Tag Archives: trade policy

Trump Trade Policy ‘Achievements’: The First Month

Alicia Nicholls

February 20th marked United States (US) President Donald Trump’s first full month in the Oval Office. And what a month it has been! We have seen a lot of focus by his administration on immigration. But what about trade? Trade occupied a major part of the platform of then US presidential candidate Trump. In his Contract with the American Voter , he had enumerated several trade-related pledges as part of his 100-day action plan to “Make America Great Again”. His first one hundred days are not yet up, but it is worth looking at what have been the achievements towards his “America first” trade policy during his first month in office.

President Trump’s Trade Promises

As a reminder, these were the major trade-related promises gleaned from his Contract with the American Voter. He pledged to:

  • Announce his intention to renegotiate the North American Free Trade Agreement (NAFTA) or withdraw from the deal under Article 2205;
  • Announce the US’ withdrawal from the Trans-Pacific Partnership;
  • Direct the Secretary of the Treasury to label China a currency manipulator;
  • Direct the Secretary of Commerce and U.S. Trade Representative to identify all foreign trading abuses that unfairly impact American workers and direct them to use every tool under American and international law to end those abuses immediately;
  • Work with Congress to introduce the “End Offshoring Act” to establish tariffs to discourage US companies from laying off their workers in order to relocate in other countries and ship their products back to the U.S. tax-free.

Three main reasons possibly explain Mr. Trump’s slow progress on his trade agenda thus far. Firstly, two key members of his trade team  who are needed to help effect his policies are still awaiting Senate confirmation, namely his United States Trade Representative (USTR) pick, noted trade lawyer and former deputy USTR under President Ronald Reagan, Robert Lighthizer, and his commerce secretary nominee, Wilbur Ross, an investor and former banker.

Secondly and related to the first point,Mr. Trump’s policy inexperience means he will likely be more reliant on the guidance and advice of his yet-to-be confirmed trade team than would other presidents. Thirdly, it is possible that Mr. Trump is realising that there is a wide chasm between presidential campaign rhetoric and how Washington and the role of president actually work, particularly when contrasted with being a CEO of one’s own company.

What has he achieved so far and what hasn’t he?

With that in mind, it is not surprising that of his stated promises, his only substantive trade policy achievement thus far has been directing the USTR via a presidential memorandum to withdraw the US from the Trans-Pacific Partnership (TPP). Withdrawal from the TPP was a low-hanging fruit. The US had signed but not yet ratified the Agreement and there was almost bi-partisan criticism of the deal. The acting USTR has since followed up on this memorandum, submitting a withdrawal letter to the TPP depository and TPP partners, and indicating their interest in bilateral trade deals with former TPP partners with which the US does not currently have a trade agreement.

Further to the latter point, President Trump and his soon-to-be confirmed trade team have been consistent so far on their preference for bilateralism over multilateralism. Trade was one of the hot button topics at his initial meetings with United Kingdom (UK) Prime Minister Theresa May,   Japan’s Shinzo Abe and Canadian Prime Minister, Justin Trudeau.

In keeping with his campaign promise that post-Brexit UK would not be at the back of queue for a trade deal, Mr. Trump received Prime Minister May as his first foreign head of government. The two have reportedly agreed to establish working groups in regards to a possible post-Brexit US-UK trade deal. Indeed, the UK House of Common’s International Trade Committee has already launched an inquiry on this.  However, formal negotiations on any such deal can only legally begin once the UK concludes its withdrawal agreement with the European Union (EU) pursuant to Article 50 of the Lisbon Treaty.

More immediately possible, however, may be trade talks between Japan and the US. Despite Mr. Trump’s earlier criticism of former TPP partner Japan’s “unfair trade practices”, the meeting with Mr. Abe went cordially, with agreement in principle for beginning US-Japan trade and investment talks. It should be noted that Japan has a large trade surplus with the US, boosted particularly by automobile exports, which might be a bone of contention in any trade talks between the two countries.

Outside of withdrawing from the TPP and these preliminary aspirational trade talks, there has been limited progress so far on his specific campaign promise in comparison to the ambitious agenda he proposed. So far he has not labelled China a “currency manipulator”. Indeed, the International Monetary Fund (IMF) had indicated that China’s currency was no longer below value. Nonetheless, Trump’s Secretary of the Treasury, Steve Mnuchin, hesitated in a recent CNBC interview to “pass judgment” on China’s currency practices, stating his preference to go through the US Treasury’s established process on judging whether China (and other countries) was manipulating its currency to boost exports.

