The New Era of Trade

Monday President Trump ushered in a new era in U.S. trading relations.

He signed a memorandum directing the United States Trade Representative (USTR) to withdraw the U.S. from the Trans-Pacific Partnership. He set in motion meetings with the leaders of Canada and Mexico as part of his plan to renegotiate the North American Free Trade Agreement (NAFTA). And he has indicated his desire to negotiate a bilateral trade agreement with Britain, to take effect as soon as its exit from the European Union is finalized.

What should Americans think?

First, it is not the end of trade agreements. The memorandum specifically instructs the USTR "to begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.” This phrasing does raise the question as to why the new administration believes that the existing trade philosophy is in error; it is hard to believe that its predecessors did not want to promote American industry and raise wages.

Second, and in that vein, this may be the opportunity to learn what, exactly, the president views as objectionable about existing trade agreements. How is it that these did not serve to raise wages or promote U.S. industry? What will he seek to change in NAFTA? If he pursues a bilateral trade agreement with Britain post-Brexit, what would be contained in that agreement? It may be the case that the difference between President Trump and President Obama is not objectives, but rather tactics. If so, the voters will presumably approve (or not) based on the growth in wages he delivers.

Third, what is the Trump Administration view of trade as a geopolitical tool? One of the presumed benefits of TPP was its strategic importance in dealing with China, which is one of the reasons that Republican Senator John McCain objected to the executive order. It may be possible to nearly replicate the economics of TPP with a dozen bilateral trade agreements. But if so, does this carry the same strategic weight as a multilateral agreement that presents a unified position? If not, how will the Trump administration adjust its geopolitical strategy?

Fourth, the U.S. will get the first peek at the reaction of other countries to his trade policies. One concern over the president’s use of the trade bully pulpit, threats of tariffs, and accusations of currency manipulation has been that this might trigger retaliation from China, Mexico or global partners more generally. The specter of a trade war of the type that triggered the Great Depression has hung over the Trump trade strategy from the outset. The TPP withdrawal provides a tiny test of this possibility. Specifically, how many of the TPP signatory countries would be willing to pursue a bilateral deal? Or, will they “retaliate” by refusing to engage the United States?

Fifth, what will be the pace of deal making in the U.S. and elsewhere. Ninety five percent of the world’s consumers live outside U.S. borders and trade agreements allow U.S. firms to sell to them on fair terms. Other countries, China in particular, are aggressively pursuing multilateral trade deals. Will the U.S. disavowal of that approach mean that it falls behind its competitors in creating desired trade links with other countries?

For the moment, it remains too soon to tell. But there are few areas as important to America’s place in the world and the bold new strategy will be watched closely.

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