DANGERS OF GUT INSTINCT TRADE POLICY

Trump’s China policy shows how even when he’s sorta right about something he acts in the dumbest possible way. Administrations of both parties have been too eager to keep business as usual with China rolling along. I think the promise of cheap consumer goods has been too tempting to consider the long-term ramifications of China’s growing influence and there hasn’t been the political will to examine exactly how they were able to deliver these high-quality goods so cheaply. However, to push China towards serious economic reform needs a coordinated international effort, not a unilateral effort to nudge the trade deficit a little lower. It should be noted that the trade deficit has actually ballooned over the last 2 years rather than shrink. In fact, even with China the trade deficit has grown substantially during the Trump administration compared to the Obama years. Over the last 3 years the trade deficit with China has averaged 9% annual growth, the previous 5 years it was only about 3.5% annual growth.

The first mistake Trump made was withdrawing from the Trans-Pacific Partnership (TPP), which was a huge gift to the Chinese. The TPP created a free trade zone with the U.S. and 11 other pacific countries including Mexico and Canada, however China was excluded from the agreement. The TPP has moved forward without the U.S. and minus the provisions America had negotiated long and hard to get in the agreement. So now Mexico and Canada are both benefiting from the TPP and the free trade agreement with the U.S., and while America’s trade deficit is rising, Canada’s is falling. The TPP is exactly the type of international organization that could have forced China’s hand, after all, each of the TPP members would benefit from China reforming their economy to play by the same rules as everyone else. But since Trump decided to withdraw from the agreement, we no longer have that leverage over China.

The second big mistake he made was starting trade wars with the very country’s we needed to partner with to force the Chinese to abide by international economic standards. And in fact, Canada and some other allied countries expressed a willingness to coordinate efforts on China, but Trump actively spurned these overtures. It’s unclear if he was concerned about having to share credit or just didn’t want to work with partners, but the results of Trump’s go-it-alone policy have been to prevent the success of his own stated goals concerning China. These tariffs have hit many of our European allies who in turn have been forced to pass retaliatory tariffs. The E.U. also has a trade deficit with China and would have been our natural allies in negotiating with the Chinese, but as things stand now with the increased U.S.-European tensions there’s no chance of that happening. Trump’s protectionism has handicapped our ability to deal effectively with China leading to our current ill-defined trade policy with them.

For someone who purports to be a businessman Trump displays a shocking lack of strategic thinking. This is the kind of policy you get with a President who goes with his gut instead of examining the underlying causes of problems. Trump has promised to negotiate better trade deals with Asia and Europe but hasn’t delivered. The only two deals he’s accomplished were a tweaking of the existing trade deals we had with South Korea and Canada/Mexico that had no substantive impact on trade. Perhaps most surprising is how the Republicans, the party of free trade, have completely folded to Trump’s agenda. If Trump’s complete hijacking of the Republican Party wasn’t so disastrous, it would almost be impressive. International relations, to include trade deals, require long-term commitments that Trump is incapable of. His erratic and incompetent policies have done serious damage to America’s credibility. Whoever the next President is will have a lot of work to do in repairing the damage that’s been done.