Trump’s Trade Philosophy: Emotions Trump Facts

US President Donald Trump was elected through a vector of powerful cultural and economic forces as well as the vastly underwhelming performance of Democratic opponent Hillary Clinton. In his campaigning and administration policy always seems to be shifting and repositioning: to supporters, this is to put America first at all costs, to detractors it is because Trump is an impulsive blowhard with no real knowledge or plan.

Trump’s Trade Troubles

Trump’s trade troubles started logically enough: out of a purported desire to create a more even playing field with China and other trade partners including the EU, Mexico and Canada. Trump wants to lessen the massive American trade deficit – standing at over $620 billion – and help job growth at home. Robert Lighthizer, the US trade rep who has had an outsize influence on trade policy in the Trump admin was saying in 2018 that a measured approach targeting certain industries and imports with tariffs would bring big rewards and minimal pain. However, when reality met rhetoric, Trump’s plans have gone haywire. If China and the US don’t agree to something by the middle of December, Trump is set to slap on 15 per cent in additional tariffs on $60 billion of Chinese products.

Why A Trade War?

Trump’s clashes with the EU, China, Mexico and Canada highlight his instinctive distrust of multilateral agreements and also his belief that leveraging competing interests against one another is bound to help the United States. Beyond that, though, Trump can’t even do much bilaterally either beyond what is already served on a silver platter. His ongoing tangle with China did not result in American companies all coming back to stay in the USA; it mostly resulted in them finding new places to set up shop like Vietnam, Taiwan, Mexico and Thailand. This has been presented as a positive development by Trump allies, but there is no reason to think it is the first step to going back to many products being Made in America. Still, the downsides of the Trump trade war and not being fully felt yet for various reasons related to American economic strength independent of Trump. Although it is unlikely that American trade disputes will cause damage of the kind that the 1930 Smoot-Hawley Tariff did–extending the Great Depression, and jacking prices up to 50 per cent, it is still an overall wild card that the world economy cannot afford to risk.

Where Trump Is Right On Trade

Trump is entirely correct about one major claim of his campaign and presidency: America buys much more than it sells. This is especially true when it comes to basic consumer items, automobiles and necessities. The Balance notes, “In 2018, the United States imported $648 billion in drugs, televisions, clothing, and other household items. It only exported $206 billion of these consumer goods. That alone added $442 billion to the deficit. America imported $372 billion worth of automobiles and parts, while only exporting $159 billion. That added another $214 billion to the trade deficit.” Of that trade imbalance, the vast majority is with China. In 2018 alone the US racked up $419 billion in trade deficit with Beijing, importing $540 billion of clothing, computers and other items and exporting only $120 billion in aeroplanes, soybeans and cars. Technology transfer is another big problem, and one that tariffs haven’t fixed. American companies in China are required to hand over “trade secrets” if of their technology if they wish to sell products in China. China’s ongoing currency manipulation is also a problem.

The Reality Of Tariffs

Tariffs sound like playing hardball: a stern message to China to compromise or else. In reality, they have frequently backfired on vulnerable US economic populations like small farmers. As retaliatory Chinese tariffs makes soybeans less and less profitable to export family farms get driven into the ground. Instead of actually finding a solution, the Trump admin shovelled $30 billion in subsidies to hurting farmers. It turns out that even if trade wars could be good they are not “easy to win,” especially in a globally-interconnected modern economy. As Democratic presidential candidate Bernie Sanders said this summer in a Democratic town hall, tariffs certainly can be used effectively as part of a coherent overall trade policy, but it’s the reactivity and irrationality of how Trump is using them that is the problem.

Trade War Spillover

One effect of Trump’s various trade wars is that other nations and blocs are signing new non-US-affiliated deals. The EU signed a nearly-free-trade agreement with Mexico last spring and a similarly streamlined deal with Japan last summer. Trump’s steel tariffs resulted in Canadian Prime Minister Justin Trudeau imposing tariffs on American products and steel last summer as well as Mexico, which also hit American meat with tariffs. Trump-backed down this summer and lifted the tariffs on Canada and Mexico, although he threatened to hit Mexico again if they don’t clamp down on asylum seekers coming to the US border. Another effect of the tariffs is rising costs to American families. The US Federal Reserve estimates that Trump’s May 20, 2019 imposition of 25% tariffs on $300 billion of products costs the average family $831 extra per year. Currently, a proposed 10% tariff on Chinese textiles and electronics is pending and will hit Dec. 15 if a deal isn’t reached, with additional parts of the tariff hitting next September. The problem with using a tariffs and trade wars for deal-making leverage is that regular people suffer during the back-and-forth.

Hope Of A US-Canada-Mexico Deal?

There is currently some hope of the Democrats coming together with Trump on a US-Mexico-Canada trade deal, which Trump is dubbing the USMCA. It’s a rare point of bipartisan cooperation and getting work done amid the ongoing impeachment inquiry, although those more to the left of the Democratic party are not yet on board with the USMCA. House Speaker Nancy Pelosi has said the deal is solid and “imminent” and can also potentially be a precedent for more similar deals going forward. The deal would scrap NAFTA, a free trade pact which helped Trump win the White House through disaffected American communities gutted by the Clinton Administration policy.

The deal is similar to NAFTA but gives some extra protection to American pharmaceutical patents, automakers and open up Canada’s subsidized dairy industry a little more to American milk producers. That said, it is not likely that it would significantly prevent or dis-incentivize American companies from outsourcing or heading out of the US. Moreover, the deal just recaptures ground in North America that Trump lost in the Asia-Pacific by withdrawing the US from the Trans-Pacific Partnership (TPP). Some Democrats want more union rights and enforceable provisions in the deal as well as better environmental regulations before they agree to the USMCA, but it could end up as a rare Trump trade win.

Is The Trade War Worth The Fight?

While some commentators feel the trade war with China will be worth the fight, even if this is true it is worth looking at why mini-trade disputes are popping up all over that offer no real advantage to the US or its trade partners. While it is true that a fluctuating stock market does not necessarily spell disaster, the Trump trade disputes consistently seem more emotionalized and ideological than logical.

Trump’s unpredictable negotiating style and his willingness to brandish the threat of tariffs for leverage in trade talks cannot be particularly reassuring to European officials, who are set to start their trade negotiations with the U.S. Trump has already decried what he sees as unfair trade deficits with European Union countries, particularly Germany, and he imposed tariffs on steel and aluminium imports from some allies, without seeming to understand that the EU negotiates trade terms as a bloc. A U.S.-Europe trade war could do lasting damage to both sides.

The thing about Trump’s trade philosophy is that it is oddly tautological: supporters can always argue that negatives are just part of the path to America first forever and critics can point out that it hasn’t yielded positive results but can’t promise it will not in the future. Even as the American trade deficit is projected to spike to $150 billion more by the end of this year than it was at the start of Trump’s term, Team Trump can always just paint that as a bump in the road and part of a long-term strategy. Either way, the issue of trade policy is not black-and-white. There is room for some modified protectionism and tariffs and some free trade. They just have to be done right and not constantly dangled as gambits that throw everything into confusion.

As Jude Blanchette, a China expert at the Center for Strategic and International Studies aptly put it: “We’re in a political era of simple solutions at a time when these require complicated and coordinated actions.”