tag:theconversation.com,2011:/uk/topics/trade-policy-32343/articlesTrade Policy – The Conversation2023-06-18T11:19:56Ztag:theconversation.com,2011:article/2061362023-06-18T11:19:56Z2023-06-18T11:19:56ZGold fraud: the Goldenberg scam that cost Kenya billions of dollars in the 1990s – and no one was jailed<figure><img src="https://images.theconversation.com/files/528027/original/file-20230524-15-ipamm.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>The <a href="https://www.theguardian.com/world/2006/mar/16/kenya.jeevanvasagar">Goldenberg scandal</a> in the early 1990s is Kenya’s largest documented gold fraud. The scheme involved Goldenberg International Limited, which pretended to export gold and diamonds, and in exchange received substantial subsidies from the government for “earning” foreign exchange. Kenyan businessman Kamlesh Pattni – who was at the centre of the scandal and was charged with fraud but <a href="https://www.businessdailyafrica.com/bd/economy/court-formally-terminates-goldenberg-case-2031264">eventually acquitted</a> – was recently <a href="https://www.aljazeera.com/news/2023/3/23/gold-smuggler-pattni-kenya-zimbabwe">named</a> in a new investigation into gold fraud. This time his operation is allegedly being run through Zimbabwe from his base in Dubai. Economists Roman Grynberg and Fwasa Singogo, who have <a href="https://core.ac.uk/download/pdf/304991797.pdf">researched</a> the Goldenberg case, and <a href="https://www.researchgate.net/profile/Fwasa-Singogo-2">the gold mining industry and its role in illicit financial flows in Africa</a>, unpack the issue.</em></p>
<h2>What was the Goldenberg scandal?</h2>
<p>The scandal centred on two companies: Goldenberg International and Exchange Bank Limited. Both were owned and directed by businessman <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=32">Kamlesh Pattni</a> and his partner James Kanyotu, the director of intelligence in the Kenyan police force. The two were licensed by the government to export gold and diamonds from Kenya. But they did not. They just collected an inflated subsidy.</p>
<p>The Goldenberg scandal occurred at a time of <a href="https://www.elibrary.imf.org/view/journals/002/1995/133/article-A001-en.xml">severe economic austerity</a> in Kenya in the early 1990s. The country’s economy was characterised by long periods of macroeconomic instability and dwindling foreign reserves. </p>
<p>Economic policy was inward-looking. It leaned towards the protection of local industries and the retention of foreign exchange. This period also coincided with the <a href="https://www.britannica.com/topic/Kenya-African-National-Union">one-party state that began in 1982</a> and was marked by political oppression. </p>
<p>As a result, donors gradually reduced support and investment evaporated. Foreign debt payments became irregular and the government increasingly fell back on local borrowing. </p>
<p>The Kenyan government turned to international financial institutions for cheaper loans. These were provided, but were conditional on <a href="https://core.ac.uk/download/pdf/304991797.pdf#page=2">economic reforms</a>, such as measures intended to stimulate trade. </p>
<p>Coincidentally, or otherwise, Goldenberg International applied to the Kenyan government in <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=33">July 1990</a> for certain privileges that spoke directly to the economic needs of the country. The company received a monopoly on exports of gold and diamonds from Kenya. </p>
<p>It was also given a subsidy of 35% of the value of these exports – 15% more than the official rate at the time. </p>
<p>Goldenberg managed to defraud the Kenyan state of between <a href="https://core.ac.uk/download/pdf/304991797.pdf#page=1">US$600 million and US$1.5 billion</a> in <a href="https://www.wto.org/english/res_e/booksp_e/anrep_e/wtr06-2b_e.pdf#page=1">subsidies</a>. Subsidies can be direct (such as cash payments) or indirect (such as tax breaks). Goldenberg’s subsidy was in monetary form, on condition that the company proved foreign exchange gains through exporting non-traditional commodities. </p>
<p>The fraud was that Kenya had <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=44">insignificant amounts of known gold deposits and absolutely no diamonds</a>. Government officials authorised payments for fictitious exports.</p>
<p>Goldenberg’s main transactions were recorded between <a href="https://issafrica.s3.amazonaws.com/site/uploads/Paper117.pdf#page=1">1991 and 1993</a>. The <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=312">2003 Judicial Commission of Inquiry</a> into the scandal estimated that Goldenberg pilfered a <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=379">total of KSh158.3 billion</a> (US$2.3 billion at the time). However, the exact amount remains in the area of speculation. </p>
<h2>What institutional gaps enabled the fraud?</h2>
<p>The architects of the Goldenberg scandal abused a number of <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=32">trade policies</a>. These included the <a href="http://kenyalaw.org:8181/exist/kenyalex/actview.xql?actid=CAP.%20482">Export Compensation Act</a>, <a href="http://supplychainfinanceforum.org/techniques/pre-shipment-finance/">Pre-shipment Finance</a> and the Retention Scheme.</p>
<p>There’s inherently nothing wrong with these measures, which are intended to stimulate trade. But they were implemented in the context of a corrupt political system and became <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=364">instruments of fraud</a>.</p>
<p>Another significant aspect of the fraud was Kenya’s exchange rate system. The difference between official and parallel exchange rates, and the depreciating Kenyan shilling, allowed Goldenberg to earn illegal returns on foreign exchange. </p>
<p><a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf#page=135">Cheque kiting</a> is another tool that was used. It’s a form of cheque fraud that utilises the time it takes for a cheque to clear to use non-existent money in an account. </p>
<p>Officials at the highest levels of government were heavily involved in authorising payments to Goldenberg. </p>
<p>Under the rules to obtain subsidies, Goldenberg had to get signatories from the customs department that exports had occurred; from the Central Bank of Kenya that revenue had arrived; from the ministry of minerals that production had occurred; and from the ministry of finance for final authorisation. </p>
<p>As was alleged in a recent <a href="https://www.aljazeera.com/news/2023/4/14/six-secrets-uncovered-by-al-jazeeras-gold-mafia-investigation">Al-Jazeera exposé on gold fraud in Zimbabwe</a>, where Pattni’s name has featured, corrupt and well-paid senior government officials in Kenya played a part in the plunder of the nation during the Goldenberg years. </p>
<p>An audit ordered by the International Monetary Fund and World Bank into cheque kiting and forex fraud <a href="https://issafrica.s3.amazonaws.com/site/uploads/Paper117.pdf#page=9">in April 1993</a> sparked the unravelling of the Goldenberg scandal.</p>
<p>No one ever went to jail for this grand fraud despite <a href="http://kenyalaw.org/kl/fileadmin/CommissionReports/Report-of-the-Judicial-Commission-of-Inquiry-into-the-Goldenberg-Affair.pdf">years of inquiry</a> and the <a href="https://www.businessdailyafrica.com/bd/economy/court-formally-terminates-goldenberg-case-2031264">prosecution of some of the parties involved</a>. </p>
<h2>What was the cost to Kenya?</h2>
<p>The government of Kenya received no benefit as there were no official export earnings from the sale of gold and diamonds. </p>
<p>There are no reliable estimates as to the scandal’s effect on Kenyans to date, largely because the payments made and money siphoned <a href="https://www.standardmedia.co.ke/article/2000065911/goldenberg-scandal-still-a-mystery-decades-later">couldn’t be easily accounted for</a>.</p>
