How the US economy could suffer—bigly—under Trump's trade agenda

Donald Trump and Wilbur Ross
Mike Theiler | Reuters
Donald Trump and Wilbur Ross

The Trump administration recently released a trade pronouncement that goes beyond the president's preferred 140-character format. The 2017 Trade Policy Agenda is a report, required by Congress, that highlights Administration priorities on trade.

An earlier, leaked version criticized aspects of the global trading system as "untethered from economic realities." That wonderful phrase is missing from the final report—perhaps because it's an apt description of many aspects of the Administration's trade agenda itself.

The Administration's report mentions several broadly supported objectives, including enforcing trade laws and opening markets. But, at its core, the new agenda is a fundamental departure from America's decades-long support for rules-based trade that benefits Americans and the world.

While it employs muscular language like "defending sovereignty," it actually risks weakening America's economic standing, creating uncertainty for the U.S. economy, and making it harder for American exporters and workers to seize global opportunities.

Here are four examples of the real-world risks that the administration's strategy presents:

Sovereignty. The Administration's top priority is defending "national sovereignty over trade policy." The report notes that, under longstanding—and noncontroversial—provisions of U.S. law, World Trade Organization (WTO) rulings against the United States are not self-executing and only take effect if America agrees. The report further states that the Administration "will aggressively defend American sovereignty over matters of trade policy."

But what would this mean in practice?

Perhaps it's a sop to Trump's base, many of whom harbor conspiracy theories about threats to U.S. sovereignty. On the other hand, if aggressive sovereignty becomes a key driver of U.S. trade policy, America's economy and trade could suffer—bigly.

America has the sovereign right to ignore WTO rulings. But, as the report admits, injured countries also have the right to impose WTO-permitted retaliation. This retaliation is usually in the form of broadly targeted tariffs that choke off U.S. exports and cause considerable pain to affected U.S. exporters and workers.

Moreover, sovereignty is a two-edged sword. The Administration fails to mention that America has a stellar record of winning at the WTO, particularly in using the WTO offensively to challenge unfair foreign restrictions against U.S. manufactured goods, farm products, and services, especially in China. If assertive sovereignty is the new coin of the realm in trade, however, what's to stop foreign countries from ignoring these rulings and expanding barriers to American trade?

Solutions. The Administration's trade agenda is also devoid of practical solutions to claimed challenges.

The Administration says it will negotiate "new and better trade deals." But, other than noting that it will "tend to focus on bilateral negotiations," the agenda says absolutely nothing about what these deals might contain.

Would they help American producers and workers compete globally with modern rules for digital trade, fully enforceable labor and environmental standards, provisions to boost small exporters, and restrictions on foreign state-owned enterprises—like those in the Trans-Pacific Partnership (TPP) and Trade Promotion Authority?

Or, would they slow the economy, limit trade, cost jobs, and create economic uncertainty through Trump-supported ideas like imposing crushing tariffs, limiting investment, and disrupting supply chains?

Warmed-over rhetoric won't reassure American businesses and workers who produce, trade, and invest in the real economy. They deserve specifics and smart, practical solutions. And soon.

Deficits. The Administration would make trade balances a prime metric for evaluating trade deals. The agenda highlights America's trade deficit with China—a country with no free trade agreement with the United States—while ignoring the fact that America actually runs a trade surplus with its 20 FTA partners.

More significantly, most mainstream experts believe trade balances are an exceedingly poor measure of effective trade policy. Deficits are driven by broader economic factors, and lower trade deficits coincide with economic downturns, not periods of growth. Moreover, the Administration's attempt to link deficits to lost manufacturing jobs ignores findings that these jobs were overwhelmingly lost to automation, not trade.

The Administration's obsession with trade deficits is particularly concerning in view of reports that the it's considering a discredited methodology to "cook the books" in calculating deficits and proposals to make deficits a reason for withdrawing from trade deals. These ill-considered ideas would create great uncertainty in the real American economy. The latter is especially nonsensical, since the Administration also demands "reciprocity" in trade.

Market Access. The Administration rightly notes that many barriers to American trade result when countries fail to pursue free market principles or apply transparent rules. Based on the trade agenda, however, the Administration's response to these challenges appears to be retreat—hiding behind bluster and trade protection, while ceding the writing of new trade rules to countries like China.

Trump's decision to abandon America's hard-won gains in the TPP negotiations is especially puzzling in this regard. The TPP includes hundreds of practical and enforceable provisions that would increase trade and regulatory transparency, reduce market distortions, slash tariff and non-tariff barriers to American goods and services, and even reform NAFTA. And it would apply these reforms broadly, to countries accounting for 40 percent of global trade—a near-term result that would be impossible to duplicate by starting from scratch on one-off bilateral deals.

Rather than abandoning the vital work of expanding global rules-based trade, the Administration should seek to reassert American leadership. It could begin by revisiting the TPP's many positive reforms and applying them in other key contexts, such as efforts to update and improve NAFTA.

Presidential trade agendas have historically been forward-looking, with a strong focus on the opportunities that trade presents for America. Trump's agenda, in contrast, is inward-looking and reactive. As Congress reviews the Administration's report, it should be mindful of its own Constitutional authority, both to block destructive efforts to upend longstanding arrangements like the WTO and NAFTA and to shape a positive trade agenda that provides real-world benefits for American producers and workers.

Commentary by Ed Gerwin, a senior fellow for trade and global opportunity at the Progressive Policy Institute.​ Follow him on Twitter @EdGerwin.

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