Additionally, President has not yet triggered the 90-day notice period by informing Congress of his intention to renegotiate NAFTA, which he had promised to do “immediately”. While Mr. Trump has criticised the shift of US jobs to Mexico and the US’ large merchandise trade with that NAFTA partner, it is also not clear on what particular provisions of the agreement he wishes to “tweak”.

What is clear is that Mr. Trump’s main grievance with NAFTA appears to be with Mexico more so than with Canada. Indeed, Mr. Trump took a less protectionist stance towards Canada during his meeting with Prime Minister Trudeau, speaking collectively of keeping jobs and wealth within North America (US and Canada) and not just the US. While reporting on his meeting with Canada’s Prime Trudeau indicates that he would be looking for greater access by American firms to Canadian procurement markets, it is unclear when the NAFTA renegotiation talks will begin.

With respect to the promise to direct the USTR to identify countries engaging in “unfair trade practices”, his USTR nominee is still awaiting confirming. However, it has been longstanding US policy to challenge nations whose actions are against US economic and trading interests, as evidenced by the large number of disputes brought by the US before the WTO’s dispute settlement body.  Therefore, President Trump will not be doing anything more than what previous US administrations have done in this regard, although we will likely see an even more aggressive stance towards China’s trade practices.

Mr. Trump has spoken frequently against US companies which offshore production processes (and therefore jobs), as evidenced by his deal with air conditioner maker Carrier. He has promised to, but has not yet proposed, legislation to impose a punitive tax on US companies seeking to offshore may receive stiff opposition from the business community and from Congress.

He has, however, vacillated in his views on the controversial Border  Adjustment  Tax (BAT) proposal being pushed by Congressional Republicans as part of their tax reform plan. Different from Trump’s border tariff proposal, the GOP BAT Proposal seeks to convert the US corporate income tax from an origin-based to a destination-based tax. It would prevent companies from deducting the costs of their imported goods as an expense, while giving a tax break to companies which export. However, while some business leaders have praised the idea, some economists have argued that it will not boost US exports.

What next?

Besides the questions surrounding the renegotiation of NAFTA and which other nations the Administration will earmark for future bilateral deals, it is unclear what will be the Trump administration’s stance on other existing trade agreements, and on the on-going negotiations, including the Trans-Atlantic Trade and Investment Partnership (TTIP) with the EU and on the plurilateral negotiations such as the Trade in Services Agreement (TISA). There is also need for clarity on the Administration’s position on key multilateral trade issues, bearing in mind the WTO’s upcoming 11th Ministerial Conference in Buenos Aires at the end of this year.  Nonetheless, it is early days yet and it is hoped there will be greater policy clarity before the one hundred days have elapsed.

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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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.

 

President-Elect Trump’s Trade Policy Proposals: A Quick Look

Alicia Nicholls

Few other aspects of President-elect Donald Trump’s proposed policy platform have attracted as much attention and scrutiny as have his trade policy proposals. In often colourful language, Mr. Trump has charged that current United States (US) trade policy is disadvantageous to American workers and interests and that other countries are taking advantage of the land of the free.

In October before the vote, Mr. Trump outlined his broad trade policy proposals in his first 100 days action plan to “Make America Great Again”. The guiding principle of Mr. Trump’s trade policy is to protect American workers and address the country’s trade deficit. The President-elect has proffered the plan as a contract between himself and the American voter. Many of these proposals he had previously outlined in his Trade Policy speech on June 28, 2016.

Here are the broad policy guidelines of President-elect’s Trump trade policy according to his first 100-days plan in a nutshell:

1.Renegotiate or Withdraw from NAFTA

Mr. Trump has called the trilateral North American Free Trade Agreement (NAFTA), consisting of the US, Canada and Mexico “the single worst trade deal in history”. He has vowed to renegotiate it to make it better.

Truth be told, NAFTA has been controversial from its inception. The Agreement was negotiated and signed under Republican president, George H.W. Bush, in 1992, but the task of pushing for congressional approval and signing it into US law was left to his successor, Democratic president, Bill Clinton in 1993. In 1992, even before the agreement came into effect, then independent presidential candidate Ross Perot made his famous “giant sucking sound going south” quotation by which he argued that NAFTA would result in the relocation of American companies (hence American jobs) to Mexico where labour is cheaper and there are less environmental and workers’ protections. Back in the 2008 presidential campaign then Senator Obama made a campaign pledge that he would renegotiate NAFTA.

Views on NAFTA remain divided to this day. Besides its criticism as an American job killer, NAFTA’s Chapter 11 (Investment Chapter) has seen all three countries paying out large sums of money in compensation to investors who utilised the investor-state dispute settlement (ISDS) provisions.