<h2>What are the lessons learned?</h2>
<p>The judges in the judicial review of the Goldenberg scandal blamed the International Monetary Fund and World Bank for setting the <a href="https://www.imf.org/external/pubs/ft/esaf/exr/">context</a> that enabled the abuse of subsidies.</p>
<p>In a world where more people and nations are subject to sanctions if they trade in US dollars, <a href="https://www.aljazeera.com/news/2023/4/14/six-secrets-uncovered-by-al-jazeeras-gold-mafia-investigation">gold</a> has become a way to evade economic restrictions. It isn’t easily detected in developed country jurisdictions. For instance, since 2019, trade in gold in <a href="https://ahvalnews-com.cdn.ampproject.org/c/s/ahvalnews.com/node/36566?amp">Venezuela</a> and <a href="https://financialtribune.com/articles/domestic-economy/98593/77-rise-in-irans-non-oil-trade-with-turkey">Iran</a> has increased drastically with Turkey despite US sanctions. </p>
<p>The use of physical gold traded through a country like the United Arab Emirates – Pattni now operates out of Dubai – evades the financial sanctions imposed on nations like Zimbabwe. </p>
<p>Regulatory frameworks governing trade in gold are weaker than the ones governing the entry of US dollars into the global banking system. To address this, the international community must put pressure on <a href="https://taxjustice.net/faq/what-is-a-secrecy-jurisdiction/">secrecy jurisdictions</a> to align their gold trade and anti-money laundering regulatory frameworks with global best practices. </p>
<p>Both Kenya and Zimbabwe have had long reputations of being politically risky, mired in corruption and having unsound policies. Political connections are also important in doing business. </p>
<p>Deliberate and continuous efforts to curb corruption, have stable and sound policies, and establish solid independent institutions are needed for these countries to have some semblance of accountability. If not curbed, the systemic greed of the political elite and those politically connected will continue to lead countries into ruin and citizens to destitution. Competing limited resources will continue to end up in the pockets of a select few and not cater to the public good so often championed in policy pronouncements.</p><img src="https://counter.theconversation.com/content/206136/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In a world where economic sanctions make trade in US dollars almost impossible, gold has offered a way to evade these restrictions.Roman Grynberg, Adjunct Professor, Griffith UniversityFwasa K Singogo, Research Associate, Indaba Agricultural Policy Research Institute (IAPRI)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1816292022-05-13T10:23:58Z2022-05-13T10:23:58ZThree imperial policies that still influence life in Britain today<figure><img src="https://images.theconversation.com/files/462746/original/file-20220512-18-fojzfz.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C9485%2C7025&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Imperial_Federation_Map_of_the_World.jpg">Dennis Sylvester Hurd / Wikimedia Commons</a></span></figcaption></figure><p>The revelation that Chancellor Rishi Sunak’s wife Akshata Murty <a href="https://theconversation.com/what-is-a-non-dom-an-expert-answers-our-questions-about-the-tax-status-claimed-by-rishi-sunaks-wife-and-other-wealthy-people-180928">claimed non-dom status</a> in the UK for years has drawn renewed attention to an imperialist policy that still holds today. Non-doms may live in the UK, but are considered by the tax authorities to be “non-domiciled” in the country and therefore pay no tax in the UK on their income earned elsewhere. </p>
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<p>The backlash to Murty’s non-dom status pointed out that the chancellor’s family benefited from tax loopholes as he raised taxes on the rest of the country. Some <a href="https://www.ft.com/content/81379a7a-5182-4845-b279-570b99406b5e">articles</a> highlighted the irony that Murty, an Indian citizen, was taking advantage of rules originally put in place to protect the money British imperialists were making in India. Non-dom status is one of several polices and provisions that have roots stretching back to the British Empire, not just in India.</p>
<p>At the end of the 18th century, Britain’s “sugar colonies” were still its most profitable imperial possessions. The 1799 income tax – Great Britain’s first such tax – exempted non-resident British subjects from paying tax on incomes derived from outside Great Britain. Thousands of British men and women owned agricultural estates (or portions of them) in the colonies, where enslaved men and women laboured to produce sugar, molasses, rum, indigo, coffee and cotton. The favourable tax treatment these individuals secured is testament to the power of the colonial lobbies in policymaking at the time. </p>
<p>The act’s <a href="https://babel.hathitrust.org/cgi/pt?id=uc1.31210007001348&view=1up&seq=97&skin=2021">non-dom exception</a> would have encompassed absentee plantation owners who could claim their time in Britain was only a sojourn, as well as all the thousands of British subjects abroad in the West Indies and South Asia. It helped keep plantation owners flush with the cash they needed to keep the wheels of the imperial economy turning, and provide the goods that would pay the customs and excise taxes to keep the government afloat.</p>
<p>Now, a new generation of international elites are using such relics of empire as non-dom status for their own gain. The difference is that today, people from all over the world can take advantage of the UK’s favourable tax system, while in the past Britons went out into the world to make their fortunes.</p>
<h2>Freeports and free trade</h2>
<p>Other imperial policies from the 18th century are also having a resurgence. The current plan to create eight <a href="https://www.gov.uk/guidance/freeports#where-are-they-located">freeports in England</a> resurrects a strategy deployed by the British government in 1766. Now that the UK has exited the EU, it has the ability to alter its trade policies. The freeports plan will allow for lower taxes, customs duties and other regulations in a defined geographical area, known as a special economic zone, around a port. The government hopes the bundle of favourable policies in a freeport will spur job growth and economic activity.</p>
<figure class="align-center ">
<img alt="Overhead view of Liverpool cityscape and waterfront at dusk." src="https://images.theconversation.com/files/462764/original/file-20220512-16-4ruzsy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/462764/original/file-20220512-16-4ruzsy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=189&fit=crop&dpr=1 600w, https://images.theconversation.com/files/462764/original/file-20220512-16-4ruzsy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=189&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/462764/original/file-20220512-16-4ruzsy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=189&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/462764/original/file-20220512-16-4ruzsy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=237&fit=crop&dpr=1 754w, https://images.theconversation.com/files/462764/original/file-20220512-16-4ruzsy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=237&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/462764/original/file-20220512-16-4ruzsy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=237&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Liverpool, once the centre of global trade, will be a freeport under new plans.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/panorama-liverpool-waterfront-evening-1558086938">Alexey Fedorenko / Shutterstock</a></span>
