Trump and Trade: The Unknown Unknowns
We know what President-elect Donald Trump’s trade positions were on the campaign trail. We don’t know whether or how he will translate those positions into action.
Even murkier will be how the rest of the world reacts to whatever Trump does. Hanging in the balance is whether the United States moves forward or backwards on trade.
Trump articulated a more inward looking policy for America going forward. Does that mean he will simply forego trade?
For example, Trump has threatened to slapping tariffs on imports from China and Mexico as retalliation for currency manipulation, in the case of China, or attracting investments from U.S. manufacturers, in the case of Mexico. But would these measures by used as bargaining chips? What does Trump expect to extract from these countries in exchange for removal of these measures?
Besides all that, how will the objects of Trump’s retailiatory measures respond? Will they negotiate, or wil they take some other action. According to Edward Alden of the Council on Foreign Relations, Mexico might opt to negotiate with the U.S. over punitive tariffs. “China almost certainly won’t,” he wrote, in a recent blog post. “China has a long history of tit-for-tat retaliations to any trade restrictions.”
While the fears of a trade war—a spiraling escalation of retaliatory tariffs between countries—is overblown in many situations, “that is a real possibility if Trump makes good on his threats,” according to Alden.
Asian countries may turn away from the U.S. and toward China in future trade arrangements, a circumstance that the Trans-Pacific Partnership (TPP) was suppposed to avert. But with TPP dead, some Asian countries will look to the Regional Comprehensive Economic Partnership (RCEP), an agreement led by China. China, instead of the U.S., could end up writing the trade rules for Asia, a defeat and reversal of the Obama administration’s policy in the region. It’s possible that only a post-Brexit United Kingdom will be willing to enter into new trade deals with the U.S. Trump and congressional Republicans have both spoken favorably of a possible future U.S.-UK free trade agreement.
A U.S. retreat from trade will have other negative impacts on U.S. foreign policy. “Without the carrot of the U.S. market,” wrote Alden, “the foreign policy of the Trump administration will have one hand tied behind its back.”