But has NAFTA been as bad for the US economy as Mr. Trump claims? A report by the Congressional Research Service in 2015 found it is not so simple:

In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters. The net overall effect of NAFTA on the U.S. economy appears to have been relatively modest, primarily because trade with Canada and Mexico accounts for a small percentage of U.S. GDP.

It is not yet clear what aspects of the Agreement Mr. Trump intends to re-negotiate or how he intends to go about this.

Mr. Trump has also floated the option of withdrawing from NAFTA if Mexico and Canada do not agree to renegotiate. Under Article 2205 of the NAFTA Agreement, a State may withdraw from NAFTA six months upon giving written notice of same. It will be uncharted territory as no state has withdrawn from NAFTA before and it would mean that trade between the US and Canada and Mexico, its second and third largest bilateral trading partners (by merchandise trade) would be left in a state of uncertainty. This would be disadvantageous to American businesses which conduct trade with Canada and Mexico.

2. Withdrawal from the Trans-Pacific Partnership

Equating the Trans-Pacific Partnership with “rape” and calling it a “deathblow for American manufacturing“, Mr. Trump has stated that he will withdraw the US from the agreement.

The TPP is a mega free trade agreement involving twelve Pacific Rim countries. The US signed the Agreement in February 2016 but ratification requires Congressional approval which it is yet to receive. After Mr. Trump’s election, President Obama announced he was suspending his efforts to win congressional approval of TPP before Mr. Trump assumes office. A significant amount of popular, political and civil society resistance to TPP has been against the secrecy in which it was negotiated and its ISDS and intellectual property provisions.

Since the TPP has not been ratified by the US, it is probable that President Trump may simply not bother to let it be ratified, which means it will die a natural death as far as the US is concerned.

3. Direct his Secretary of the Treasury to label China a currency manipulator

According to US Census Bureau data as at September 2016,  China is now the US’ largest  bilateral trading partner in terms of the total volume of merchandise trade between the two countries. The US has a large trade deficit with China ($79.3 bn in exports to China versus $337 bn in imports year to date, according to US Census Bureau data), something which Mr. Trump has constantly criticised during the campaign.

Another issue Mr. Trump has raised is “currency manipulation” by China. In a Wall Street Journal op-ed in November 2015, Mr. Trump wrote that “the worst of China’s sins is not its theft of intellectual property. It is the wanton manipulation of China’s currency, robbing Americans of billions of dollars of capital and millions of jobs”.

So what is this currency manipulation business? China’s currency exchange rate policy uses a trading band, that is, the exchange rate  of the Renminbi (China’s official currency) is allowed by the People’s Bank of China to appreciate or depreciate only 2% against a basket of currencies, including the US dollar. It is not uncommon for governments to intervene to influence their exchange rates and it is a country’s sovereign right to determine its own exchange rate regime. The only possible WTO guidance on the subject is in the General Agreement on Tariffs and Trade (GATT), namely Article XV(4) which is  quite vague.

The main argument made against China’s exchange rate regime by the US is that the Renminbi’s undervaluation gives China an unfair trade advantage as it makes Chinese exports more price competitive than American goods. Bear in mind that large bilateral trade deficit we discussed earlier. It should be noted that this concern is not unique to Mr.Trump as in the 2012 presidential election, former Massachusetts Governor Mitt Romney, the then Republican nominee, promised to label China a currency manipulator. Criticism of China’s intervention in the currency market by US administrations is not new, including under the Obama Administration.

In highlighting the perceived injustices of China’s actions, Mr. Trump noted in the same op-ed that “[t]hrough manipulation of the yuan, the Chinese government has been able to tip the trade balance in their direction by imposing a de facto tariff on all imported goods.

The President-elect has stated that he would impose a countervailing 45% tariff on Chinese imports because of China’s “currency manipulation. Many commentators have warned that such an action would likely trigger a trade war with the US’ most important bilateral trading partner, to which Mr. Trump promptly quipped that the US was already in a trade war with China.

It should be noted that in its Article IV Report of 2015 the IMF noted that “our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued”, although in the 2016 report it noted “[a]fter appreciating 10 percent in real effective terms through mid-2015, the renminbi has depreciated some 4.5 percent since then and remains broadly in line with fundamentals”.

4.Direct the Secretary of Commerce and U.S. Trade Representative to identify all foreign trading abuses

Mr. Trump has promised that he will direct the Secretary of Commerce and the U.S. Trade Representative “to identify all foreign trading abuses that unfairly impact American workers and direct them to use every tool under American and international law to end those abuses immediately”.