</figcaption>
</figure>
<p>In the 18th century, the government aimed to accomplish similar goals through a loosening of trade restrictions. Then, it was the <a href="https://www.britannica.com/topic/mercantilism">mercantilist</a> system as established by the <a href="https://www.parliament.uk/about/living-heritage/transformingsociety/tradeindustry/importexport/overview/navigationlaws/">Navigation Acts</a> that most restricted trade. Those laws confined most British trade to British ships, imposed duties on foreign products, and banned British colonies from trading with the other European powers and their colonies. Merchants from New England, for example, could not legally sell food and lumber to the French and Spanish West Indian colonies as they could to the British ones. </p>
<p>The Free Port Act of 1766 marked a significant break in this restrictive trade system. It opened four Jamaican ports and two in Dominica to foreign traders, partially repealing the mercantilist policies that had organised British trade for a century. Trade between British and Spanish colonies subsequently boomed. <a href="https://deepblue.lib.umich.edu/bitstream/handle/2027.42/147718/ajrutled_1.pdf?sequence=1">Exports</a> of African captives and British textiles from Jamaican ports to Spanish American ones made up much of this enlarged trade.</p>
<h2>Any port in a storm</h2>
<p>Meanwhile, some longstanding policies have been consigned to history, unlikely to ever return, yet their effects continue to be felt. The 1703 Methuen treaty between England and Portugal is one example. As part of a diplomatic alliance forged during the war of Spanish succession, Portuguese wines enjoyed favourable customs treatment in England. The treaty helped solidify the famous wool for wine trade, which the economist <a href="https://eh.net/encyclopedia/david-ricardo/">David Ricardo</a> used to illustrate the power of comparative advantage. </p>
<figure class="align-center ">
<img alt="Two glasses of red wine on a table with a sunny landscape in the background. Someone is pouring from the bottle into one of the glasses." src="https://images.theconversation.com/files/462762/original/file-20220512-2142-q5v5ua.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/462762/original/file-20220512-2142-q5v5ua.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=374&fit=crop&dpr=1 600w, https://images.theconversation.com/files/462762/original/file-20220512-2142-q5v5ua.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=374&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/462762/original/file-20220512-2142-q5v5ua.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=374&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/462762/original/file-20220512-2142-q5v5ua.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/462762/original/file-20220512-2142-q5v5ua.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/462762/original/file-20220512-2142-q5v5ua.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The British taste for port has its roots in imperial trade policy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/pouring-fortified-dessert-ruby-tawny-port-1875862648">barmalini / Shutterstock</a></span>
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<p>The British taste for <a href="https://www.google.co.uk/books/edition/The_Portugal_Trade/r9DNngEACAAJ?hl=en">port</a> and <a href="https://books.google.co.uk/books?id=8GVgPgAACAAJ&newbks=0&hl=en&redir_esc=y">Madeira</a> wines owed much to the price advantage Portuguese producers held over their rivals. Additionally, merchants in Oporto and Madeira – many of them British – adjusted their products to meet their customers’ taste, showing high levels of entrepreneurship and innovation. The Methuen treaty may be long gone, and dry wines more popular than fortified ones, but a glass of port at Christmas continues to be a British tradition. </p>
<h2>Global Britain</h2>
<p>When we look at Britain’s history, the imprints of empire are unmistakable. In the past, British men and women could make money around the world behind protectionist walls. Today, the UK courts foreign opportunities through liberal regulatory and tax policies.</p>
<p>Following Brexit, the UK is now seeking to redefine its international standing with its “global Britain” slogan. We would do well to remember how British prosperity has long been intertwined with the rest of the world – and what “global Britain” has meant for those who were subject to <a href="https://aeon.co/essays/the-british-empire-was-built-on-slavery-then-grew-by-antislavery">British</a> <a href="https://theconversation.com/colonialism-was-a-disaster-and-the-facts-prove-it-84496">imperialism</a>.</p><img src="https://counter.theconversation.com/content/181629/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hunter Harris does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>From the tax we pay to the wine we drink, many policies in Britain today have their roots in imperialism.Hunter Harris, Postdoctoral Research Fellow in the City of London and the History of Slavery, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1505082020-12-09T13:19:02Z2020-12-09T13:19:02ZForeign policy is Biden’s best bet for bipartisan action, experts say – but GOP is unlikely to join him on climate change<figure><img src="https://images.theconversation.com/files/373620/original/file-20201208-21-tadscl.jpg?ixlib=rb-1.1.0&rect=0%2C31%2C4153%2C2729&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As vice president, Joe Biden – seen here on left, in 2016 – had a working relationship with the Republican Senate majority leader, Mitch McConnell. Is that possible now?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/vice-president-joe-biden-left-and-senate-majority-leader-news-photo/504733202?adppopup=true">Tom Williams/CQ Roll Call)</a></span></figcaption></figure><p>Republicans and Democrats may have more common ground than it seems, a new survey finds. </p>
<p><a href="https://www.foreignaffairs.com/articles/united-states/2020-11-03/americans-want-engage-world">Our survey</a> – conducted in August and September in partnership with the Chicago Council on Global Affairs and the University of Texas at Austin – asked more than 800 government officials, congressional staffers, researchers, journalists and advocates to assess the likelihood of unified American efforts to address critical international challenges by 2022. They identified several foreign policy issues where building bipartisan policies was “more likely than not.” </p>
<p>Bipartisanship was one of the <a href="https://www.theatlantic.com/ideas/archive/2020/09/bidens-illusory-bipartisanship/616431/">central messages of President-elect Joe Biden’s campaign</a>. </p>
<p>Our research did not assess the possibility of unified action on domestic issues, which many experts <a href="https://www.nytimes.com/2020/08/20/us/politics/biden-congress.html">see as exceedingly unlikely</a>. But it found four foreign policy issues where Democrats and Republicans might come together.</p>
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<a href="https://images.theconversation.com/files/373622/original/file-20201208-19-asyhv9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Trump stands with a document in front of him, surrounded by people including Vice President Mike Pense and son-in-law Jared Kushner" src="https://images.theconversation.com/files/373622/original/file-20201208-19-asyhv9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/373622/original/file-20201208-19-asyhv9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/373622/original/file-20201208-19-asyhv9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/373622/original/file-20201208-19-asyhv9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/373622/original/file-20201208-19-asyhv9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/373622/original/file-20201208-19-asyhv9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/373622/original/file-20201208-19-asyhv9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Trump at the signing of the United States-Mexico-Canada Trade Agreement on Jan. 29.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/president-donald-trump-stands-after-signing-the-united-news-photo/1197377744?adppopup=true">Drew Angerer/Getty Images</a></span>
