Trump has pulled out of some trade deals, including the Trans-Pacific Partnership (TPP), and renegotiated others, including the North American Free Trade Agreement (NAFTA) and the US-Korea Free Trade Agreement. Tariffs he has imposed on steel and aluminum, amount to overt protectionism and have hurt the US economy.
According to Chad P. Bown and Douglas A. Irwin (Trump's Assault on the Global Trading System, published in Foreign Affairs, September/October 2019 edition) by flouting international trade rules, the Trump administration has diminished the country's standing in the world and led other governments to consider using the same tools to limit trade arbitrarily.
The following are some pertinent but telling observations of Brown and Irwin in their exhaustive piece:
The US has taken deliberate steps to weaken the World Trade Organization (WTO) - some of which will permanently damage the multilateral trading system. And in its boldest move, it is trying to use trade policy to decouple the US and Chinese economies.
The Trump administration's attacks on the WTO and the expansive legal rationalizations it has given for many of its protectionist actions threaten to pull apart the unified global trading system. And on China, it has become clear that the administration is bent on severing, not fixing, the relationship. The separation of the world's two largest economies would trigger a global realignment. Other countries would be forced to choose between rival trade blocs.
Viewing trade as a zero-sum, win-lose game, Trump stresses one-time deals over ongoing relationships, enjoys the leverage created by tariffs, and relies on brinkmanship, escalation, and public threats over diplomacy. "I am a Tariff Man", says Trump.
Take steel. More than 70 percent of the steel consumed in the United States was produced domestically, the imported share was stable, and there was no threat of a surge. Most imports came from Canada, Germany, Japan, Mexico, and other allies, with only a small fraction coming from China and Russia, thanks to antidumping duties already in place on those countries. The number of jobs in the US steel industry had been shrinking, but this was due more to advances in technology than falling production or imports. In the 1980s, for example, it took ten man-hours to produce a ton of steel; today, it takes just over one man-hour.
The US also miscalculated the foreign blowback against the tariffs. Canada, China, Mexico, the European Union, and others all hit back hard, largely by slapping tariffs on US agricultural exports. In effect, the US administration jeopardized the welfare of 3.2 million American farmers to help 140,000 US steelworkers.
Both Japan and the EU also begrudgingly signed up for trade talks with the administration, in large part to delay Trump's auto tariffs for as long as possible. Of the two, Japan is more likely to agree to a deal. The Europeans are less likely to do so, not only due to conflicts over agriculture but also because of Trump's unpopularity across Europe.
Acts of protectionism are acts of self-harm. But the Trump administration is also doing broader, and more permanent damage to the rules-based trading system. That system emerged from the ashes of the trade wars of the 1930s, when protectionism and economic depression fueled the rise of fascism and foreign governments made deals that cut US commercial interests out of the world's leading markets. In 1947, the United States responded by leading the negotiations to create the WTO's predecessor, the General Agreement on Tariffs and Trade, which limited arbitrary government interference in trade and provided rules to manage trade conflicts. Under this system, trade barriers have gradually fallen, and growing trade has contributed to global economic prosperity.
Trump has threatened to leave the WTO, something his previous actions suggest is more than idle talk. He says the agreement is rigged against the United States. The administration denounces the WTO when the organization finds US practices in violation of trade rules but largely ignores the equally many cases that it wins. Although the WTO's dispute-settlement system needs reform, it has worked well to defuse trade conflict since it was established over two decades ago.
Nowhere has the Trump administration left a greater mark on US trade policy than with China. In early 2018, it released a lengthy report documenting a litany of concerns with Chinese trade practices. China had been forcing US companies to form joint ventures with local firms to access its 1.4 billion consumers. These arranged marriages then allowed China to acquire US technology. Sometimes companies would hand it over to grease the palms of regulators, sometimes they would license it at below commercially viable rates, and sometimes Chinese firms or spies would steal it.
Combined with some of the economic concerns underlying the US steel and aluminum tariffs - China's industrial subsidies, state-owned enterprises, overcapacity, and failure to more fully transform into a market economy - the list of US grievances created a recipe for confrontation. The result was tariffs, and counter-tariffs, on $360 billion worth of trade between the two countries, an unprecedented figure.
The US administration's goal seems to be nothing less than the immediate and complete transformation of the Chinese economy or bust - with bust the most likely outcome. To satisfy the United States, China would have to end forced technology transfers, stop stealing intellectual property, curtail subsidies to state-owned enterprises, abandon industrial policies designed to gain technological dominance, stop harassing foreign firms operating in China, and begin to open markets that the government deliberately closed to give control to domestic firms. In other words, the United States wants China to turn its state-dominated economic system into a market-based one overnight.
There were hints from the beginning that the administration was never searching for a deal that would truly end the trade war. In 2017, Peter Navarro, Trump's trade adviser, outlined the administration's view that trade with China threatened US national security. He also let slip that he wanted to rip up the supply chains that bound the United States and China together. At the time, some dismissed him as a rogue eccentric. Now, the United States is on the cusp of slapping tariffs on all imports from China-the first step toward Navarro's goal. Geopolitics has trumped economics.
This is not protectionism in the sense of trying to help a domestic industry in its struggle against imports. The goal is much broader and more significant: the economic decoupling of the United States and China. That would mark a historic fragmentation of the world economy. It would represent, in the words of former Treasury Secretary Henry Paulson, the falling of an "economic iron curtain" between the world's two largest economies. Such a separation would have foreign policy and national security implications well beyond the economic consequences.
Whether Trump appreciates these costs isn't clear, but it's evident that economic considerations aren't driving policy. The president's willingness to look past stock market slumps and continue to push China shows that he is willing to pay an economic price-whatever he says in public. For someone whose reelection depends on maintaining a strong economy, that is a bold gamble.
The system of world trade that the United States helped establish after World War II is often described as multilateral. But it was not a global system; it originally consisted of a small number of Western, market-oriented economies and Japan and excluded the Soviet Union, its eastern European satellites, and other communist countries. That division was about more than politics. Market and nonmarket economies are in many ways incompatible. In a market economy, a firm losing money has to adjust or go bankrupt. Under state capitalism, state-owned firms get subsidies to maintain production and save jobs, forcing non-state-owned firms-at home or abroad-to make the painful adjustment instead. The Trump administration, together with China, as it retreats from pro-market reforms, may be moving the world back to the historic norm of political and economic blocs.
The fall of the Berlin Wall and the collapse of communism opened up eastern Europe and the former Soviet Union to global markets. The reforms of Deng Xiaoping did the same for China. But only in the unipolar moment, which began in 2001, when China joined the WTO, were open markets truly global. Now, the period of global capitalism may be coming to an end. What many thought was the new normal may turn out to have been a brief aberration.