“Trump has heaped scorn upon those Republicans who have worshiped at the alter of unfettered free trade.” — Joe Scarborough, May 22, 2016

“I wouldn’t say that you know this free trade obsession is something that can’t get looked at in regard to making things more fair.” – Incoming White House Chief of Staff Reince Priebus, November 14, 2016

One of the most pervasive themes of the last year is the notion that America’s populist uprising, and the success of President-elect Donald Trump, has in large part been a direct response to the United States’ – and in particular the Republican Party’s – libertarian obsession with “unfettered” free trade. MSNBC’s “Morning Joe” Scarborough, quoted above, has been a big cheerleader of this argument, which has been treated on his show and elsewhere in the media as obvious truth. And now we see one of the few official members of the future Trump administration, Reince Priebus, repeating the notion, signaling to the country that America’s great free trade moment might be ending. Clearly, the idea is prevalent and persuasive. 

But it is also dead wrong.

First, although the United States maintains a relatively low average import tariff of around 3 percent, it also applies high tariffs on a wide array of “politically-sensitive” (read: highly lobbied) products: 131.8% on peanuts; 35% on tuna; 20% on various dairy products; 25% on light trucks; 16% on wool sweaters, just to name a few. (Agriculture is particularly bad in this regard.) We also maintain a long list of restrictive quotas on products like sugar, cheese, canned tuna, brooms, cotton, and baby formula. And although the U.S. has 14 free trade agreements (FTAs) with 20 different countries and is a longstanding member of the World Trade Organization (WTO), many of these same “sensitive” products have been exempted from the agreements’ trade liberalization commitments. Free trade for thee, but not for me.

Second, while America’s tariffs and other “formal” trade barriers have indeed been declining for decades, they are only a small part of the overall story. U.S. non-tariff barriers – export subsidies, discriminatory regulations, “buy local” rules, “fair trade” duties, etc. – have exploded in recent years. In fact, according to a recent analysis by Credit Suisse, when you add up all forms of trade barriers imposed between 1990 and 2013, the biggest protectionist in the world isn’t China or Mexico but none other than… the United States:

A look at U.S. “trade defense” measures (what we call “trade remedies” – anti-dumping, countervailing duty and safeguards measures) is revealing in this regard. According to the U.S. International Trade Commission, the United States as of October 31 imposes 373 special protective duties on a wide range of products, more than 90 of which came in the last three years alone (i.e., since chart above on U.S. protectionism was produced):

Chinese imports face 140 of these special duties, which can often be as high as 100%, and one sector in particular has benefited from the import protection: iron & steel. Incredibly, the U.S. industry that benefits from over half of all anti-dumping and countervailing duty (AD/CVD) orders on imports is also the same sector that has been constantly cited by President-elect Trump and his political and media cheerleaders as the biggest victim of America’s supposed religious devotion to “unfettered” free trade:

Other sectors supposedly crushed by the scourge of libertarian trade policy, such as chemicals and agricultural products, also disproportionately benefit from trade remedies protection. 

These facts demonstrate quite clearly that American manufacturing and agribusiness, as well their workers, are, in fact, a far cry from being the “unprotected” victims of “unfettered” free trade. They also should indicate that the commercial failures of U.S. steel or textiles or other sectors, as well the suffering of America’s working class, have not resulted from a lack of trade protectionism. There is plenty of protection available, and many U.S. industries take full advantage. 

If this is “free trade,” then I shudder to think of what’s coming next.

For the steel industry, at least, things are looking up: they have a true champion, former Nucor CEO Dan DiMicco, in charge of picking the next U.S. Trade Representative – a move that, you’ll be shocked to learn, has been cheered by Leo Gerard, the president of the U.S. steelworkers union. Finally, these poor, unprotected saps will get the fair shake in the global economy that they, and President-elect Trump, think they deserve.

Unfortunately, American consumers, including the millions of workers employed in steel-consuming industries, will be stuck with the bill.