</figcaption>
</figure>
<h2>1. China</h2>
<p>Behind the poisonous partisanship on display in Washington, Democrats and Republicans mostly <a href="https://www.foreignaffairs.com/articles/united-states/2020-10-07/bipartisan-foreign-policy-still-possible">agree on U.S.-China policy</a>. </p>
<p>During the Trump administration, Congress acted in a bipartisan manner to sanction China for persecuting <a href="https://www.reuters.com/article/us-usa-china-xinjiang/trump-signs-bill-pressuring-china-over-uighur-muslim-crackdown-idUSKBN23O3EW">the Uighurs</a>, a Muslim ethnic minority, and for <a href="https://www.politico.com/news/2020/07/14/trump-hong-kong-china-sanctions-361636">repressing pro-democracy protesters in Hong Kong</a>. </p>
<p>Democrats and Republicans also agreed that the United States needed to overhaul how it <a href="https://www.reuters.com/article/us-usa-congress-development/congress-eying-china-votes-to-overhaul-development-finance-idUSKCN1MD2HJ">finances overseas development</a> to compete with China, which has <a href="https://theconversation.com/china-turns-on-the-charm-and-angers-trump-as-it-eyes-a-global-opportunity-in-coronavirus-crisis-136132">earned goodwill from Africa to Latin America</a> by building roads, dams and other critical infrastructure. </p>
<p>More than nine out of 10 foreign policy officials and experts we surveyed thought it at least somewhat likely that the U.S. will make a major effort during the next two years to counter the continuing rise of China. Among those who expect such an effort, 87% think it is more likely than not to be bipartisan. </p>
<h2>2. Pandemic preparedness</h2>
<p>Despite the severe <a href="https://www.cnbc.com/2020/12/01/coronavirus-stimulus-update-senators-to-unveil-relief-bill.html">politicization of COVID-19</a>, bipartisanship is within reach on future global health challenges, our study shows. </p>
<p>Six out of seven foreign policy professionals anticipate a big push within the next two years to prepare for another global pandemic. Of those, 78% think it will attract support from both sides of the aisle. </p>
<p>A <a href="https://www.nytimes.com/2020/07/24/business/economy/republicans-democrats-coronavirus-survey.html">substantial gap</a> separates the two parties on the preferred balance between protecting public health and maintaining normal economic activity during the coronavirus pandemic. But the parties have worked together in the past to <a href="https://www.kff.org/global-health-policy/fact-sheet/the-u-s-presidents-emergency-plan-for-aids-relief-pepfar/">reduce the global spread of HIV/AIDS</a> and to invest in the <a href="https://www.reuters.com/article/us-health-coronavirus-usa-congress/u-s-house-passes-8-3-billion-bill-to-battle-coronavirus-senate-vote-due-thursday-idUSKBN20R2V6">development of coronavirus vaccines</a>. </p>
<h2>3. Cyberthreats</h2>
<p>Cooperation is feasible, too, to protect Americans’ digital information from overseas adversaries. </p>
<p>After numerous state-sponsored attacks on U.S. computer networks by countries including China, North Korea, Russia and Iran, Congress is close to approving bipartisan legislation to establish a White House <a href="https://www.scmagazine.com/home/security-news/government-and-defense/potential-national-cybersecurity-director-inches-towards-reality/">cybersecurity czar</a>. </p>
<p>By 2022, more than three-quarters of officials and experts predict Democrats and Republicans will have come together on other major steps to protect the United States against international cyberattacks. </p>
<h2>4. Trade</h2>
<p>Trade is another policy area Democrats and Republicans may rally around, according to our research. </p>
<p>It <a href="https://theconversation.com/why-biden-will-find-it-hard-to-undo-trumps-costly-america-first-trade-policy-149340">won’t be easy to undo Trump’s “America First” policy</a>, which imposed tariffs on key imports like steel and closed off foreign markets to American manufacturers. But 65% of those expecting a major effort by 2022 to expand international trade anticipate that it will be bipartisan. </p>
<p>There is precedent for such collaboration. Trump’s <a href="https://www.vox.com/2018/10/3/17930092/usmca-mexico-nafta-trump-trade-deal-explained">United States-Mexico-Canada trade agreement</a> was passed with bipartisan approval earlier this year.</p>
<h2>Going alone on climate</h2>
<p>Americans today are <a href="https://www.washingtonpost.com/news/monkey-cage/wp/2015/03/15/everything-you-need-to-know-about-our-polarized-politics-in-the-palm-of-your-hand/">more polarized</a> than at any time since the Civil War, and Congress is bitterly divided. </p>
<p>But history shows foreign policy can rise above the partisan fray. And dozens of Republican former national security officials <a href="https://www.defendingdemocracytogether.org/national-security/">endorsed Biden’s candidacy</a> because they were “profoundly concerned about the nation’s security and standing in the world under Donald Trump.”</p>
<p>Biden’s nominations of foreign policy officials who are highly regarded across the aisle, such as <a href="https://theconversation.com/from-america-first-to-america-together-who-is-antony-blinken-bidens-pick-for-secretary-of-state-150739">Anthony Blinken for secretary of state</a>, lay the groundwork for bipartisan action. </p>
<p>Still, our survey identified one major issue where experts believe Biden will struggle to gain Republican support: the global climate crisis.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/373623/original/file-20201208-14-dch6ec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Five young Native Americans in front of the US Capitol building." src="https://images.theconversation.com/files/373623/original/file-20201208-14-dch6ec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/373623/original/file-20201208-14-dch6ec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/373623/original/file-20201208-14-dch6ec.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/373623/original/file-20201208-14-dch6ec.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/373623/original/file-20201208-14-dch6ec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/373623/original/file-20201208-14-dch6ec.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/373623/original/file-20201208-14-dch6ec.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Native American youths at the Global Climate Strike, Sept. 20, 2019, in Washington, D.C.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/native-american-youth-speak-in-front-of-the-u-s-capitol-news-photo/1169849446?adppopup=true">Samuel Corum/Getty Images</a></span>
</figcaption>
</figure>
<p>Six of 10 Americans see climate change as a <a href="https://www.pewresearch.org/fact-tank/2020/04/16/u-s-concern-about-climate-change-is-rising-but-mainly-among-democrats/">critical threat</a>, and Biden signaled the importance of the issue by naming <a href="https://theconversation.com/how-biden-and-kerry-could-rebuild-americas-global-climate-leadership-150120">former Secretary of State John Kerry his climate envoy</a>, a new Cabinet-level position.</p>
