Trade protectionism could be the biggest risk to President-elect Donald Trump’s growth-and-greatness agenda. Trump the dealmaker needs to decide whether to play case-by-case defense or to use America’s leverage to open markets.
The United States has free-trade agreements (FTAs) with 20 countries that account for 10 percent of the global economy but nearly half of U.S. exports. In the first five years of these deals, U.S. exports on average increased three times as rapidly as export growth globally. The United States enjoys a manufacturing trade surplus with FTA partners, while about 60 percent of imports are for intermediate goods that lower costs for U.S producers. U.S. free-trade agreements support innovation by incorporating new rules that help cutting-edge businesses. Congress, the co-owner of these agreements, should push for more.
To make a fresh start, Trump could negotiate a FTA with Britain in parallel with the Brexit bargaining. A U.S.-Britain deal should focus on the core issue that Britain also faces with the European Union: how to devise trade terms for modern service sectors and advanced industries while respecting sovereign decisions about regulation. U.S.-British solutions may suggest ideas to E.U.-British negotiators, and, at a minimum, offer Britain an option if the E.U. decides to make Brexit painful. Trump’s team should complement the British deal with an offer to the E.U. to jump-start the stalled transatlantic trade negotiations by dropping controversial arbitration provisions that would enable private investors to challenge foreign governments. Investors should instead look to U.S. and European courts.
Trump’s approach to North America should be grounded in his observation that the United States and Mexico need to compete together with China and other economic powers. Each dollar of Mexican and Canadian exports includes about 40 cents and 25 cents, respectively, of U.S. inputs, whereas the comparable figure for China is about 4 cents. Wilbur Ross, Trump’s nominee for commerce secretary, recognized this competitive reality a decade ago when he supported the U.S. free-trade agreement with Central America; Ross welcomed provisions that helped his U.S. and Mexican apparel operations integrate with Central America in order to compete with Asia. NAFTA, now more than 20 years old, can be improved with new terms on energy, digital business, anti-corruption, logistics and labor standards.
A Trump trade policy for the Asia-Pacific could concentrate first on the prevention of currency manipulation. Both the World Trade Organization and International Monetary Fund charters state that economies should not use unfair exchange-rate maneuvers to boost exports and restrict imports, but those directives have not been enforceable. C. Fred Bergsten of the Peterson Institute for International Economics has come up with a solution: The United States could deter currency manipulation through “countervailing currency intervention” under special circumstances. U.S. counter-intervention would target governments with large reserves, big trade surpluses and no security justification for buying dollars to depreciate their currencies. Congress should authorize the executive to counter-intervene against any economy with a tradeable currency, which would include Japan and now China.
The Trump administration is also likely to use anti-dumping and anti-subsidy cases to tax Chinese exports, although such restrictions already cover about 7 percent of Chinese goods and have resulted in price hikes averaging 81 percent. China often retaliates, hurting U.S. workers and farmers. Ross should negotiate reductions in Chinese metal production capacity and transparent restrictions on subsidies, favorable finance and other unfair distortions created by state-owned enterprises.
Whether the Trump administration negotiates country by country, or with groups, it must not ignore the economies of the Asia-Pacific and the potential of the Trans-Pacific Partnership. In today’s competitive world economy, the United States cannot withdraw in a huff; retreat is defeat. Similarly, the FTAs that the United States already has with 12 countries in the Western Hemisphere could provide a road map for future negotiations with Brazil and Argentina if their reformist governments welcome competition to clean up crony capitalism.
A Trump trade policy also needs a plan to help workers adapt to change and job loss, whatever the cause. The U.S. government spends about $18 billion a year on about 40 employment and training programs run by nine agencies; according to the Government Accountability Office, these schemes have been rarely evaluated. The American Enterprise Institute’s Michael Strain and other reformicons have proposed innovations such as wage support, mobility packages and skill-job matching to get people back into jobs. A job offers the dignity of self-responsibility, even if incomes need to be supplemented.
Trump says he is an economic nationalist. From its earliest days, the new American republic pressed for freedom to trade in a world of mercantilist empires. The first American treaties were for “amity and commerce.” A dealmaker who is an economic nationalist should not just blame the world and revert to costly protections of special interests. That’s the “Art of Bankruptcy.” Instead, President Trump needs the “Art of the Deal” to open markets, keep America competitive and leverage U.S. economic strength.