I said there was no way Trump would last through the early primaries. I belittled the prospect of Trump even attending the convention, much less accepting the Republican nomination. And I was cavalier in my certainty that Trump would be making a concession speech early Tuesday night. In other words, by Washington’s standards, I have established credibility on the subject. 

So you should feel reassured that I am less bearish about the direction of President Trump’s trade policy than I probably should be given candidate Trump’s bellicose campaign rhetoric.

The trade policies Trump outlined in broad strokes on the campaign trail would – to put it mildly – devastate the economy. For example, Trump has said he would:

• impose duties on 35 percent on imports from Mexico and 45 percent on imports from China;
• impose special taxes on U.S. companies that incorporate foreign components or labor into their production or assembly operations;
• tear up the North American Free Trade Agreement – or at least renegotiate what he calls “the worst trade deal ever negotiated,” and abandon the Trans-Pacific Partnership, which he calls a “rape of our country”; 
• declare China a currency manipulator and impose countervailing duties to mitigate the export price advantages that practice allegedly bestows;
• use tax policy, protectionism, and the threat of more protectionism to compel China, Mexico, and all of the other countries with whom the United States runs bilateral trade deficits to buy more from U.S. producers and sell less to U.S. consumers in order to achieve a state of balanced trade;
• tax manufacturing companies that lay off workers.

The list of angry, knee-jerk, foolish ideas goes on and on. If you take candidate Trump at his word, U.S. trade policy is going to be an unmitigated disaster.

That kind of hot-headed hyperventilation arguably has a place on the campaign trail. It is a coveted perquisite of the opposition candidate – the outsider – to spew venom about the status quo. But those kinds of populist fantasies rarely translate into prudent policy. 

Two things constrain Trump. The first is Congress, which really does have constitutional authority to regulate foreign commerce. Yes, the Peterson Institute issued a paper a few months ago documenting all of the laws under which the president has been given authority to raise trade barriers. But in almost every case there are statutory thresholds that must be surpassed or judicial review to restrain autocratic impulses. (Here’s a response from a legal scholar.) The president does have more discretion – and thus greater liberty (to co-opt a good word) to act unilaterally – if he invokes his authority on national security grounds under specific national security statutes. 

Prompted in part by the specter of a Trump presidency, there is a debate emerging over whether, where, and to what extent the president has been given statutory authority to act unilaterally on trade matters. Cato colleagues Scott Lincicome and Simon Lester (both lawyers) have noted some troubling ambiguities in the language of various, relevant statutes. Of growing concern is the question of treaty withdrawal.

Without the consent of Congress, the president is authorized to withdraw the United States from NAFTA – that is not really in doubt. The question, however, is whether congressional authorization is required to raise tariffs on Mexico and Canada back up to their non-preferential rates – and to undo the other liberalizing provisions. If so, a withdrawal from NAFTA would have no real impact unless Congress was also on board. 

But, as Scott and Simon have noted, there are clauses in the implementing legislation for U.S. trade agreements that might be interpreted as meaning that withdrawal from a treaty nullifies it terms as articulated and effectuated in U.S. law. (Expect more from one or both of them soon.) Different interpretations of the meaning of those clauses could provoke a constitutional crisis if Trump, for example, instructed U.S. Customs officials to assess duties at the higher rates without Congress first changing the relevant laws. If this happens, Congress could file suit against the president, and that is a potential tinderbox.

If the separation of powers doctrine strikes Trump as too quaint, and he wished to push to expand his authority in the trade realm, there is a second constraint that should work: Reality.

Frankly, asserting presidential authority to impose, say, a 45 percent duty on all imports from China would be laborious and resource-consuming. The president would have little bandwidth for much else. And more to the point: Does Trump really want to destroy the U.S. and global economies? If he’s the Manchurian Candidate, perhaps. Otherwise, I imagine he wants his policies to succeed. He wants to be beloved – actually, worshipped. For that to be within the realm of possibilities, his economic policies cannot fail. They must spur real economic growth.