<p>But Republicans are much <a href="https://www.thechicagocouncil.org/publication/lcc/first-time-majority-americans-say-climate-change-critical-threat">less concerned about climate change than other Americans</a>, research shows. Only a few GOP legislators acknowledge that even <a href="https://www.statesman.com/opinion/20190923/opinion-democrats-and-republicans-must-find-common-ground-on-climate-change">gradual steps must be taken</a>. The two parties are sharply split over such basic policies as whether to mandate <a href="https://www.politico.com/news/2020/06/30/democrats-unveil-sweeping-plan-to-tackle-climate-change-345503">reductions in greenhouse gas emissions</a>. </p>
<p>[<em>Get our most insightful politics and election stories.</em> <a href="https://theconversation.com/us/newsletters/politics-weekly-74/?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=politics-most">Sign up for The Conversation’s Politics Weekly</a>.]</p>
<p>Only 18% of the foreign policy professionals in our survey who foresee a major climate initiative by 2022 think that it will be bipartisan.</p>
<p>To aggressively tackle the climate crisis, Biden will likely need to rely <a href="https://energy.utexas.edu/sites/default/files/Polit-Feasibility-Decarb-US-Electricity.pdf">largely on executive action</a> – <a href="https://insideclimatenews.org/news/23122016/obama-climate-change-legacy-trump-policies">just as President Barack Obama did</a>.</p>
<p><em>Dina Smeltz, a senior fellow at the Chicago Council on Global Affairs, contributed to the researching and writing of this article</em>.</p><img src="https://counter.theconversation.com/content/150508/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jordan Tama receives funding from the Carnegie Corporation of New York and the Raymond Frankel Foundation.</span></em></p><p class="fine-print"><em><span>Joshua Busby receives funding from the Strauss Center for International Security and Law and the Clements Center for National Security at the University of Texas. </span></em></p><p class="fine-print"><em><span>Michael J. Tierney receives funding from the Carnegie Corporation of New York.</span></em></p><p class="fine-print"><em><span>Jonathan Monten and Joshua D. Kertzer do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A survey of 800 foreign policy experts identified four international issues where Republicans and Democrats may actually cooperate to get something done – and one area of severe disagreement.Jordan Tama, Associate Professor of International Relations, American University School of International ServiceJonathan Monten, Lecturer in Political Science and Director of the International Public Policy Program, UCLJoshua Busby, Associate Professor, The University of Texas at AustinJoshua D. Kertzer, Paul Sack Associate Professor of Political Economy, Harvard Kennedy SchoolMichael J. Tierney, Director of William & Mary's Global Research Institute and George and Mary Hylton Professor of Government and International Relations, William & MaryLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1192822019-07-09T11:22:17Z2019-07-09T11:22:17ZHow Congress lost power over trade deals – and why some lawmakers want it back<figure><img src="https://images.theconversation.com/files/283154/original/file-20190708-51268-hivpss.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Congress was once the seat of all power on U.S. trade policy</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Watchf-Associated-Press-Domestic-News-Dist-of-/ec258ba4e9b648b3a4d4c1296000b230/87/0">AP Photo</a></span></figcaption></figure><p>Some in Congress <a href="https://www.thegazette.com/subject/opinion/staff-columnist/chuck-grassley-congress-should-take-back-trade-authority-from-the-president-20190620">want to wrest control</a> of trade policy back from the president. It might surprise you to learn that lawmakers ever had it.</p>
<p>Until the 1930s, it was Congress that set the terms of U.S. trade negotiations with other countries and raised and lowered tariffs as it saw fit, while the president did little but sign his name. Over the ensuing decades, however, the legislative branch began to cede more and more power to the executive after a trade war sparked by protectionist tariffs worsened the Great Depression.</p>
<p>As a result, President Donald Trump today has been able to <a href="https://www.vox.com/2018/3/8/17097206/trump-tariffs-congress">unilaterally raise tariffs</a> and launch trade wars with several countries – including allies – without a word from Congress. For some lawmakers, his <a href="https://twitter.com/realDonaldTrump/status/1134240653926232064">recent threat</a>, since aborted, to impose a 5% tariff on everything that crosses the border from Mexico <a href="https://www.washingtonpost.com/business/economy/citing-mexico-tariffs-threat-lawmakers-say-n-american-trade-deal-is-in-peril/2019/06/03/73c4eaac-863c-11e9-a491-25df61c78dc4_story.html">was the last straw</a>.</p>
<p>I’m an economist who has worked on the <a href="https://pdfs.semanticscholar.org/8577/c45813f305cda2a94615b7dd7a0ba4a34b3d.pdf">political economy</a> of <a href="https://www.doi.org/10.1111/j.1468-0343.2011.00387.x">U.S. trade policy</a>. To provide context on what’s happening today, I thought it was worth revisiting the history of how lawmakers lost their trade powers. </p>
<h2>The Constitution and trade</h2>
<p>Until the 20th century, the president had little say in how the U.S. conducted trade. </p>
<p><a href="https://constitutioncenter.org/interactive-constitution/articles/article-i#section-8">Article I, Section 8 of the U.S. Constitution</a> gives Congress the exclusive authority to raise taxes. And since tariffs are by definition a type of tax paid on goods and services imported from overseas, Congress carefully guarded its authority in this area, particularly since they were the <a href="https://pocketsense.com/united-states-government-funded-prior-income-tax-12769.html">largest source of revenue</a> for the federal government until the creation of the income tax in 1913. </p>
<p>As a result, debates over tariffs made up the biggest economic fights of the 19th century and <a href="https://www.thoughtco.com/tariff-of-abominations-1773349">were often used</a> to <a href="https://www.vox.com/policy-and-politics/2019/3/6/18250469/1888-great-tariff-debate-mckinley">embarrass political rivals</a>.</p>
<p>This is not to say that the president had no influence over trade policy. But all changes in tariffs necessarily started as legislation in the House of Representatives since they were, after all, <a href="https://www.heritage.org/the-constitution/report/hands-my-purse-why-money-bills-originate-the-house">revenue bills</a>. Therefore, before the bill got to the president’s desk, it would go through a full congressional debate with committee reports, amendments, filibusters and the like. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=466&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=466&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=466&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=586&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=586&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=586&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">FDR was the first president to seize some control of trade policy in 1934.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Watchf-Associated-Press-Domestic-News-Dist-of-/99cb21cf376d4566a2a5a7a4b1355aa9/321/0">AP Photo</a></span>
</figcaption>
</figure>
<h2>Smoot-Hawley prompts FDR to seize control</h2>
<p>The Great Depression marked a sharp turning point in U.S. trade policy.</p>
