for the United States of $131 billion per year. That’s effectively free money on the table that the president walked away from.
Had Trump, instead of scuttling the TPP, pushed the agreement through Congress last summer, Americans could already be many billions of dollars richer.
To borrow from the language of economists, that is quite the opportunity cost. And it’s one that grows larger with each passing day that the administration fails to make up this lost ground.
The loss of TPP is bad enough on its own, but the damage has been further compounded by Trump’s “bull‐in‐a‐china‐shop” routine on trade. No precise tally exists of the costs from the president’s ill‐advised approach, but some of the numbers already in circulation are instructive.
General Motors alone has noted a $300 million increase in its commodity costs related to Trump’s steel and aluminum tariffs, while the beer industry estimates that it will suffer a $347 million annual hit.
Even aluminum‐maker Alcoa has admitted that tariffs on imported aluminum from Canada are hurting its bottom line to the tune of $144-$168 million per year.
These companies comprise a mere sliver of the U.S. economy, yet their combined tariff bill from the metals tariffs is already in the hundreds of millions of dollars. The economy’s collective toll is no doubt much higher.
Tariffs of 25 percent on $50 billion of Chinese imports — perhaps soon to rise to $200 billion or more — add to the burden, and further billions must be tacked on when the impact of retaliatory measures from Beijing and other U.S. trading partners are considered.
The cost further balloons when $12 billion the administration is set to spend on farmers to salve wounds suffered in the trade war is added to the mix.
This is far from a comprehensive accounting, yet the bill for these actions is easily in the tens of billions of dollars — if not higher. That’s a lot of broken porcelain.
To help claw back some of these losses, the president says that great trade deals are on the way, but skepticism here is warranted. An existing bilateral agreement with South Korea revised by the administration features tweaks so minor in nature that they will not be subject to congressional approval.
The much‐hyped renegotiation of the North American Free Trade Agreement (NAFTA) is mostly notable for changes to the automotive sector that will make production more complicated and less efficient.
This could be partially offset by more positive changes elsewhere in the agreement, but anyone expecting the revamp to produce significant benefits to U.S. businesses and consumers is sure to be disappointed.
In fact, the NAFTA deal could end up considerably worse if the United States fails to reach a deal with Canada, while the revised agreement with South Korea has been jeopardized by Trump’s threat to slap new tariffs on auto imports.
On the China front, prospects for a near‐term deal of any significance appear uncertain at best, while both the United States and European Union have agreed to refrain from further tariffs but have yet to agree on ratcheting existing ones back.
Indeed, President Trump recently rejected an offer by the EU to eliminate its tariffs on U.S. auto exports in exchange for reciprocal action by Washington.
Although welcome steps, the payoff from such deals will pale compared to that of a ratified TPP, with the combined GDP of the Philippines and Nigeria — Africa’s largest economy — more than seven times smaller than that of TPP‐member Japan alone.
President Trump may yet pull a rabbit out of his hat and conclude trade deals that feature notable gains for both American workers and consumers, but his current record is underwhelming, and the quality of future deals must be substantially improved if he’s simply to make up for the costs already incurred.
On trade, Trump has thus far proven to be anything but a master negotiator.