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  February 20th, 2017 | Written by

How Will Trump Policies Impact Trade?

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  • Is Trump’s trade rhetoric meaningful or just hot air?
  • There is little scientific evidence that trade liberalism actually benefits trade.
  • Trump may rail against FTAs but won’t introduce legislation that would harm US trade, jobs.

President Donald Trump has raised fears of protectionism and reduced trade. But is it possible to forecast the effect of Trump’s policies on trade?

A recent report from Drewry confesses that its forecasters have been put in a bind. For one thing, it it possible to discern whether Trump’s rhetoric is meaningful or just hot air? Even more profoundly, to what extent does trade liberalism actually benefit trade?

Trump has started to make good on some of his election pledges, including withdrawing from the Trans-Pacific Partnership (TPP). Some his other actions – such as Twitter utterances threatening to impose import tariffs on car makers bringing in vehicles from Mexico – have led to concerns that Trump is serious about trade protectionism.

Besides the uncertainty of knowing what Trump intends to do, there is also the matter of trying to quantify the impact his policies would have on trade. On that point, Drewry notes that there is a lack of scientific evidence that can help to pin a number on the impact of trade liberalization on container traffic. A 2015 review commissioned by the UK government’s Department for International Development (DFID) found there is very little consistency in the findings of the numerous studies that have taken on this subject.

The review, conducted by the Overseas Development Institute (ODI), an independent London-based think tank, looked at 45 studies covering the impact of partially and fully implemented Free Trade Agreements (FTA) and weighted them for quality, giving more importance to studies that employed appropriate data and techniques.

The review found a general consensus that trade has grown as a consequence of FTAs, but the studies failed to prove a cause-and-effect relationship. The review also found very few studies that attempted to explain lower than expected trade gains from FTAs, while there was little coverage of other factors that could explain FTA take-up.

“The absence of quantifiable evidence means that we can only make broad generalizations about Mr. Trump’s trade policies should they come into effect,” said the Drewry report.

Rather than forecasting, Drewry proffered a “best guess” that Trump will continue to rail against FTAs and that the US will backtrack from entering into any more broad agreements like the Transatlantic Trade and Investment Partnership (TTIP). But the Drewry analysts doubt that Trump will introduce any legislation that would harm US trade competitiveness and risk job losses and higher prices at home.

If Drewry is correct, there is probably little reason second guess forecasts that show trade growth increasing moderately this year. The International Monetary Fund, recently upgraded its GDP outlook for the US.

“If Trump does impose trade barriers and high tariffs, other countries will definitely retaliate and so US exports will suffer,” the report concluded. Such an eventuality “points to a future when the rest of the world moves on and simply trades more with each other.”