<p>Just as the Depression began, Congress <a href="https://www.bloomberg.com/news/articles/2018-07-27/lessons-learned-and-forgotten-from-last-trade-war-quicktake">passed what has become known as the Smoot-Hawley Tariff of 1930</a>. It raised prices on imported commodities like wool rags, which were necessary in the clothing industry. It also <a href="https://www.cato.org/blog/smoot-hawley-tariff-great-depression">harmed the economies of U.S. trading partners</a> – which in turn hurt America. For example, Germany, still recovering from World War I and subsequent reparations payments, saw its exports to the U.S. fall by $181 million. As a result, German consumers had fewer U.S. dollars to spend, and U.S. exports to Germany fell by $277 million.</p>
<p>And that’s the problem when hundreds of lawmakers with scores of often narrow interests are in charge of trade policy. As <a href="https://doi.org/10.1111/j.1468-0343.2011.00387.x">I noted in a 2011 paper</a>, tariffs imposed during this era weren’t designed to maximize national welfare; they instead represented the wishes of interest groups and institutions of the legislative branch.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=620&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=620&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=620&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=779&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=779&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=779&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Rep. Willis C. Hawley, left, and Sen. Reed Smoot co-sponsored the tariff act that prolonged the Great Depression.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act#/media/File:Smoot_and_Hawley_standing_together,_April_11,_1929.jpg">Library of Congress</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>While this misbegotten legislation did not cause the Great Depression, it almost certainly <a href="https://www.britannica.com/topic/Smoot-Hawley-Tariff-Act">hindered the recovery</a>. And as a result, the Roosevelt administration worked to seize control of trade policy from Congress. This effort led to the the <a href="https://history.house.gov/Historical-Highlights/1901-1950/The-Reciprocal-Trade-Agreement-Act-of-1934/">Reciprocal Trade Agreements Act in 1934</a>, which provided the president with the authority to negotiate tariff agreements with foreign governments as long as both sides mutually lowered their trade barriers. </p>
<p>Congress’ role was reduced to primarily ratifying those agreements – or not – with a simple majority vote. </p>
<p>Raising tariffs, however, still required an act of Congress. </p>
<h2>Freer trade and ‘fast track’</h2>
<p><a href="https://www.cambridge.org/core/journals/world-politics/article/institutional-roots-of-american-trade-policy-politics-coalitions-and-international-trade/8905528F9C4B5C1A2332C789A3B54595">Several scholars have argued</a> that this legislation, by removing power over tariffs from Congress and linking trade policy to agreements negotiated by the president, was key to winning political support for freer trade across the world, including the General Agreement on Tariffs and Trade and its successor, the World Trade Organization.</p>
<p>Average U.S. tariffs fell from <a href="https://www.nber.org/chapters/c6899.pdf">nearly 60% in 1934 to about 12% in 1954</a>. This increase in free trade was one of the institutional underpinnings of the <a href="http://factsanddetails.com/japan/cat24/sub155/item2800.html">postwar economic miracle</a> in <a href="https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESS_2017_ch2.pdf">several Western countries</a>, <a href="http://www.let.rug.nl/usa/outlines/history-1994/postwar-america/the-postwar-economy-1945-1960.php">including the U.S.</a> </p>
<p>More authority shifted to the president with the <a href="https://www.investopedia.com/terms/s/section-232-trade-expansion-act.asp">Trade Expansion Act of 1962</a>, which gave him the authority to unilaterally raise tariffs on national security grounds. Trump <a href="https://www.cbp.gov/trade/remedies/232-tariffs-aluminum-and-steel">used this provision</a>, known as Section 232, as justification for the steel and aluminum tariffs that he imposed on most U.S. trading partners in the spring of 2018.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=717&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=717&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=717&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=901&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=901&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=901&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Tariffs tended to represent the interests of narrow interests groups rather than what’s best for the country in the 19th and early 20th centuries.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Tariff_in_United_States_history#/media/File:Theodore_Roosevelt_cartoon_Iowa-ohio.JPG">Brooklyn Eagle</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The <a href="https://www.investopedia.com/terms/t/trade-act-of-1974.asp">Trade Act of 1974</a> established for the first time what is known as <a href="https://www.everycrsreport.com/reports/RL33743.html">trade promotion authority</a>. Also called “fast track,” this let the president negotiate comprehensive trade deals that included a broad array of non-tariff issues such as quotas and intellectual property protections. Congress could only approve with an up-or-down vote within 90 days – no amendments or filibusters allowed. </p>
<p>That authority expired in 1980, and Congress has reauthorized it six times since, <a href="https://www.thebalance.com/trade-promotion-authority-3305899">most recently in 2015</a>.</p>
<p>Proponents of fast track <a href="https://ricochet.com/260926/archives/the-game-theory-argument-for-fast-track-trade-authority/">argue</a> that it is necessary to give the president credibility when negotiating agreements. If foreign counterparts believe that an agreement is likely to become bottled up in or amended by Congress, they may be reluctant to make concessions. </p>
<p><a href="https://www.aier.org/article/constitution-gives-trade-power-congress-alone">Opponents argue</a> that it delegates too much authority to the executive branch and unduly limits the ability of Congress to debate whether a particular agreement is in the national interest.</p>
<h2>Will Congress reassert its power?</h2>
<p>While the tariffs Trump <a href="https://www.voanews.com/usa/us-lawmakers-alarmed-new-trump-tariffs-chinese-goods">has imposed on China</a> and <a href="https://www.nytimes.com/2019/05/14/us/politics/trump-tariffs-china.html">allies like Canada</a> have alarmed lawmakers, the threat to place duties on all imports from Mexico <a href="https://www.vox.com/2019/6/5/18652791/trump-mexico-tariff-congressional-republicans">went too far for some</a>, <a href="https://www.politico.com/story/2019/06/05/firingsquad-gop-1354652">including Republicans</a>. </p>
<p>Trump’s claim that <a href="https://www.treasury.gov/resource-center/sanctions/Documents/ieepa.pdf">emergency powers</a> gave him authority to impose the tariffs, as well as the <a href="https://www.perrymangroup.com/publications/report/the-economic-cost-of-proposed-5-tariffs-on-imports-from-mexico/">severe economic costs</a> expected to result, galvanized Senate Republicans to <a href="https://www.washingtonpost.com/world/the_americas/mexico-sees-80-percent-chance-of-a-deal-to-head-off-trump-tariffs/2019/06/04/53bdce08-86c4-11e9-98c1-e945ae5db8fb_story.html?noredirect=on&utm_term=.ce53169c03af">threaten to pass legislation blocking the tariffs with a veto-proof majority</a>. </p>
<p>The <a href="https://www.politico.com/story/2019/06/05/firingsquad-gop-1354652">pushback from Congress</a> may point to a broader reassertion of its role in tariff policy. Even as far back as 2015, when the <a href="https://www.thebalance.com/trade-promotion-authority-3305899">Obama administration sought</a> reauthorization of fast track, lawmakers in the House <a href="https://govtrackinsider.com/how-congress-voted-on-trade-afb8b4438823">barely passed the bill</a>, with most Democrats in opposition. </p>
