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Why do Trump’s Announced Trade Policies Keep Coming Up Empty?

Trump has imposed tariffs on Chinese shipments of export cargo and import cargo in international trade.

Why do Trump’s Announced Trade Policies Keep Coming Up Empty?

[Editor’s note: On Monday, the White House announced that the president was extending temporary exemptions to the steel and aluminum tariffs. They were set to expire on May 1.]

Last month, over the span of less than a week, President Donald Trump opened the door to joining the Trans Pacific Partnership (TPP) agreement before promptly slamming it shut again. Many trade pundits and analysts were delighted when Trump announced he had directed his economic advisers to explore re-entering the TPP, only to have their hopes dashed again when the president tweeted out his repeated criticisms of the Asian trade deal.

In the grand scheme, this brief flirtation with the TPP is unlikely to be remembered. But it does raise two broader questions: First, why do Trump’s big splashy trade announcements keep going nowhere? And second, why do the rest of us keep on falling for these empty pronouncements?

When news first broke that the US was interested in rejoining the TPP, I was immediately skeptical. As I noted at the time, there is one fundamental rule for making sense of trade policy over Trump’s first 16 months in office: Do not overreact to new announcements. Indeed, with the benefit of hindsight, we can observe a growing list of at-the-time seemingly newsworthy policy announcements that ultimately went nowhere.

For instance, back in January 2017, Trump suggested that he would pay for a border wall by imposing tariffs on Mexico. That never happened. In an April 2017 interview, Trump suggested he was interested in a “reciprocal tax” on imports, meaning the US should tax imports from other countries at the same rates as those applied to American exports. In February of this year, he resurrected the same idea, declaring that the United States would “soon” announce a reciprocal tax, with more information forthcoming “as soon as this week.” Meanwhile, we’re still waiting. In late January, US Trade Representative Robert Lighthizer suggested that “before very long” the administration would select an African country to begin new free trade agreement talks. The pro-trade US Chamber of Commerce enthusiastically nodded its head. So far nothing seems to have happened.

To be fair, not all of Trump’s trade pronouncements go completely nowhere: Some of them do produce cosmetic policy changes while doing little to change facts on the ground.

In April 2017, Trump told The Washington Post that he would either terminate or renegotiate the “horrible” US-Korea Free Trade Agreement (KORUS), sparking a short-lived panic; in September a second flurry of news stories suggested he was seriously considering withdrawing from the deal. Ultimately, early this year the two sides struck a new deal: One that is virtually unchanged from the earlier KORUS that Trump thought was so horrible. Similarly, in what has been one of the biggest trade moves to date, Trump announced in March significant new tariffs on steel and aluminum. This legitimately would have been a substantial policy change, were it not for the fact that in the following weeks the administration announced that almost all major steel exporters to the US—including Argentina, Australia, Brazil, South Korea, Canada, Mexico, and the European Union—would receive exemptions from the tariffs.

Why do these dramatic policy announcements keep falling flat? There are several possible explanations, not mutually exclusive. Perhaps the “deep state,” in the form of career officials working at the Office of the US Trade Representative and the Commerce Department, are conspiring to thwart the Trump administration plans. Less sinisterly, this may simply be more evidence that achieving policy change is difficult. There is a lot of inertia built in to the Washington system, and it takes real, detail-oriented work to actually push any policy change through to fruition. The Trump administration is not putting in this hard work, and thus not seeing the results.

Another explanation comes from the international level: In its policy implementation strategy the administration has failed to recognize that other countries have agency too, and are able to shape the ultimate outcomes of American trade policy. (For instance, while in an abstract sense the other TPP members would like to see the US join the pact, there’s a long list of practical reasons why they aren’t keen to reopen negotiations with the Trump administration.)

Finally, the simplest and perhaps most convincing explanation is that this is just Trump being Trump: He does not see any difference between campaign rally rhetoric and official presidential announcements, is not particularly concerned with the truthfulness of his claims, and is never willing to admit a mistake.

Whatever the reason, though, trade policy analysts and journalists need to catch up to this reality, and start dramatically discounting the importance of Trump trade policy announcements, on both the protectionism and the liberalization fronts. On April 13, the day after word initially leaked that the US was reconsidering the TPP, both The New York Times and The Washington Post ran front-page, above-the-fold A1 articles analyzing this supposedly important development in American politics. While it’s of course not out of the ordinary for reported news to then be overtaken by events, it should have been clear at the outset that this story did not merit such widespread coverage and significance.

This is the latest episode of journalism in the Trump era struggling to separate the meaningful inflection points and underlying trends from the swirl of gossip, inflammatory rhetoric, and chaos that Trump creates around himself. And just as “horse race” election coverage crowds out more substantive analysis, the tendency to chase after every Trump trade announcement as though it signifies a shift in policy has obstructed a deeper truth: Overall, if we look at policy as it is actually implemented, Trump’s trade policy simply isn’t that different from that of his predecessors.

