Donald Trump’s Trade Policy – Grab Them by the Wallet

With the election of Donald Trump as the next president of the United States of America, the world’s largest economy has undergone a revolution. This post shall act as an opinion piece about the election and a look at the potential consequences for American trade policy in the years to come.

On November 9th, the American electorate revealed the true extent of their frustration with the status quo of American politics by electing possibly the biggest outsider Washington has ever seen into the White House. Though born out of an understandable irritation with a broken political machine, one can not help but feel the American people – that is to say the minority of voters who actually voted for Trump – might have thrown out the baby with the bath water on this one.

America has never been perfect. From the original sin of slavery to a poorly conceived incursion into Iraq, the US has made many mistakes, to be sure. That said, the United States of America has also built and sustained the strongest democratic institutions the world has ever seen. But great powers eventually fall, and the day will come when the US is no longer ‘number one’. By electing Donald J Trump president, the US’s own citizens have likely expedited that process.

Indeed critique voiced about the new president elect is manifold. He has presented himself as intellectually incurious, with a cartoon understanding of the world. He has ethno-racist inclinations, and his actions and remarks towards women suggest a character deeply opposed to the kind of values, any modern society should stand for.

The upside of a President Trump is that we have little idea of what he might do when in office, as little attention has been paid to the specifics of his policy proposals. The few he has advanced – such as building a wall between the US and Mexico, seem both fanciful and inefficient.  But who knows what he will do – it’s conceivable at least that he might not be so bad.

From an analyst’s position, we are now put in the unbecoming position of having to take an unserious man seriously. From this moment on, what Trump does will not just affect how many retweets he gets, but also the lives of billions of people around the globe. So this post considers the potential effects of one of the few things we can safely expect- President Trump will be a trade skeptic.

Trade – A Defensive Position

One might say that an issue Trump has been consistent on is his aversion to trade – though even this is not entirely true given his personal preference to outsource production of his wares. But he clearly rode an anti-trade sentiment to the White House. While optimists hope for checks and balances to prop American institutions during the coming years, the US executive maintains broad powers in the realm of foreign commerce. President Trump could push a US exit from NAFTA, potentially disturbing robust supply chains between the North American partners.

The Trans-Pacific Partnership – a 12-country trade deal which Trump described as a raping of the US – is also rather unlikely to stay on track. This could have economic consequences for the US. A Global Economic Dynamics study from earlier this year found that TPP could generate 1.95 percent real income growth on a per- capita bases. But perhaps more important than any percentage loss is the strategic loss:   The Obama Administration pushes TPP, along with TTIP because, combined, these mega-trade deals would set standards for over 60 percent of global commerce. These deals are not primarily about tariffs –average tariffs for these countries are already relatively low. Closing these two deals would put the United States in the catbird seat for setting the rules of global trade by which the rest of the world would ultimately have to play.

Under a President Trump, the US may well increase trade barriers and become more inward looking. But China will not. Rather, China will continue to globalize, and in fact would have an easier time leading the charge for mega-trade agreements, resulting in more China-friendly standards, in this case meaning lower labor standards, the devaluation of intellectual property rights, and less regard for environmental collateral damage. Interestingly, such an approach would result in even cheaper goods on the global market, which would, in turn, make it even harder for what is left of American manufacturing to compete.

Moving Forward

One thing is clear – Trump’s trade perspective is broadly endorsed by the public. And not just by his coalition – let’s not forget that Hillary Clinton – herself an architect of the TPP – was forced to disavow the proposed pact under pressure from her primary opponent Bernie Sanders. Both Democrats and Republicans rallied against trade, and our own surveys of voter opinion demonstrates trade skepticism not just in the US, but across the Atlantic in Europe as well.

So what gives? From the iPhone, to the automobile, to the television set, people seem to be reaping the benefits of trade on a daily basis, so why all the anger? Part of it is of course the frustration of manufacturing drain from the developed world, though this is not entirely the fault of trade, nor would manufacturing return to Philadelphia if the US pulled out of NAFTA.

Part of it is rhetorical: ‘Chlorine chicken’ and ‘China raping the US’ can be electrifying messages that fit under the 120 character limit of our modern political discourse.

But to be fair, part of it is policy. Yes – trade creates a net benefit. But this is all economists talk about, and right now people in down-trodden regions aren’t buying it. This is because while the net may be positive, there are definitely winners and losers, and it certainly seems like a few people are winning a lot while a lot of people are losing what little they had. Public policy must do a better job compensating the losers of globalization – for example via training programs so that citizens can better engage in more skills-based job markets.

In this sense, many people have very good reason to be frustrated with the current state of affairs. The fact that they think a President Trump will improve the situation defies belief.