But it wouldn’t take very long – days, weeks – for the policies bellowed on the campaign trail and populating the first draft of the “First 100 Days” documents to spawn a mass exodus of capital and the ditching of plans to send more foreign direct investment to the U.S. The negative economic results would begin to show up in the statistics within one quarter.

I suspect Trump will continue to talk tough, but we can bank on his hubris and vainglory being better fortified by economic policies that history will judge kindly. Implementation of any of his protectionist ideas, I believe, will be more cosmetic than functional.

There may be a rocky first year beset by rising trade tensions, especially with China, but also the possibility of course correction before too much damage is done. Regardless, we all have our work cut out for us.

Donald Trump is well known for his vociferous complaints about foreign trade. Trump has also gained notoriety for offering very vague policy proposals, and trade is no exception. This has left observers knowing that Trump wants to do something big on trade but without much sense of what, specifically, that will be. Now that Trump is president-elect of the United States, that uncertainty is bound to vanish as Trump’s plans and intentions necessarily become more concrete.

For the moment, however, we are left to speculate based on Trump’s vague and bellicose announcements. The most reliable indicator of Trump’s plans is probably Trump’s “100-day action plan to Make America Great Again” he produced in the closing weeks of his campaign. That plan has reportedly been fleshed out a bit by his transition team. The plan includes numerous executive actions and a list of legislative proposals. 

In one section, Trump lists “Seven actions to protect American workers,” four of which directly involve trade. Let’s go through them one by one.

Renegotiate of Withdraw from NAFTA

It’s no secret Donald Trump really doesn’t like NAFTA. He has said that NAFTA “destroyed our country.” It’s safe to assume Trump means to act on this. According to Politico, the longer version of Trump’s 100-day plan specifies that Trump will start renegotiating NAFTA on day one and withdraw from NAFTA “by day 200” if he hasn’t gotten what he wants yet.

Claims that NAFTA should be renegotiated are not unique to Trump. Both Barack Obama and Hillary Clinton promised to renegotiate NAFTA. Their concern, however, was that NAFTA doesn’t have strong enough provisions on labor and environment regulation. Obama even claimed that the TPP—which does have stronger labor and environment provisions and includes all three NAFTA countries—is the embodiment of his promise to renegotiate NAFTA.

But for all the complaining Trump does about NAFTA, we don’t really know specifically what he doesn’t like about the agreement. He has misguided concerns about bilateral trade deficits, so he probably wants to raise U.S. tariffs while keeping Mexican tariffs low. Mexico, of course, will not want to do that.

The only leverage he seems to have to get Mexico to agree to those terms is the threat to withdraw from NAFTA. And withdrawing from NAFTA is something Trump has the power to do. Under the terms of the treaty, any member can withdraw after giving six months’ notice. This sort of thing has never happened before and it’s not clear exactly what legal authority Trump will use to raise U.S. tariffs after withdrawing or what he will raise them to. 

What we do know is that ending NAFTA would be disastrous. Americans conduct more than $3 billion per day worth of trade with Canada and Mexico. Withdrawing from NAFTA would severely disrupt integrated North American supply chains that depend on zero tariffs and predictable trade laws. Ironically, the only way Trump can “fix” NAFTA is by threatening to eliminate its many benefits.

So we need to seriously consider the possibility that Trump has no real intention of withdrawing from NAFTA. It would make a lot of sense for him to secure some minor concession from Mexico and play it up like a big achievement. That may be the best possible outcome for everyone.

Withdraw from TPP

This is action is pretty simple and straightforward. Trump referred to the TPP as “a rape of our country” and shows no sign of letting up on his opposition. 

The TPP has already been signed by the United States but has not been ratified or entered into force. President Trump could simply refuse to submit it to Congress and the agreement would die. He’s bound to make an official announcement though, probably in the first few days of his presidency. What the rest of the members of the TPP do afterwards will be interesting to watch, but it will happen without the United States.

