An analysis of Trump’s trade policies

Now that President Trump’s term in office is nearing its end, it may be helpful to take a look at his trade policies.  We should look at his intentions and how well they were accomplished.  What is his legacy?  These policies naturally have led to a fair amount of controversy so it is my task to make as fair minded an approach as can be done at this point in time.  

His principal strategy was one of economic nationalism to be pursued primarily but not exclusively with bilateral agreements rather than multilateral.  He felt strongly that the U.S. had been unfairly taken advantage of and that bilateral agreements were likely to improve our situation.  This is perhaps his most consistent belief since the 1980s.  In particular, he campaigned for the Presidency intending to be rid of what he regarded as a scandal of a negative trade deficit which for him was the worst of the U.S.s disastrous policies.  Indeed, his main economic advisor, Peter Navarro, was sure that the deficit would be eliminated within the four years of his first term in office. 

He also promised to bring back manufacturing jobs which he believed had been taken from us by foreign competitors and by defective trade policies pursued starting with President Reagan.  He intended for competitors like China and Mexico to pay for his tariffs on their goods.

He has not done well in achieving those goals.  Indeed, most economists including the late Milton Friedman have believed that trade deficits usually were a sign of a healthy economy.  Trump did not succeed in lowering our trade deficit.  In fact, it has gone up and is on track to be at its highest level in 12 years.

He has not been notably successful in bringing back manufacturing jobs.  The percentage of jobs in manufacturing has stayed roughly the same as they were when he came into office.  What jobs that were preserved were done at great cost.  As an example, for every job saved in the steel industry, U.S. businesses and consumers have had to pay up to $900,000.  Farmers incomes have been sustained only because of massive subsides to them to compensate for their lost markets as in China.

American consumers have had to pay for the tariffs he has imposed on foreign goods.   The amount of revenue gained from those tariffs did not come close to the costs that American consumers have had to pay.  Yet, Trump persists in his belief that tariffs bring in substantial revenues.  

Trump promised that China would buy many more American goods.  Instead, China has only bought about 53% of what they agreed to buy in the Phase I deal finalized in February 2020.  They are importing less from the U.S. than they were in 2017. China has pursued a policy to be less and less dependent on a trade relationship with the U.S. Trump’s targets were unrealistic.  Further, he has attempted to negotiate trade with China without the aid of allies like the EU who had offered to work with him.  Trump has correctly identified a number of China’s mercantilist policies but has not been able to substantially change them.

Perhaps President Trump’s eeriest decision was his claiming there was a “national security” threat existing from our steel and aluminum imports—primarily from Canada and other friendly nations.  Critics see this as an abuse of his authority to impose tariffs on those imports.  Canada has retaliated with tariffs particularly on American ag products forcing the Trump administration to pay billions to American farmers to make up for his decision.  Steel and aluminum are essential for producing washing machines as from Whirlpool.  The few jobs that have been created here by these protective tariffs have come at the cost of an $86 average price increase.

The GOP once stood for free trade and has abandoned that principle.  All in all, Trump’s tariffs have cost the average American household about $1,000 a year by making American products more expensive along with the costs of imported goods.

That is the general picture.  Now is the time to look at specific trade agreements.

The Korus renegotiation (with South Korea) has, despite much ballyhoo, amounted to a minor tweak in the U.S./South Korea trade relationship not a wholesale redo.

The Japanese trade deal was designed to make up to some extent for what the U.S. lost by Trump’s decision to withdraw from the TPP.  It was not a “game changer’ as he described it.  It did increase some access for some American products but it did not touch the main issues related to autos and auto parts, aircraft, liquefied propane gas, rice, and semiconductor manufactured goods from the U.S. 

USMCA—First of all NAFTA was not one of the worst deals the U.S. had ever made.  Yes, significant numbers of American jobs relocated to Mexico estimated at somewhere between 500,000 and 750,000 but those jobs were not as safe places to work in as in the U.S. and were more harmful to Mexico’s environment.  But, the transference of jobs to Mexico significantly reduced the large numbers of Mexicans who had been coming here illegally.  It also led to extensive supply chains in the U.S.  Mexico’s economy improved enough to become part of the G20 and thus a much more substantial market.  However, the deal had wiped out much of Mexico’s agricultural base as it could not compete with American farm products.  Further, though the jobs that went to Mexico paid better than what Mexicans were used to, they did cost the U.S. significant numbers of jobs.  And American jobs that remained now paid less.

But, trade between the three countries tripled in a short time.  The amount of direct investments also tripled in value.  NAFTA reduced the prices of goods thus benefitting consumers in all three nations because of the absence of tariffs.  It improved government spending as contracts were now available to entrepreneurs from all three nations.  That improved costs for all because of increased competition.

On balance, NAFTA was a good deal for all three nations.

Well, how about the USMCA?  It was NOT a full overhaul by any means of NAFTA.  It did augment trade and the production of autos in all three nations.  But, over 6 years, it will bring in no big numbers of value.  It is estimated to improve the American economy by close to $86.2 billion or 0.35% of American GNP.  It is marginally better than NAFTA was.

What about leaving the TPP?  That has proved costly to the U.S. as American products have had to pay their tariffs.  But, what seems to have escaped the attention of most Americans, as Fareed Zakaria has pointed out, was the enhancement of the TPP to now be the Regional Comprehensive Economic Partnership (RCEP) of 15 Asian nations which created the world’s largest free trade pact by value this year.  It encompasses about 30% of the world’s GNP, larger than the EU or NAFTA.  The U.S. is NOT a part of it and thus Americans have to pay their tariffs to get into it.  Obama’s pivot to Asia epitomized by the TPP has been left in the dust.

And, if Americans have not been paying attention to that, odds are they are even more likely to not be aware that of the 55 nations in Africa, 54 have joined what started out in 2018 as an African free trade agreement between 28 African nations.  It is geographically THE largest free trade bloc in the world.  That IS a game changer as it should increase the value of trade within Africa by 15-25 percent by 2040.  Here, too, the U.S. is on the outside looking in.

China is in the process of working with Japan and South Korea to create yet another free trade pact.  China recently reached in October of this year a trade pact with the EU leaving the U.S. out in the cold.  The EU had offered to work with the U.S. vis a vis China but were turned down so they reached their own deal with China.  China has now replaced the U.S. as the EU’s main market. 

What has the Trump administration been doing while all this has been taking place?  Pursuing Trump’s economic nationalistic trade policies. 

The world now has major trade pacts in Africa, between the EU and China, the RCEP agreement covering much of Asia, and the USMCA.  The U.S. also has a much smaller regional trade agreement with the Central American nations plus the Dominican Republic that was negotiated under the Obama administration.  Finally, there is the largest Latin America trade agreement which is Mercosur that includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela. The elimination of most tariffs among the trading partners has resulted in trade revenues of more than $16 billion annually.

President Trump’s preference for bilateral agreements has been greatly surpassed by the major multilateral trade agreements. This is a rough environment for President elect Biden to inherit.