Admittedly, there can also be risks to being too sanguine: Just because Trump hasn’t upended trade policy yet does not mean he won’t one day succeed. In particular, there are two big outstanding items on the trade agenda, namely the NAFTA renegotiation and new tariffs on China. Either one could still blow up. But I would advise that the bulk of the evidence suggests we should expect the opposite: The three NAFTA partners will agree to a new deal that modestly updates and reforms a 25-year old pact, while the US and China will reach a negotiated deal that averts a trade war and leaves the fundamentals of their trading relationship mostly unchanged. (Don’t be fooled by Trump declaring such deals to be revolutionary, transformative successes, as he surely will.)

Crucially though, unless and until we’re given reason to believe otherwise, we need to stop taking Trump at his word when it comes to new trade policy announcements. We’ve been fooled more than twice at this point; it’s time to wise up.

Geoffrey Gertz is a Brookings post-doctoral fellow on global economy and development. This article originally appeared here.

Trump's trade policies will impact shipments of export cargo and import cargo in international trade.

Trump’s Bilateralism and US Trade Partners

Among the many changes Donald Trump is bringing to American trade policy, the new president has made clear that he believes bilateral trade deals are better than regional or multilateral agreements.

For America’s trade partners, including developing countries, the rise of bilateralism raises three questions. First, how will it change negotiation dynamics? Second, will it allow for the effective governance of international trade? And third, what does it say about the overall direction of the international trade system? On each count there are reasons to worry.

Donald Trump campaigned as a protectionist, and in one of his first acts as president withdrew the US from the Trans-Pacific Partnership (TPP). Yet since assuming power he has also stressed that he is not opposed to all trade agreements, and in fact supports new deals, so long as they’re negotiated on a bilateral basis. Last month Trump told Republican lawmakers, “believe me, we’re going to have a lot of trade deals. But they’ll be one-on-one. There won’ be a whole big mash pot.”

Trump’s embrace of bilateral negotiations is borne out of his understanding of the global economy as a zero-sum conflict. From this starting point, it follows that the key question in assessing any trade deal is not whether it creates overall economic gains, but how its benefits are distributed between countries—who’s getting the biggest slice of the pie. Trump worries that in previous trade negotiations, and particularly talks involving several different countries, US negotiators have allowed other countries to gain at America’s expense. But in one-on-one negotiations, Trump suggests the US will have greater leverage and thereby be able to capture a greater share of the gains from any agreement.

To date it is unclear with which particular countries Trump aims to sign new trade deals. While the administration’s early energy appears to be focused on the UK and Japan, another list of potential targets ranges from Russia to Vietnam to Taiwan, while India’ Economic Times cited unnamed sources claiming Trump might offer a bilateral deal to India. Though the world’s poorest countries are unlikely to be at the front of the line, many developing and emerging economies may face the possibility of launching bilateral trade talks with the Trump administration.

On the one hand, Trump’s interest in pursuing new trade agreements may suggest that he will not follow through on all of his protectionist impulses. Yet his administration’s embrace of bilateralism carries three risks for America’s trade partners.

First, a switch from regional and multilateral forums to purely bilateral deals will shift negotiation dynamics between would-be trade partners. Trump certainly believes the US can better use its power to shape agreements in its own interests through bilateral formats. While the president understates the power the US held in regional talks—for instance, in reality the final TPP text overwhelmingly reflected American influence—and likely overestimates how good a deal he’ll get in one-on-one negotiations, developing countries should be cautious about such a move. Multiparty negotiations allow for coalitional bargaining that can at times blunt power imbalances. Moreover, with more players involved in trade negotiations there is a greater range of possible outcomes, which creates opportunities for creative win-win solutions; bilateral negotiations constrain the set of potential agreements.

Second, a web of bilateral trade agreements will do far less to promote efficient global integration than comparable regional or multilateral treaties. In today’s economy, bilateral relationships do not capture how international trade works in practice. Factories do not simply produce at home and export final goods to a foreign country; rather, firms participate in global value chains, where stages of production are divided across multiple countries. Since preferential trade agreements include rules-of-origin requirements that limit tariff concessions to goods substantially produced within treaty members—in order to avoid the problem of transshipment
—bilateral deals are often of little help to global value chains, as inputs to production are imported from non-treaty members.

Moreover, trade agreements are important not only for lowering tariffs but also for helping  harmonize standards and regulations to ease international commerce; negotiating such standard setting at a bilateral, rather than regional or multilateral, level is much less efficient. Firms will find it costly and confusing to keep track of many overlapping sets of trade regulations negotiated under different agreements, which could be at odds with each other. A series of bilateral deals will substantially fragment international trade governance, leaving a hodgepodge of incomplete and incoherent rules ill-designed for the 21st century.

Third, and perhaps most dangerously for developing countries, Trump’s approach to bilateralism could tilt the international trade system in worrisome directions. Potential trade partners must ask themselves if launching bilateral negotiations with the US will ultimately contribute to undermining the broader open trade system. Academics and policymakers have long debated whether preferential trade agreements were stepping-stones or stumbling blocks to progress on multilateral trade liberalization. In this instance, it seems clear that Trump does not view bilateral trade agreements as a means to buttress overall support for an open stable economic order, but rather as an effort to carve up the spoils of a global economy.