Neither Trump nor his surrogates have said what he will do about the ongoing free trade negotiations with the European Union or various agreements in the works at the WTO. That will be something to watch over the coming months. As we learn who will fill key positions in Trump’s administration, we will learn more about the probable fate of these projects. 

Label China a Currency Manipulator

Thankfully, labeling China a currency manipulator has little to no meaning for actual trade policy. It won’t raise tariffs or impact in any way the right of Americans to trade with people in China.

Unlike ripping up trade agreements, it’s also not an especially radical thing to do. Mitt Romney made the same promise during the 2012 campaign and Hillary Clinton promised this year to crack down on foreign currency manipulation.

It will certainly be worth watching how the Trump administration deals with the issue of currency manipulation in the future, but labeling China a currency manipulator simply scores domestic political points and antagonizes the Chinese government.

“Use every tool under American and international law” to “end foreign trading abuses”

On one level, this is just a plan to maintain the status quo. We have trade laws in the United States and agencies that exist to protect rent-seeking U.S. industries from foreign “abuses.” Contrary to Trump’s campaign rhetoric, those agencies are not incompetent or failing to do their job. Trump’s plan to support the use of trade remedies and bring challenges at the World Trade Organization simply continues a longstanding policy of previous administrations.

But there’s also a more alarming possibility. There are a number of dormant U.S. trade laws that grant the President the power to raise trade barriers under various circumstances, and some of these laws are worded broadly enough to be used beyond their original purposes. Gary Huffbauer at the Peterson Institute has provided a thorough explanation of how Trump might use these laws to impose high tariffs on goods from China or Mexico. There’s a lot of uncertainty as to how this would all play out because, thankfully, past presidents have not been belligerent mercantilists. 

Considering the sort of promises Trump made during the campaign to keep Carrier and Ford from moving manufacturing operations to Mexico, it’s not unreasonable to fear Trump will use whatever powers he has available to punish U.S. companies that invest in foreign manufacturing. There’s no indication that Trump already plans to do anything like that in his first hundred days, however.

The most ambitious and defining part of Trump’s trade plans will be his effort to renegotiate NAFTA. If he succeeds, U.S. tariffs may go up and we will all be a little worse off. If he fails and follows through on his promise to withdraw from NAFTA, we will all be even more worse off. 

It’s going to be an interesting year.

Donald Trump has been touting staunchly protectionist and isolationist rhetoric on trade policy throughout his campaign. Whether this was merely campaign-talk is still to be seen.

However, at his core, Trump is a businessman. In the business world, isolationism is synonymous with self-destruction.

So when Trump brandishes protectionist rhetoric and sullies the role of international trade, he’s ignoring the fact that, in international relations, trade also serves as an expression of diplomatic goodwill and a means for constructive connectivity. Trade could also promote and advance free market principles abroad.

Take China, for instance. Beijing is embarking on a new era of “economic diplomacy”: trade and foreign investment have become the preferred tools for engaging with the international community, as well as for boosting domestic economic growth. China’s relatively new $1 trillion New Silk Road trade and investment initiative spanning several countries and continents attests to just that.

Instead of taking the opportunity to forge beneficial economic and trade ties with Beijing, Trump is instead threatening to impose high tariffs on China and declaring it a currency manipulator. However, doing so would actually isolate the United States’ economic interests rather than “protect” them, especially in the long run.

Trump will now have to quickly transition from a businessman into a statesman. In the business world, there is something to be said for taking a tough, zero-sum approach to negotiations. But in international relations, flippant threats and tough-talk—especially when it comes to the world’s second largest economy, as well as a nuclear power—is tantamount to recklessness, and likely to cause more harm than good.

Lastly, there are reasons to doubt whether Congress will comply with Trump’s trade and foreign policy stance. Members may instead insist that trade within a mutually beneficial arrangement, and not economic isolationism, will lead to more U.S. jobs and overall economic growth.

