Trump Trade Policy Unpredictable, But Status Quo Seems Likely to Prevail
The consensus among trade policy analysts speaking during a Feb. 3 panel discussion on Capitol Hill was that the Trump administration will be an unpredictable force in shaping international commerce. During a session hosted by Georgetown University’s McDonough School of Business, Peterson Institute for International Economics Senior Fellow Gary Hufbauer posited that the status quo of U.S. trade policy will continue. European Centre for International Political Economy Director Hosuk Lee-Makiyama said the EU is monitoring the cited unpredictable trade diplomacy of the White House akin, “in a sense,” to how it follows the behavior of North Korea.
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Although Trump has more executive power to restrict trade than expand it, and financial markets would suffer extensively if his trade agenda were implemented as “advertised” during the campaign, Hufbauer said he doesn’t anticipate “a big implosion of trade” under the new administration. “I just see trade kind of going along like it is, but a lot of sound and light.” More trade cases will likely emerge under Trump, which will likely “annoy” several nations and foreign companies, Hufbauer said. Commerce secretary nominee Wilbur Ross said during his Senate confirmation hearing that he would consider self-initiations of antidumping and countervailing duty cases if confirmed (see 1701180053).
The EU has paused all trade negotiations with Asia-Pacific countries as it waits for the Trump administration’s trade approach to more clearly materialize, Lee-Makiyama said. Among the EU’s trade deals with Asian nations pending implementation are a regional free trade agreement with the Association of South East Asian Nations (ASEAN), and a bilateral FTA with Japan, according to the European Commission’s website (here and here). “We work from a template. We reluctantly abide by free trade, and we find it very difficult to move from the template because our internal complex model. And also we are very unaccustomed to this transactional economic diplomacy that Trump will be setting up,” Lee-Makiyama said. “We braced for the worst, and in a sense, you could even say that we are starting to react to United States trade policy a little bit like North Korea. It’s perfectly rational to be irrational, and we as a power cannot deal with that kind of transactional policy, because we will be asked to do things that we are not prepared to do, and we don’t have the power to do.”
As the U.S. considers its economic role in the Asia-Pacific, its leaders should keep in mind that it will be very challenging to negotiate a robust bilateral deal with Japan, with Canada and Australia expected to pursue bilateral trade agreements with the country, Lee-Makiyama said, adding that these potential deals could mean less U.S. influence in bilateral negotiations with Japan.
The U.S. will likely run into roadblocks during any negotiations with Japan as the administration would try to get more out of the deal than the Trans-Pacific Partnership, including dismantlement of agricultural trade barriers, and a widening of access to the Japanese services sector, Hufbauer said. The U.S. won’t be able to provide much more favorable access than the 45 percent regional value content requirement for automobiles agreed to in the TPP, he said. An economic partnership agreement is a more feasible outcome, he said. Meanwhile, the top trade officials of both Australia and New Zealand met in Sydney Feb. 5 to discuss the value of salvaging a sans-U.S. TPP, according to a report by Radio New Zealand (here).
U.S. politics could substantially impact international trade flows as well, Progressive Policy Institute President Will Marshall said during the event. The current U.S. political landscape could translate to a hardening White House protectionist stance, a destruction of relations with Mexico and a trade war with China, he said. Most House Republican-held districts that opted for Trump during the election still support his policies, increasing the likelihood that both incumbents and challengers in the coming years will adopt protectionist trade stances similar to Trump’s on the campaign trail. That could likely result in “bad,” protectionist policies, Marshall said.
The U.S. currently runs the risk of “explod[ing]” its relationship with Mexico over an anticipated NAFTA renegotiation, Marshall said. But Trump may encounter some pushback from free-market congressional Republicans such as House Speaker Paul Ryan, R-Wis., and it’s difficult to foresee how the divergent stances will play out within the current Congress, American Enterprise Institute resident scholar Claude Barfield said during the event.