<p>While Democrats and Republicans are largely coming at this issue from different directions, both have found reason in recent years to question the decades-old consensus that has made trade policy the prerogative of the executive branch. </p>
<p>And Trump’s trade policies have put him on a <a href="https://theweek.com/articles/845449/trumps-new-trade-war-senate-republicans">collision course with the pro-business wing of the Republican Party</a>.</p><img src="https://counter.theconversation.com/content/119282/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Hauk has received funding from the Center for International Business Education and Research, which is a program administered by the U.S. Department of Education.</span></em></p>President Trump has unilaterally raised tariffs and sparked trade wars, all without consulting Congress. A century ago, the roles were reversed.William Hauk, Associate Professor of Economics, University of South CarolinaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1007952018-07-31T10:41:45Z2018-07-31T10:41:45ZAmerican farmers want trade partners not handouts – an agricultural economist explains<figure><img src="https://images.theconversation.com/files/229869/original/file-20180730-106517-rpoxh6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Farmer Michael Petefish walks through one of his soybean fields in southern Minnesota.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/China-Tariffs-Farmers-Hope-for-Truce/2fe66a14c3824e049a2d536c4750d0e7/25/0">AP Photo/Jim Mone</a></span></figcaption></figure><p>The Trump administration <a href="https://www.nytimes.com/2018/07/24/us/politics/farmers-aid-trade-war.html">plans to give</a> American farmers and ranchers hurt by the current trade war US$12 billion in emergency relief to mitigate the impact of tariffs on their exports. </p>
<p>While this may lessen the blow of an <a href="https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast/">already struggling agricultural economy</a> in the short run, it is only a Band-Aid. As an <a href="https://scholar.google.com/citations?user=rToS2UYAAAAJ&hl=en&oi=ao">agricultural economist</a>, I know that no one really wins in a trade war. As someone who grew up on a cotton and alfalfa farm in rural Arizona, I know firsthand that producers want access to markets – not government handouts. </p>
<p>If the <a href="https://theconversation.com/us/topics/trade-wars-50746">trade conflict</a> with China continues much longer, it will likely leave lasting scars on the entire agricultural sector as well as the overall U.S. economy. </p>
<h2>A tit-for-tat trade war</h2>
<p>How did we get here? </p>
<p>In January, the Trump administration <a href="https://www.washingtonpost.com/news/wonk/wp/2018/01/22/trump-imposes-tariffs-on-solar-panels-and-washing-machines-in-first-major-trade-action/?utm_term=.911baac43055">placed tariffs</a> on Chinese solar panels and washing machines to protect U.S. manufacturers. It <a href="https://piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide">followed</a> that in March with tariffs on all imports of steel and aluminum – citing national security concerns. Though many countries were subsequently exempted from the U.S. import tariffs on steel and aluminum, China <a href="https://www.nytimes.com/2018/03/22/us/politics/trump-will-hit-china-with-trade-measures-as-white-house-exempts-allies-from-tariffs.html">was the primary target</a>. </p>
<p>China <a href="https://www.cnbc.com/2018/04/01/china-announces-new-tariffs-on-us-meat-and-fruit-amid-trade-war-fears.html">responded</a> by imposing tariffs on U.S. exports worth $3 billion in April as countermeasures to U.S. tariffs. Another <a href="https://www.cmtradelaw.com/2018/04/section-301-update-ustr-releases-proposed-tariffs-on-chinese-products-china-publishes-retaliatory-list/">round of U.S. duties</a> on Chinese products prompted additional retaliation from China in July on $34 billion worth of U.S. goods, furthering a <a href="https://piie.com/system/files/documents/trump-trade-war-timeline.pdf">tit-for-tat trade conflict</a> with <a href="https://ig.ft.com/us-china-tariffs">no end in sight</a>. </p>
<p>China is the <a href="https://apps.fas.usda.gov/gats/ExpressQuery1.aspx">second-largest export market for U.S. agriculture</a> behind Canada, which means it’s no surprise that such goods made up the <a href="https://gain.fas.usda.gov/Recent%20GAIN%20Publications/China%20Imposes%20Additional%20Tariffs%20on%20Selected%20U.S.-Origin%20Products_Beijing_China%20-%20Peoples%20Republic%20of_4-2-2018.pdf">vast majority</a> of the more than 600 products that have been <a href="https://www.uschina.org/sites/default/files/list_of_chinese_retaliatory_tariffs_on_the_united_states_-_june_15_2018.pdf">targeted</a> by China with tariffs of 15 percent to 25 percent in two rounds of retaliation. Among them are cotton, wheat, dairy, wine, fruits, nuts, soybeans and pork – to name just a few.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">National Pork Board 2016 America’s Pig Farmer of the Year Brad Greenway and his wife, Peggy Greenway, feed pigs in one of their wean-to-finish pig barns on their farm in Mitchell, South Dakota.</span>
<span class="attribution"><span class="source">AP Images for National Pork Board/Jay Pickthorn</span></span>
</figcaption>
</figure>
<h2>Caught in the crossfire</h2>
<p>Since China’s tariffs only recently took effect and more retaliation could happen, it’s still too early to fully understand the potential damage. But U.S. farmers and ranchers are bracing for the worst. </p>
<p>For example, China is the <a href="https://atlas.media.mit.edu/en/profile/hs92/1201/">world’s largest consumer of soybeans</a>, gobbling up about 65 percent of all trade of the commodity. The Chinese bought more than $12 billion in American soybeans in 2017, or 57 percent of all U.S. exports of the crop.</p>
<p>Thanks to the 25 percent tariff on U.S. soybeans, Chinese importers <a href="https://www.reuters.com/article/us-usa-soybeans-china/u-s-soybean-exports-scrapped-as-china-shifts-to-brazilian-beans-idUSKCN1IJ2SG">have been canceling</a> contracts with American farmers for later in the year and buying more from Brazil – which <a href="https://www.reuters.com/article/us-brazil-soy-usa/brazil-to-pass-u-s-as-worlds-largest-soy-producer-in-2018-idUSKBN1IC2IW">is expected</a> to soon be the world’s top soybean producer.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=880&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=880&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=880&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1106&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1106&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1106&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A soybean plant blossoms on a farm in Renfrew, Pennsylvania.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Soybean-Plants-Blossom/9dc717b95ede43e09a03d9a33ab40e65/13/0">AP Photo/Keith Srakocic</a></span>
</figcaption>
</figure>
<p>A <a href="http://www.choicesmagazine.org/choices-magazine/theme-articles/us-china-trade-dispute-and-potential-impacts-to-agriculture/impacts-of-possible-chinese-25-tariff-on-us-soybeans-and-other-agricultural-commodities">recent study</a> suggests that if the tariffs stay in place, U.S. exports of soybeans could fall 24 percent to 34 percent, while production could decline 11 percent to 15 percent. </p>