Abandoning regional and multilateral deals for a bilateral worldview could institutionalize Trump’s mercantilist approach to the international trade system, in which countries are locked in zero-sum competition to win market shares, rather than cooperating to improve economic efficiency. Over the long term, the risk is that the rules, norms, and laws that govern  trade relations will erode, along with the effectiveness and legitimacy of the World Trade Organization. For all the valid concerns and complaints developing countries may have about the WTO, they are unlikely to fare better under a less legalized, more power-based mercantilist trading system.

If Trump insists that his administration will only participate in bilateral trade negotiations, how should potential treaty partners respond? Governments will need to weigh the benefits of preferential access to the US market versus the potential risks described above. Given that the US is already a relatively open economy, the former may be modest, while the latter could be severe. Countries seeking to promote economic liberalization may thus want to think twice about initiating bilateral deals under Trump’s terms. During an era of rising protectionism, the core priority for countries reliant on the global economy should be the preservation of the basic open structure of the international trade regime. This goal is more likely to be achieved at a regional or multilateral level.

Geoffrey Gertz, is a post-doctoral fellow in global economy and development at the Brookings Institution. This article originally appeared here.

The next president's policies will impact shipments of export cargo and import cargo in international trade.

The Next President’s Trade Agenda

During a divisive U.S. presidential election, there has been at least one issue the candidates largely agree on: neither Donald Trump nor Hillary Clinton is terribly happy with free trade agreements, and both have advocated for a more protectionist, defensive trade policy. While it remains unclear just how this heated rhetoric around trade will translate into actual policy for the next president, one thing seems certain: going forward, the United States is likely to put more emphasis on trade enforcement.

At the most general level, trade enforcement is about ensuring America’s trade partners abide by the terms of the bilateral and multilateral agreements they’ve signed. Trade enforcement can be pursued by formally filing legal complaints at the World Trade Organization (WTO), or by informally using diplomatic pressure and behind-the-scenes negotiations to coerce and cajole other nations into adopting trade policies more to America’s liking.

The U.S. also uses anti-dumping and countervailing duty penalties to levy duties on goods the U.S. believes are being subsidized and sold below market value. It is not always clear whether a specific trade enforcement measure is actually “leveling the playing field,” as their supporters tend to claim, or is instead simply an effort to shield domestic constituencies from foreign competition or get a leg up for American exporters trying to crack into foreign markets.

In their campaigns both Donald Trump and Hillary Clinton have emphasized the importance of trade enforcement, albeit in very different manners. Trump has promised punitive tariffs against any country that “cheats” on trade. Clinton, for her part, has offered specific policy proposals to create a new position of chief trade prosecutor and to triple the number of enforcement officers. Both candidates are eager to portray themselves as willing and able to stand up and fight for American companies and workers.

For international trade watchers, the big outstanding question is whether an increase in enforcement will be part of a renewed bargain underpinning an open global trade system, or instead another protectionist plank contributing to America turning inward. On the one hand, a greater insistence on abiding by the rules of international trade agreements could be a way to strengthen the legitimacy of the international trade system.

Political scientist Christina Davis argues persuasively that one reason countries file disputes at the WTO is to signal to domestic political interest groups that the government will defend their interests. Demonstrating that trade violations will be punished is a way to communicate that the rules work and will be followed, and could be a means to shore up support from both voters and lawmakers who have grown skeptical about trade. In this view, greater enforcement is a necessary complement (or perhaps precursor) to further trade liberalization, and a commitment to respecting the rules of international trade is, at its heart, also a commitment to the international trading system itself. Some politicians, including U.S. Rep. Denny Heck, a Democrat from Washington, have explicitly stated that the price for their support of the Trans-Pacific Partnership will be a more aggressive approach to trade enforcement.

Yet there is a risk in this approach. While more enforcement of trade agreements may produce real benefits for selected industries in certain individual disputes, it is probably naïve to assume that a greater focus on enforcement will produce dramatically different trade outcomes. For the most part, the American jobs that have been lost to foreign competition were not the result of other countries “cheating,” but rather the result of churn in the economy brought on by unleashing the forces of comparative advantage. While a commitment to upholding trade rules is welcome, politicians should be careful not to overpromise on how much greater enforcement will deliver.

On the other hand, increasing talk of trade enforcement may not be about strengthening the liberal trading system at all, but rather a means of further undermining it. Donald Trump can seamlessly shift from complaining that other countries aren’t following the rules of trade agreements, to arguing that in fact it is the rules of the agreements themselves that are stacked against the U.S. because of our weak trade negotiators, to threatening to withdraw from the WTO altogether. In this view trade enforcement isn’t a means to respect and legitimize the rules that allow for international cooperation in trade, but an aggressive move in a zero-sum conflict. Aggressive trade enforcement, particularly if pursued outside of the WTO dispute settlement system, could set off tit-for-tat retaliatory measures by our trading partners, threatening a protectionist spiral.

In brief, whatever happens in the election, more trade enforcement is likely coming. But whether this enforcement is a complement or replacement for America’s traditional liberal trade policy remains to be seen.

Geoffrey Gertz is a post-doctoral fellow in global economy and development at the Brookings Institution. The original article appeared here.