On the President's third day in office, he killed the TPP.
As Donald Trump approaches his first 100 days in office this weekend, his administration has generated more headlines over international trade in his first three months in office than perhaps any of its predecessors. It is worth taking a closer look whether his actions and announcements are the right ones for the country in the coming months and years.
On Trump’s third day in office, the president pulled the United States out of the 12-nation Trans-Pacific Partnership (TPP). This was the first and only trade action taken in these 100 days. Everything else he has done consists of requesting studies or investigations. The TPP trade deal was years in the making, with many analyses, both by an independent government agency and respected think tanks finding that the agreement would be positive for the U.S. economy.
If international trade were a college or a business school course, the professor would issue the Trump Administration a warning to do better going forward.
Leaving the trade deal left the United States with no economic policy toward the Pacific Rim countries and left Asia to be tied more closely its strategic rival, China. In tennis, this would be called an unforced error – a mistake that is not forced by good shots of an opponent.
It is now clear that there will be a renegotiation of the North American Free Trade Agreement (NAFTA). Trump has repeatedly criticized the agreement between Canada, Mexico and the United States. He has been particularly harsh on trade with Mexico. This may have its costs. Mexico, fearful of potential U.S. actions against its exports, has announced that it will explore buying its corn from Brazil and Argentina instead of America. The U.S. exports $2.6 billion in corn to Mexico, and if it decided to buy elsewhere, it would hurt American farmers in Iowa, Illinois, Nebraska, Minnesota and Indiana if Mexico follows through on its threat.
The administration has repeatedly said it favors trade deals between two countries versus multiple nations, which is flawed and would earn him a C minus if this were a class in international trade.
First, it is impractical — the track record is that it takes an average of two years to get one agreement through Congress. Just replacing TPP would require 11 separate bilateral trade agreements. Getting that number through Congress during this Administration would simply be impossible. Secondly, it is much harder to negotiate the opening of foreign markets in a bilateral agreement than in a multi-party agreement, because all of the payment for other country’s trade concessions has to come from the United States. In TPP, 11 other countries were contributing by giving the others increased market access. In a bilateral negotiation, for example, if Japan were to open its market further to U.S. farm exports, it could expect to have greater access to the U.S. market for pick-up trucks. It could not tell its legislators that there were trade benefits from the other ten TPP partners. Third, there is just less on the negotiating table for the negotiating partner to be able to overcome domestic political opposition to reducing its trade barriers.
The Trump Executive Order to review trade with countries with which the U.S. has a trade deficit might or might not turn out well, but it would have been smarter to examine where American companies and workers could get the most export gains regardless of current bilateral trade balances. It’s uncertain whether with some countries this will be a dead end, and whether there were major opportunities lost by not negotiating with countries with which the U.S. has a trade surplus or where there is close to balance.
As for the recent initiation of a national security review that could lead to import restrictions, steel imports are already subject to a plethora of additional duties under U.S. trade remedy laws. The impact on the domestic market of measures taken for national security is speculative. One downside: it is against U.S. export interests for other countries to claim national security as a reason for keeping American goods and services out of their markets. It remains to be seen where this initiative ends up.
From a potentially trade-expanding perspective, there are three announced initiatives. In each case, the implication is that the Administration has to give nothing and will make gains in foreign market access. This is unrealistic. Where the negotiations will lead is still uncertain. The most concrete of the three is the plan to launch re-negotiation of the North American Free Trade Agreement (NAFTA).
The draft notice to Congress, prepared by the Office of the U.S. Trade Representative (USTR) that is needed to start the negotiations demonstrates a thoughtful approach, but we do not know what the final notice will look like that sets out U.S. negotiating objectives.
Second, the President announced the beginning of a dialogue with Japan at the conclusion of Prime Minister Abe’s visit. In the follow-up meeting of Vice President Pence and Deputy Prime Minister Aso, there were indications that this bilateral process could yield the first major trade U.S.-Japan agreement. This result would be historic. Third, President Trump and Chinese President Xi Jinping agreed to a 100-day process to try to deal with the two countries’ particularly difficult trade relationship. What comes out of there three initiatives could be beneficial for U.S. trade. These announcements hold some promise for expanding trade, but any results lie in the future.
What would help the Administration to get improved results would be getting experienced hands on board to set trade policy and conduct negotiations. USTR still has no Presidential appointees setting America’s course in trade.
Alan Wolff is a Senior Counsel with the law firm Dentons LLP. He has served as a senior trade negotiator in both Republican and Democratic administrations.