Please excuse the haste, as I’ve spent the last week ignoring the “impossible,” focused instead on writing about the likely direction—including the copious double-talk and rhetorical pirouettes—of President Clinton’s trade policy. If you’re a sucker for transparency, congratulations! You’ll get that in spades from President Trump’s trade policy. It will be transparently awful—for a while, at least.

Having a Republican president and GOP control of both chambers of Congress was once the ideal formulation for successfully negotiating and ratifying trade agreements. That all changed when Donald Trump, an avowed critic of U.S. trade agreements, rose to the top of the party’s ticket. As of last night, there is no longer any realistic chance that the Trans-Pacific Partnership agreement will be ratified in the Lame Duck session of Congress; there is no chance that the TPP will be implemented over the next four years without the deal first being reopened and revised to reflect terms desired by President Trump; there is much greater scope for trade frictions, especially with China, to erupt into deleterious rounds of tit for tat protectionism; and there is the distinct risk that policies intended to punish U.S. companies for outsourcing will slow inward foreign direct investment (insourcing) and chase U.S. companies off-shore, altogether, depleting capital, driving up interest rates, and hamstringing prospects for growth.

But there is a silver lining, which is that the worldviews of presidents tend to be more outward, engaging, and accommodating than the worldviews of presidential candidates. After repeatedly pledging to force Canada and Mexico back to the table to renegotiate the North American Free Trade Agreement during his bid for the White House, President Obama phoned the Canadian prime minister and Mexican president within one week of his 2009 inauguration to reassure them that he had had a change of heart. 

President-elect Trump’s hardline, isolationist, nationalistic, protectionist proposals may be more difficult to walk back, especially if he fails to excommunicate some of his current advisors and branch out to obtain the counsel of economists and policy specialists who have a better understanding of international economics and the rules of global trade. If he is able to expand and diversify the pool of people advising him, there is a reasonable chance that President Trump’s actions will be less bellicose than his rhetoric has been. After all, as someone who wants to make America “great again,” President-elect Trump will want the policies implemented by his administration to help grow the economy. Trade agreements have succeeded in that regard and, in addition to the TPP, there are plenty of countries and regions willing to partner, including the European Union and the United Kingdom (separately), and plenty of alternative negotiating platforms for accomplishing trade and investment liberalization. 

In the short term, if President-elect Trump wants to encourage U.S. manufacturing to produce and hire more, he should ask Congress to eliminate tariffs on all imported intermediate goods – components and raw materials that go into U.S. production. That would immediately reduce U.S. manufacturing costs, which would give the sector a leg up in its competition for U.S. and foreign investment.

Trump might quickly grasp that removing tariffs—rather than imposing them—is the kind of protectionism we can afford.

An Oct. 29, 2016, article by Danny Hakim in The New York Times gives a decidedly skewed view of the benefits of agricultural biotechnology. It is based on the author’s presumption that genetically modified organisms (GMOs) were supposed to accomplish two things: (1) increase crop yields; and (2) reduce the use of chemical pesticides. In essence, Hakim sets up two straw men and proceeds to knock them down using questionable analysis.

Hakim compares crop yields in the United States and Canada, where GMO use is widespread, with yields in Western Europe, where GMOs generally are not allowed. He finds that North America had “gained no discernible advantage in yields” relative to France, Germany, and other European countries.

As an example, Hakim includes a chart showing that the trend lines for yield increases of rapeseed in Europe and canola (a variety of rapeseed) in Canada are parallel, so that both added a similar amount of output per hectare. What he neglects to explain (or perhaps doesn’t appreciate) is that the percentage increase in European yield from 1995 to 2014 was modest. It rose from about 3.1 metric tons (MT) to 3.7 MT per hectare, an increase of approximately 19 percent.[i] Canada’s yield grew about the same quantity per hectare – from 1.4 MT to 1.9 MT – but the percentage increase was much greater at roughly 36 percent. This is because Europe grows winter rapeseed under conditions that allow for high yields, while Canada grows spring canola under conditions in which lower yields are the norm.

