Surprise: Trade didn't collapse in Trump's first year, it flourished

On Tuesday, the Commerce Department announced that the ...

Posted: Feb. 9, 2018 12:45 PM
Updated: Feb. 9, 2018 12:45 PM

On Tuesday, the Commerce Department announced that the US trade deficit had actually increased in 2017.

During Donald Trump's first year as President, the US imported $566 billion more in goods and services than it exported -- higher than any year since 2008.

This flies in the face of the theory that, with the election of Donald Trump, US markets would suddenly become closed to global trade. Indeed, when considering President Trump's "America First" trade policy, it is important to keep in mind two related points. First, it is unlikely that Trump is planning to launch a new era of American protectionism. As Trump has said, most recently at the World Economic Forum in Davos, Switzerland, "'America First' does not mean 'America Alone.'"

Second, Trump's trade policy does not represent a major break with our past. He is not looking to prevent trade but is seeking what he describes as reciprocity.

Reciprocity in trade implies that as we grant access to our markets, we gain access to foreign markets. It is worth recalling that, when the United States turned away from protectionism in reaction to the disastrous Smoot-Hawley tariffs, Congress's first major trade bill was named "The Reciprocal Trade Agreement Act of 1934."

The Trump administration's recent decision to impose hefty tariffs on imported solar panels and washing machines, alongside ongoing negotiations over changes to the North American Free Trade Agreement (NAFTA), has led some to conclude that there has been a major shift in US trade policy, perhaps leading to a trade war with dire consequences for the world economy.

The decision on solar panels and washing machines, however, followed a recommendation from the US International Trade Commission, which, right now, consists of three Obama appointees and one George W. Bush appointee. This same panel recently unanimously voted against approving tariffs against the Canadian airplane manufacturer Bombardier in response to a complaint from the Boeing corporation that the Canadian company had dumped underpriced, subsidized planes on the US market. Rather than argue for a radical departure from past US practice, this seems more like a continuation of the mixed trade messages that Washington has been sending the world for the last few decades.

Even President Trump's decision to withdraw from the Trans-Pacific Partnership (TPP), though contrary to the Obama administration's position, is also not entirely original. During a panel at the recent Davos forum, Secretary of Commerce Wilbur Ross pushed back at the accusation that the United States' withdrawal from the TPP should be blamed on Trump. He argued, accurately, that "there was no political appetite in the United States in either party for TPP," citing Hillary Clinton's abandonment of TPP during her campaign.

It is obviously true that Trump's rhetoric on trade is different from what we have come to expect, not only from US politicians but from world leaders in general. When President Trump visited Davos, for example, he was surrounded by people who believe firmly in not only the existence but the fundamental importance of something called the "global community."

As a corollary, they also hold that this global community has interests and values that must be promoted by multinational institutions. At the same time, the community must be led, and if the United States does not lead, then some other country will. Trump clearly does not share this vision. But in rejecting "the world according to Davos," is the President really so out of sync with most Americans?

A poll taken just prior to the 2016 election found that, among those who had heard of the TPP, 63% opposed the agreement. Curiously enough, only 29% of those polled had even heard of the agreement. Why, then, did both major party candidates feel the need to reject the TPP? I suspect that what appears to be a consensus on trade is tied to a larger rejection of the globalist worldview.

Like most Americans, Trump approaches trade from the perspective that a president should only, can only, represent the views of citizens of his own country. I suspect that this is why Trump is inclined to prefer bilateral to multilateral trade agreements.

On a practical level, in any one-on-one negotiation, the United States is likely to have a significant bargaining advantage. For instance, using World Bank data on GDP as a measure of economic clout, Japan, the largest economy in the TPP, has a GDP that is roughly 27% that of the United States. Combined, however, the GDP of all of the countries currently in the TPP is twice as large, totaling about 55% of America's GDP.

Now that the 11 remaining TPP members have decided to move forward together, of course, the equation changes. Perhaps this is what has led the President to seemingly reconsider his decision on TPP. Trump's trade representatives are bringing this same perspective to the current NAFTA negotiations, relying on the overall size of the US market to leverage a revised agreement that is more favorable to US domestic businesses. So far, however, Trump has not triggered the withdrawal provisions available under existing NAFTA provisions.

So, for those looking for signs of where America is headed in the future, it is important to understand just how much Trump's "America First" idea resonates, not just with working class voters, but with the US electorate in general (and maybe, after the Brexit vote, not just American voters).

It is therefore likely that Trump's basic orientation, if not his rhetoric, will remain part of US policy long after the current occupant of 1600 Pennsylvania Avenue returns to his tower in New York. Those who worry about what this means for the global economy, however, can find some comfort in the fact that the more things seem to change in US trade policy, the more they remain the same.

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