What Will Happen to Trade Deals under Trump?
Date: 7 June 2017 Share on Twitter Share on Facebook
In his first few months in office, President Trump has made some extraordinary changes. In quick succession, he has introduced a sweeping travel ban , a border wall between the U.S. and Mexico, and a new national healthcare plan. But investors and financiers are particularly interested in some of the less-publicized changes under the new regime. Specifically, the Trump administration’s drastic approach to trade deals.
Just a few days after his inauguration, Trump nixed the Trans Pacific Partnership (TPP) , a nearly-finalized trade deal which would have brought together eleven Pacific-adjacent economies: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the U.S. The partnership had been championed by Trump’s predecessor, Barack Obama, who claimed that the TPP would allow the member countries to effectively compete with China’s economic might. However, Trump argued that an international trade deal of this magnitude would ultimately lead to job losses for U.S. citizens. Without U.S. participation, the future of the TPP is now uncertain.
Soon after leaving the TPP deal, Trump announced plans to renegotiate the North American Free Trade Agreement (NAFTA), a tri-lateral trade deal between the U.S., Canada and Mexico, which has been in force for more than 23 years . The original purpose of NAFTA was to create a trade bloc between the three neighbors, eliminating tariffs on the most popularly traded goods, and standardizing employment and environmental safeguards.
Trump believes that NAFTA discriminates against American workers by giving the U.S. similar trade terms as Canada and Mexico, despite the fact that the U.S. has a much stronger economy.
“NAFTA has been a catastrophe for our country,” Trump said at a recent press briefing. “It’s been a catastrophe for our workers and our jobs and our companies.
“I don’t care if it’s a renovation of NAFTA or a brand-new NAFTA, but we do have to make it fair and it’s very unfair for the American worker,” he added.
He has already begun to renegotiate the terms of the deal, appointing Secretary of Commerce Wilbur Ross as lead negotiator .
None of this has surprised Trump supporters. During the election campaign, he promoted a protectionist view on the economy, promising to bring jobs back to the U.S. He has blamed international trade deals for the closure of U.S. factories and job losses in the country’s industrial heartlands, and vowed to withdraw from both TPP and NAFTA as soon as he became president. In fact, he even went so far as to say that NAFTA was “the worst trade deal in the history of the country,” and that TPP represented “a rape of our country.”
So what does this mean to trade deals under the Trump presidency?
In short, it’s going to make it a little bit more difficult for other countries to do business with the U.S., and this will almost certainly have a knock-on effect on how easily U.S. business are able to trade globally. Trump’s plans assume that there are sufficient resources within the U.S. to break away from its historic trade partners, and that there is sufficient demand for U.S. products to maintain healthy export volumes.
However, the more likely scenario is that other countries will seek to claw back value by adding U.S.-only taxes to the most commonly-traded goods: oil, machinery, cars and pharmaceuticals. In 2016, the U.S. imported $2.252 trillion in goods from around the world , with its North American trade partners supplying 25.8 per cent of that total. This leaves U.S. consumers vulnerable to price hikes on essential goods such as gasoline and laptops.
Trump has indicated that he is willing to negotiate bilateral deals in certain cases, but this is a labor-intensive move that would require each and every trade partner to be subject to their own unique negotiations. The travel ban and Mexican border wall have wiped out a lot of goodwill among the country’s key trading partners, and there are concerns that some countries may use the geo-political climate to hurt the U.S. economically.
Even in these early days of his presidency, Trump has shown himself to be a ‘shoot first, ask questions later’ type of leader. He has made his intentions clear, but he has not yet offered any detail on how a TPP-free, NAFTA-free U.S. economy would work. This uncertainty is compounded by the fact that the country’s trading partners will have a major say in how trade deals are shaped under the current administration.
Trump’s actions are testing the clout of the U.S. and his own famed negotiation skills. Only time will tell if he can use these assets to get a better deal for his country.