So which farmers experienced a greater increase in profitability? Compared to their 1995 earnings (assuming constant prices), European famers managed to increase their per-hectare revenues by 19 percent. Canadian famers, on the other hand, achieved an increase that was almost twice as high – 36 percent. Casual observation would suggest that Canadian canola growers have become relatively more profitable over time than their European colleagues. One factor that appears to have increased Canadian profitability is the planting of GMO seeds.

As for Hakim’s argument that herbicide use has increased in the United States, especially on soybeans, it’s not clear that this is a bad thing. Most of the soybeans grown in North America have been genetically modified so that they are not harmed by Roundup (glyphosate), an herbicide that kills many weeds. Roundup has the advantage of being less toxic than some other herbicides, and it breaks down quickly in the soil. Anyone who has spent hours in a soybean field on a hot, humid day pulling weeds by hand is not likely to object to the idea that the same result could be achieved by modern biotechnology.

The bottom line is that Hakim largely ignores the reality that many thousands of individual farmers make decisions each year regarding which seeds to plant and which agronomic practices to use. The fact that so many farmers choose to plant costly GMO seeds (in countries where they are allowed) indicates that the added expense produces a real benefit. It seems improbable that those agricultural entrepreneurs all are making poor decisions about what is best for their businesses. The safe assumption is that users of biotechnology expect it will lead to a marginal increase in revenue that is greater than the marginal increase in cost. In the real world, it looks like the use of GMOs is being driven by favorable economics.

Mr. Hakim may think that GMO “technology has fallen short of the promise.” The marketplace, however, understands things very differently.

In 2009, Canada and the European Union launched negotiations on a trade agreement, commonly known as CETA (which does not stand for Canada-EU Trade Agreement, as you might expect, but rather the Comprehensive Economic and Trade Agreement). This past weekend they reached a milestone, resolving a few outstanding issues so that the Agreement will soon be “provisionally applied” (after approval by the European Parliament). Full ratification will have to wait for some EU court decisions on the division of powers between the EU itself and the EU member states over certain issues (most importantly, the controversial investor-state dispute settlement provisions), and, depending on the court rulings, may also have to wait for approval by these member states for some aspects of the Agreement.

So if you’re counting, seven years into these trade negotiations, a final implemented deal still has not been concluded. And this is a deal with Canada, which is probably one of the least controversial trading partners around.

This all suggests that EU trade policy may face even more challenges than U.S. trade policy does right now. And this is something that worries people following the Brexit vote, in relation to upcoming UK trade negotiations to leave the EU and to come up with a new set of UK-EU trade arrangements. (They also worry more generally about the prospects for UK trade deals with anyone.) This is from the Guardian:

There are still several more chapters in the stop-start drama over the European Union’s comprehensive economic and trade agreement (Ceta) with Canada. The lifting of the Walloon veto clears the way for 28 EU governments to sign the treaty, allowing it to come into force on a temporary basis.

But 38 national and regional assemblies will have the final say on whether the treaty becomes a permanent legal document. It is a story that is likely to have implications for EU trade policy, but also for post-Brexit Britain.

“This Ceta saga has illustrated an additional layer of complexity that the UK will have to deal with,” said Lourdes Catrain, a partner at law firm Hogan Lovells. 

…

The British government is wary of parallels with Canada, although a government source acknowledged that Ceta showed “if we do end up in a world of an FTA [free trade agreement] outside the EU it isn’t going to be terribly easy”. …

I’ve written about how the UK should approach trade negotiations after Brexit, and I think the CETA experience confirms my earlier thoughts. If governments focus their trade deals on aspects of trade liberalization that are most beneficial and least controversial — such as lower tariffs, or mutual recognition of product regulations — the negotiations will not take very long and will generate wide support. On the other hand, if they insist on including provisions of questionable value that have strong opposition, such as investor-state dispute settlement, the process could drag on for many years. In my view, this makes a decision on what the UK should include in its trade negotiations pretty easy: Stick with the core trade liberalization issues, and get the deals done quickly.