Defending her trade interests against perceived unfair trade practices by other states is an American tradition, including under the Obama administration, and would be nothing new. In the Caribbean we have had an unfortunate taste of this with the banana disputes successfully brought by the US and Latin American countries on behalf of big US banana producers against the European Union over its preferential import regime for bananas from African, Caribbean and Pacific (ACP) countries.

Indeed, if one looks on the WTO’s website, one can see a long list of WTO disputes brought by the US as a complainant against other WTO members. More specifically, 19 of those cases the US has brought against China.

5.Ending Offshoring by establishing tariffs

Mr. Trump has promised to “discourage [American] companies from laying off their workers in order to relocate in other countries and ship their products back to the U.S. tax-free”. To this extent, he has indicated on several occasions his willingness to impose a 35% tariff on goods coming into the US which are produced by American companies which had moved offshore. This promise in particular appealed to blue collar workers in Rust belt states where manufacturing jobs have declined as some American manufacturers have either offshored or outsourced aspects of their production to more cost effective locales, including Mexico and Asian countries.

Critics of Mr. Trump’s plan to place a tariff on those imports argue that the tariff will raise prices for American consumers and negatively impact the working class. Additionally, there appears to be some trend of reshoring, that is, relocation by American manufacturers of plants back to the US, although this Deloitte report notes that it is too early to tell whether this is a permanent trend.

6. Other Trade Statements made on the Campaign Trail

In his 7-point plan on trade, Mr. Trump also promised to “appoint tough and smart trade negotiators to fight on behalf of American workers” to ensure America signs deals which benefits American jobs. It is not clear what criteria will be used to select these negotiators. Mr. Trump also supports the continuation of the US’ long-standing trade and economic embargo against Cuba. Although only Congress can end the embargo, President Obama had through a series of executive orders loosened some of the restrictions since 2014 in hopes of a future normalisation in US-Cuba relations. It is likely that Mr. Trump will reverse those orders.

Some of President-elect Trump’s trade policy proposals such as aggressively defending America’s interests against unfair trading practices and challenging China’s perceived currency manipulation are already mainstream to existing US policy. What is different, however, is his rhetoric against free trade agreements which he views as “job-killing” and his tariff-happy rhetoric. I have already discussed the implications of this for US-Caribbean relations in a previous post.

His zero-sum approach to trade policy has been strongly criticised in many quarters as being protectionist and anti-growth. For instance, an empirical study by the Peterson Institute for International Economics had found that if implemented, Mr. Trump’s trade proposals “could unleash a trade war that would plunge the US economy into recession and cost more than 4 million private sector American jobs”.

If he does decide to implement tariffs on countries deemed to be “unfair”, this is also likely to lead to more WTO trade disputes as countries may decide to take pre-emptive or retaliatory action against US goods in order to protect their own interests. Such an outcome from Mr. Trump’s proposals are particularly concerning in the context where global trade growth is sluggish and there are concerns about creeping protectionism, which has prompted some concern expressed by IMF and WTO officials.

As evidenced by his electoral win, Mr. Trump’s protectionist promises successfully appealed to blue collar workers  in the “Rustbelt” states and is symptomatic of the anti-trade populism which has been sweeping through western countries. However, the implementation of some of his more controversial proposals might not be as simple as one might think. Needless to say, some of these proposals, if implemented, will likely be judicially challenged in the domestic courts by American businesses which are adversely affected, in the WTO dispute settlement system by affected countries. Mr. Trump has hinted that he may withdraw the US from the WTO, when the suggestion was made that some of his proposals might be contrary to WTO rules if implemented.

The specifics of the President-elect’s policy proposals have not yet been elaborated. It is also not yet known who Mr. Trump will pick to lead his trade team. As trade is high on the incoming President’s agenda, one can expect to see more elaboration of his trade proposals in the coming weeks and after he takes office in January 2017.

Alicia Nicholls 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.

Job Opportunity: Trade Policy Adviser (Pacific Islands Forum Secretariat)

Trade Policy Adviser (Aid for Trade)

Just came across this. The Pacific Islands Forum Secretariat is seeking applications for a trade policy adviser (aid for trade).  If you’re interested, try to apply soon as the deadline is February 10th 2012.

Find more info at this link: http://www.aidboard.com/jobs/view/trade-policy-adviser-aid-for-trade?PHPSESSID=vdsd25rvlfj5cci58cavc4tl45.

Good luck! 🙂