The withdrawal of the United States from the Trans-Pacific Partnership (TPP), the renegotiation of the trade agreements with Mexico and Canada (NAFTA) and South Korea (KORUS), the blocking of the appointment of the members of the Appellate Body of the World Trade Organisation (WTO), the tariffs on steel and aluminum, as well as the escalating tariff spiral between the United States and China – U.S. President Donald Trump has clearly broken with the traditional liberal trade policy of his predecessors.
President Trump seems to perceive trade as zero-sum game. For him, a negative bilateral trade balance seems to indicate that the respective trading partner is not playing by the rules. The President and his team compare country-by-country, sector-by-sector, and product-by-product. At the top of his agenda stands China; but he is also highly critical of the trade policies of close partners such as the European Union (EU) and Japan. To achieve his goals, President Trump focuses on bilateral and quid-pro-quo solutions rather than multilateral cooperation. Being more interested in “deals” than enforceable international trade law, his approach is very transactional. He furthermore fully advocates the use of tariffs to put “America first” in the global trading system.
The Key Pillars of Trump’s Trade Policy Agenda
President Trump’s trade policy, laid out in his Trade Policy Agenda of both 2018 and 2019, is much more aggressive than those of his predecessors.
- Rebalance American Trade Relationships bySupporting National Security: According to the Trump administration, trade policy must focus more on the national interests of the United States and for this reason must be in harmony with the country’s national security strategy. Washington sees no sense in concluding trade agreements that make competitors stronger or weaken the United States. This aim fits in with the Trump administration’s pursuance of Section 232 investigations into the effect of global imports of certain products on American national security.
- Re-Negotiation of “Outdated and Imbalanced” Trade Agreements: The Trump administration wants to negotiate what it deems fairer and more balanced trade agreements to promote the creation of U.S. jobs and prosperity. At the top of the agenda stood the trade accord between the United States, Mexico, and Canada, NAFTA, which is known as USMCA in its newly renegotiated form, and the free trade agreement with South Korea (KORUS).
- Aggressive Enforcement of U.S. Trade Law: The Trump administration is no longer willing to tolerate unfair trade practices and is prioritizing the rigorous application of national trade laws. One such law is the Trade Act of 1974. Under Section 301 of that law, the president can take retaliatory measures, including imposing tariffs and quotas, if a country denies the United States its rights under a free trade agreement or takes measures that are unjustified, unreasonable, or discriminatory. Another instrument is Section 232 of the Trade Expansion Act of 1962 regarding the national security implications of imports. The administration has not only initiated several such investigations but implemented 232 tariffs on steel and aluminum as well as 301 tariffs on Chinese imports covering a volume of 250 billion dollars. The Trump administration has also implemented more antidumping and countervailing measures than its predecessor.
- Defending American Interests at the WTO: The Trump administration is highly critical of the WTO, criticizing that the WTO was no longer “able to keep up with modern economic challenges” and as such, should be reformed. Among other things, the agenda criticizes the dispute settlement system for overstepping its mandate and intervening in areas for which the WTO members themselves are responsible. As a response, the Trump administration is threatening the functioning of the entire organization by blocking the appointment of members to the appellate body and by refusing to engage in serious reform discussions.
Can Congress Restrain the President?
Opinion polls show that not everybody is happy with Trump’s trade policies. According to a 2019 Gallup poll on the first round of tariffs imposed between the United States and China in July 2018, more than twice as many Americans believed that the tariffs would hurt the U.S. economy than those who believed they would help it, while nearly the same number believed the tariffs would have no effect. Also, 45 percent of respondents predicted that the tariffs would have adverse long-term effects on the economy compared with 31 percent who foresaw positive effects; in this case. While traditionally, Democrats were more skeptical towards free trade than Republicans, recent polls show that their support for trade now surpasses that of Republicans who have become more critical. This can be attributed in parts to the opposition to and support of the president as well as the high level of polarization in politics and society.
The business community is highly critical of Trump’s tariff policies. The farmers in particular, who have suffered major losses due to the retaliatory measures especially of China, are vocally calling for a removal of the tariffs. The unions, on the other hand, are more favorable towards Trump’s trade policy, having objected more market access for decades.
While according to the U.S. constitution, the legislative branch of the government has competency over trade policy, Congress has expanded the powers of the president through several laws such as the Trade Expansion Act of 1962 and the Trade Act of 1974. Policy-makers in both the House and the Senate, however, are becoming increasingly frustrated with Trump’s irate tariff policy. The Bicameral Congressional Trade Authority Act of 2019, introduced by Representative Mike Gallagher (R-WI) and Senator Pat Toomey (R-PA), would, for example, require the president to submit any proposal that would reduce imports due to threats to national security under Section 232; it would furthermore transfer investigatory authority on national security from the Department of Commerce to the Department of Defense.
Whether or not Congress will reign in the president remains to be seen. While support for the Trump tariffs is less decisive, it remains to be seen whether Congress will reel in the president. For Republicans, it will be difficult to go against the president in the run-up of the presidential elections in 2020. For Democrats, it will be difficult as one of their most important stakeholders – the unions – is still skeptical about free trade, although support for trade has increased in the voter base of the Democrats.
Protectionism Hurts Everybody
President Trump wants to bring back jobs to the United States. But his trade policies are fundamentally flawed and pose a considerable risk to the economies of both the United States and its trading partners. Economic research institutes forecast significant job losses in the United States as a result of the steel and aluminum tariffs as well as the potential import tax on automobiles. According to the Peterson Institute of Economics, a 25 percent import tax on automobiles and retaliatory measures could cost 624,000 jobs in the United States alone. The United States should thus rather consider investing more in its ailing infrastructure as well as education and training to strengthen its international competitiveness.