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U.S. Global Trade Policy Under the Trump Administration

August 17, 2017

Donald Trump’s comments during the election have shaped a vision of U.S.’s trade policy mixing strong protectionist retaliatory threats with complaints concerning existing trade agreements and relations.

By appointing free-trade critic Robert Lighthizer as the United States Trade Representative, President Trump signals his intention to follow through with campaign promises, addressing imbalances in U.S. trade. Wilbur Ross’s appointment as Secretary of Commerce, a man who often made use of trade restrictions to protect businesses he owns in steel and textile industries, is representative of the aggressive stance Trump hopes to take to protect domestic industries, maximize U.S. exports, and generally promote a “Buy American” policy. But if there is anything Americans have learned about the current administration over the last 7 months, it is that intent does not always translate to action or policy. This raises the question: what current and future tangible policies are being implemented by the president?

Withdrawing from the Trans-Pacific Partnership

On January 23, 2017, President Trump, just three days after his inauguration, signed an Executive Order to withdraw the United States from the Trans-Pacific Partnership (TPP), fulfilling a long-standing campaign promise.

Image: U.S. Free Trade Agreements. Source: Council on Foreign Relations.

Image: U.S. Free Trade Agreements. Source: Council on Foreign Relations.

The TPP was a deal negotiated under President Obama compelling 12 nations to slash tariffs on imports and exports between the Partnership’s signees. Although the TPP had never been approved by Congress or ratified by the required number of countries anyway, the withdrawal still holds noteworthy implications for U.S. trade. [1]

Senator McCain gave voice to concerns about withdrawal from the trade agreement, saying “this decision will forfeit the opportunity to promote American exports, reduce trade barriers, open new markets, and protect American invention and innovation.” However, President Trump’s decision has garnered traditionally unlikely allies, including Vermont Senator Bernie Sanders. Sanders has praised Trump, arguing that the TPP would’ve cost millions of local jobs and lowered wages for American workers. [2]

However, many dissidents of the Executive Order see the withdrawal of the United States from the TPP as an opportunity for China to further trade influence in the Pacific Rim. Obama had originally pitched the TPP as a way for the U.S. to counteract Chinese trade dominance – now China, not included in the original TPP Agreement, may fill the space left in its wake. As Edward Alden from the Council on Foreign Relations puts it, “Trump may have just unilaterally given away the biggest piece of leverage he had to deal with China.” [3]

NAFTA Renegotiations

President Trump, on the campaign trail, often referred to the North American Free Trade Agreement (NAFTA) as “the single worst trade deal ever made by a country.” However, since the campaign days, Trump has decidedly softened his stance on NAFTA. He has moved to renegotiate the trade agreement rather completely discard it – a relief for the thousands of U.S. companies and exporters reliant on the agreement.

NAFTA was originally designed to knit the three economies of North America closer together, raise the standard of living in Mexico and create a value-driven export market between Canada and the United States. To say that NAFTA has been a boon for American trade and our economy is an understatement. Under the deal, regional trade has tripled to more than $1.1 trillion and has generated 14 million American jobs. [4] In fact, this summer, over 13,000 corporate stakeholders sent in a flood of comments to the renegotiation committee, the majority of which advocated for the necessity of NAFTA and urged the committee to ensure that no harm was done to the agreement.

However, many political officials and corporate interests do agree that there is potential to improve the agreement to satisfy U.S. trade needs, and Trump has followed through with renegotiation plans. Trump’s trade team has detailed a plan to reduce the U.S. trade deficit with Canada and Mexico, implement new rules to govern the trade of telecommunications and financial services, and most notably, eliminate the Chapter 19 dispute settlement mechanism. [4] The renegotiation process is set to start in August, and the eyes of millions will be on our administration over the next couple of months as the U.S., Canada, and Mexico transition to a NAFTA 2.0.

 Image: U.S. Trade Balance from 1992 – 2013. Source: Council on Foreign Relations. Image: U.S. Trade Balance from 1992 – 2013. Source: Council on Foreign Relations.

What’s Next for U.S. Trade Policy?

Given his decisions concerning TPP and NAFTA, President Trump intends to stick to his “America First” trade strategy, a vision with meaningful ramifications for the global trade economy. Trump wants to protect domestic industries and American jobs, but at what cost? The challenge ahead is to balance the interests of free-trade advocates, who believe in lower manufacturing costs to protect U.S. consumers from rising prices, and those of protectionists, who believe in the necessity of lowering trade deficit and strengthening local manufacturers.

President Trump is expected to soon enact policy, through either existing trade laws or trade enforcement, to address concerns about the influence China has on global trade. Specifically, President Trump has already increased the budget of the Enforcement & Compliance office of the International Trade Administration to lower trade barriers globally and maximize U.S. exports. [3]

In the coming months and year, there will be real pressures from American citizens and companies for the U.S. to stay on course with trade policy, and more than ever, it will be important for President Trump and his trade team to balance the needs and interests of the various stakeholders involved both in our nation and globally. Even with Trump continuing to promote his protectionist trade tack, any step or policy decision can have significant implications for global trade, and predictability is certainly not a defining characteristic of the current administration. So, what will happen in the future? Only time will tell.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.


References

 [1] Dentons. “Trade Policy Under Trump: A Look Ahead.” Global Trade Magazine, 16 Mar. 2017, www.globaltrademag.com/global-trade-daily/trade-policy-trump-look-ahead.

 [2] Bradner, Eric. “Trump’s TPP Withdrawal: 5 Things to Know.” CNN, Cable News Network, 23 Jan. 2017, www.cnn.com/2017/01/23/politics/trump-tpp-things-to-know/index.html.

 [3] “The Trans-Pacific Partnership and U.S. Trade Policy.” Council on Foreign Relations, Council on Foreign Relations, www.cfr.org/backgrounder/trans-pacific-partnership-and-us-trade-policy.

 [4] Swanson, Ana. “Trump Administration Unveils Goals in Renegotiating NAFTA.” The Washington Post, WP Company, 17 July 2017, www.washingtonpost.com/news/wonk/wp/2017/07/17/trump-administration-outlines-goals-for-nafta-rewrite/

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