The World Will Continue to Liberalize Trade With or Without the US
When US President Donald Trump took the podium at the World Economic Forum in Davos, Switzerland in January, he brought with him a clear and unambiguous message: “America first does not mean America alone.” The president used the forum – a gathering of the world’s elite business and state leaders – to declare unequivocally that America is “open for business” and that there is no better time to invest.
That message and its timing wasn’t a coincidence. It was a response to an organic and gradual shift in US-global relations that finds the US increasingly isolated. It isn’t so much that there’s a growing anti-American sentiment. Rather, specific nations and trading blocs are simply hedging their bets in response to what appears to be a growing desire by Washington to recreate the trade landscape.
To understand this, we have to consider that at the outset of 2017, things were looking rather tumultuous for the world of trade and trade agreements. Protectionism appeared to be spreading rapidly across the industrialized world in the form of the UK’s Brexit from the European Union, anti-trade rhetoric from a soon-to-be inaugurated US president and strong prospects for free-trade detractors to win upcoming elections in France and Germany. In short, trade protectionism seemed to be a rapidly growing global phenomenon; not an American one.
As it turned out, many of the protectionist movements taking place around the world were primarily restricted to a disenfranchised subset of the population. The idea of tossing internationalism into the waste bin to retreat into isolation quickly fell out of vogue with the majority of voters. In the end, a pro-trade and centrist president took the helm of France’s Elysée Palace and Angela Merkel’s Christian Democratic Union maintained its hold on power in the Bundestag, albeit with a slightly less secure grip.
Europe’s anti-trade movement was quickly suppressed and things essentially went back to normal. Not so in Washington. In his third day in office, the president signed an executive order withdrawing the US as an anticipated signatory of the Trans-Pacific Partnership (he has more recently expressed a willingness to participate in a now-revamped TPP if the US could secure substantially better terms). In the spring, the Office of the United States Trade Representative made formal its intent to renegotiate the North American Free Trade Agreement, the negotiations for which have been going far from smoothly.
If there was any doubt of Washington’s intent to play hardball on the trade front, it was all but obliterated after the International Trade Commission (ITC) chose to impose countervailing and anti-dumping duties on Canadian lumber and the US Commerce Department’s ruling in favor of a complaint by Boeing that Canadian rival Bombardier had unfairly priced-down its C-Series jets via government subsidies (the ruling was eventually rejected by the US International Trade Commission).
More recently, the administration in Washington took the counsel of the ITC to place limits on the number of washing machines Korean companies can import into the US to compete with American washing machine makers. The recommendation comes against a backdrop of now initiated talks to modify the Korea-US trade agreement (KORUS) to open up Korea’s auto market to more American-made vehicles. And to kick off 2018, Washington has imposed tariffs on Korean washing machines, Canadian newsprint and Chinese solar panels.
In the interim, the remaining members of the TPP have succeeded (in principle) in resurrecting the beleaguered trade deal; Canada and the EU ratified their own free trade agreement (CETA); Brexit discussions are looking increasingly positive, and – though it didn’t meet its deadline of sealing the deal by the end of 2017 – China has inched closer to concluding the Regional Comprehensive Economic Partnership (RCEP) with 15 other countries.
In short, while the rest of the world has moved toward opening trade channels, the United States has chosen to make access to its market increasingly difficult.
This is not to suggest the various trade-related grievances identified by Washington are unjust or lack foundation. There may very well be cases to be made for unfair trade practices. That’s for the ITC and WTO to decide. But taken together, a disconcerting picture is beginning to emerge in which highly protectionist trade practices begin to define American trade policy even as the rest of the developed and developing world move toward trade liberalization that excludes America.
Washington’s oft-stated goal in altering trade policy is to shrink trade deficits where they exist and establish trade relationships in which US exports to a particular market exceed imports from that same market. This is an ambitious endeavor to say the least.
As of December 2017, The United States maintained a $375 billion deficit with China, a $71.1 billion deficit with Mexico and a $68.8 billion deficit with Japan. Neutralizing or even severely reducing these trade deficits would be near impossible, and frankly shouldn’t be a focus at all. Imports are not evil and many American jobs rely on the import of low-cost intermediate goods to make finished products in America so that US consumers can enjoy lower prices.
Moreover, the financial markets – which the president noted in his State of the Union address have been performing quite well under his leadership – are not fond of disruptive trade policies. Many analysts predict a US withdrawal from NAFTA will have a negative impact on GDP, key stocks and the value of the greenback.
Actions speak louder than words and with the imposition of myriad tariffs against Canadian, Korean and Chinese goods, and the threat of disbanding NAFTA while already following through with a withdrawal from TPP, America’s trading partners are likely skeptical when the president says “American is open for business.”
The onus is now on Washington to prove them wrong.