Trump Trade Team poised to reset US Trade Policy

Photo source: Pixabay

Alicia Nicholls

Just three weeks shy of his inauguration date, United States President-elect Donald Trump has completed his trade team by nominating veteran trade lawyer and negotiator, Robert Lighthizer, as the next United States Trade Representative (USTR). Last month the President-elect had announced Wilbur Ross Jr as his Commerce Secretary nominee and Peter Navarro as head of the new White House Trade Council.

A cabinet-level office, the Office of the USTR is responsible for developing and coordinating US trade and investment policy and overseeing negotiations with third countries. Mr. Lighthizer’s pick comes as no surprise as he was an early Trump supporter. Moreover, a former deputy USTR in the Reagan Administration, Mr. Lighthizer is the most qualified of Mr. Trump’s nominees to date, bringing considerable technical expertise and professional experience to the post of USTR. Currently a partner with law firm Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, he also served as the Chief of Staff of the United States Senate Committee on Finance. Mr. Lighthizer will be taking over from current USTR under President Obama, Michael Froman. One of his first tasks from day one will likely be working on the renegotiation of the North-American Free Trade Agreement (NAFTA) as promised by President-elect Trump in his 100 days proposal.

Mr. Lighthizer’s conservative views on trade, including his criticism of free trade, are in consonance with the President-elect’s binary trade views, as well his hard-line position on China’s so-called currency manipulation. Mr. Lighthizer also had some harsh words for the WTO’s dispute settlement system in regards to dealing with what he had termed China’s “mercantilism”.

His choice of the word “mercantilism” is curious as it can actually be used to describe Mr. Trump’s “America first” stance on trade. Mercantilist theory, prevalent during 16th century Europe and also refined by Alexander Hamilton during the US’ post-independence period, views trade in a zero sum way, that is, only one country can win in trade. It favours the use of protectionist policies, such as tariffs, subsidies and quotas, to protect domestic industries from foreign competition.

Granted lingering traces of protectionist practices are not alien in current US trade policy and all modern “great powers” have used mercantilist policies to develop in their early stages (see the works of Professors Erik Reinert and Ha-Joon Chang for greater information on this). Just consider the protection given to sensitive sectors like agriculture. This is true not just for the US but for most other trading nations as well. However, in the last three decades US trade policy has been guided (if not always in practice, at least in theory) by neoliberal tenets, based on the works of Adam Smith and later David Ricardo, which extolled the benefits of free markets and became the dominant economic theory. However, while trade is a good thing, there are winners and losers, and the “losers” made their voices known this election, and increasingly in other western states.

Capitalising on the populist backlash to free trade, Mr. Trump’s trade team seems poised to break with this three-decade old policy stance towards a more neo-mercantilist disposition, with an emphasis on positive trade balances, and a proclivity for the use of protective and retaliatory tariffs to discourage imports in order to protect American jobs and industries and punish “cheaters”. On this front at least, Mr. Trump has tremendous popular support, especially in the rust belt, at home.

So what can we in the rest of the world expect? We can probably expect greater confrontation by the US with China on trade matters. We can expect even more aggressive US pursuit of countries in general believed to be engaging in “unfair trade practices” (and the USTR has already been doing this through the WTO’s dispute settlement system), However, there might be less emphasis under the Trump administration on utilising the WTO’s rules-based system and a resort to unilateral action, with the possibility of trade wars.

Perhaps, one saving grace is that the US Congress alone has the power to impose tariffs, although this CNN Money article notes there are several pieces of legislation which give the President some flexibility, for example, during “times of war” or during “a national emergency”.

As I have said in previous posts on Trump’s trade policy, President-elect Trump has changed his positions on many things so there is still great uncertainty about which of his policy proposals he will seek to implement. However, if the Carrier deal were not enough to show that Mr. Trump’s “America first” trade policy is more than mere bloviating on his part, his protectionist-leaning trade team confirms his intention  to shake up American trade policy, and not just in optics.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

 

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