<p>The extent of the impact depends on whether U.S. soybean farmers are able to find new markets for their crops. In addition, because China consumes so many soybeans – which it primarily uses for livestock feed – it probably can’t cut out U.S. producers entirely. Chinese importers will simply have to pay more for U.S.-sourced soybeans to meet domestic demand. </p>
<p>The pork industry, which <a href="https://gain.fas.usda.gov/Recent%20GAIN%20Publications/China%20Imposes%20Additional%20Tariffs%20on%20Selected%20U.S.-Origin%20Products_Beijing_China%20-%20Peoples%20Republic%20of_4-2-2018.pdf">was already subject</a> to tariffs before the trade war began, has been especially hard hit. After successive rounds of tariffs, U.S. pork is now subject to Chinese duties of as high as 70 percent. </p>
<p>Pork sales to China <a href="https://apps.fas.usda.gov/gats/default.aspx">account for 10 percent of total U.S. exports</a> of that product category. Since China already produces about 97 percent of the pork it consumes, it should be relatively easy for the Chinese to simply substitute domestic and other foreign production for the U.S. imports. </p>
<p>While many U.S. pork producers may be able to find new markets for their goods, that probably won’t be the case for offal, which are pig parts such as organs and entrails. Chinese consumers <a href="https://www.eater.com/2015/6/16/8786827/where-to-find-offal-organ-meat-international-cuisine">consider offal a delicacy</a>, while it is just used an input for pet food in the U.S. The tariffs <a href="https://www.reuters.com/article/us-usa-trade-china-pork/trade-war-puts-the-hoof-into-u-s-pig-part-exports-to-china-idUSKBN1K71EA">have already eroded</a> U.S. exports of pig parts to China.</p>
<p>Some of my own research focuses on <a href="https://doi.org/10.1111/1467-8489.12029">Chinese demand for Western wine</a> and how retaliatory tariffs <a href="http://www.choicesmagazine.org/choices-magazine/theme-articles/us-china-trade-dispute-and-potential-impacts-to-agriculture/chinese-trade-retaliation-may-diminish-us-wine-export-potential">could hurt</a> the U.S. wine industry, which sees China as a very important growth market at a time when others are stagnating. My collaborator and I estimate that the new 15 percent tariff on American wine could cause a 10 percent drop in imports to China. </p>
<p>If the trade war escalates, the harm could get even worse. For example, China <a href="https://apps.fas.usda.gov/gats/default.aspx">is the biggest buyer</a> of U.S. exports of animal hides – which haven’t yet been hit by retaliatory tariffs but could be in another round. And the impact is being felt across the U.S., with <a href="https://www.brookings.edu/blog/the-avenue/2018/04/09/how-chinas-tariffs-could-affect-u-s-workers-and-industries/">at least some workers</a> in pretty much every state affected by agricultural and other tariffs. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=369&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=369&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=369&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=464&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=464&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=464&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Cotton farmers are also worried about losing access to the Chinese market.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Cotton-Mississippi/07672337150e4b4eac73bdbfbb5de464/8/0">AP Photo/Rogelio V. Solis</a></span>
</figcaption>
</figure>
<h2>Trade conflict’s long-term impact</h2>
<p>The consequences of a prolonged trade war could be severe for U.S. agricultural producers. </p>
<p>As the tariffs make the cost of U.S. crops and meat go up for Chinese customers, <a href="http://www.choicesmagazine.org/choices-magazine/theme-articles/us-china-trade-dispute-and-potential-impacts-to-agriculture/impacts-of-possible-chinese-25-tariff-on-us-soybeans-and-other-agricultural-commodities">they’ll begin to import</a> products that are relatively cheaper from other countries such as Brazil.</p>
<p>China might also drive up their own domestic production of certain products – such as pork – thus depriving American farmers of the export market. Or in the case of wine, U.S. producers were already at a disadvantage to their French and Australian rivals. A prolonged trade dispute could limit American winemakers’ exports to a promising market. </p>
<p>If American agricultural producers can’t increase exports to other countries to make up for lost sales to China, farm incomes would most certainly fall. And even if they do manage to find new markets, perhaps with the help of the new government aid package, it’ll be hard to make up for the <a href="https://www.theguardian.com/world/2012/apr/04/china-biggest-grocery-market-world">world’s largest market</a> for food imports.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=336&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=336&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=336&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Brazil is the world’s second-largest soy producer after the U.S., which may soon change.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Latin-America-Economy-Finance/1a5605d06bd94d86ba0c3bffff55f564/5/0">AP Photo/Andre Penner</a></span>
</figcaption>
</figure>
<h2>Will the aid help?</h2>
<p>As for the Trump administration’s promised aid package, the U.S. Department of Agriculture said on July 24 that it would divide $12 billion <a href="https://www.usda.gov/media/press-releases/2018/07/24/usda-assists-farmers-impacted-unjustified-retaliation">among three programs</a> that will: </p>
<ul>
<li><p>provide payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy and hogs</p></li>
<li><p>purchase surplus commodities such as fruits, nuts, rice, legumes, beef, pork and milk for distribution to food banks and other nutrition programs</p></li>
<li><p>develop new export markets for farm products. </p></li>
</ul>
<p>While key details about the aid package still need to be worked out, fundamentally it is an attempt by the administration to soften the blow of how other countries are responding to its protectionist trade policies. It may provide some short-term relief for U.S. farmers and ranchers at a time when net farm incomes are at a <a href="https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/farm-sector-income-forecast/">12-year low</a>. The effort is futile, however, if the trade conflict is not resolved soon because of the lasting damage to trade relationships. </p>
<p>Furthermore, the aid package may violate U.S. commitments to the World Trade Organization, adding to the <a href="https://www.wto.org/english/news_e/news18_e/good_23mar18_e.htm">list</a> of <a href="https://www.wto.org/english/news_e/news18_e/good_28mar18_e.htm">concerns</a> of <a href="https://www.wto.org/english/news_e/news18_e/good_03jul18_e.htm">potential</a> <a href="https://www.wto.org/english/news_e/news18_e/ds548_550rfc_06jun18_e.htm">violations</a> of the <a href="https://theconversation.com/rules-based-trade-made-the-world-rich-trumps-policies-may-make-it-poorer-97896">rules-based trading system</a> the U.S. has agreed to adhere to. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Farmers testify before the House Subcommittee on Trade about the effect of foreign tariffs on American agriculture.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Congress-Trade/395fb792801b41b4a55c5b0ebb821ad4/30/0">AP Photo/J. Scott Applewhite</a></span>
</figcaption>
</figure>
<h2>Damage to a market</h2>
<p>In the last decade, China has become an incredibly important market for American agriculture. U.S. producers would like to not only maintain, but grow China as a market, given its large consumer base and rising incomes, which afford increasing per capita consumption and demand for U.S. agricultural products. </p>
<p>In my experience as an economist rooted in agriculture, U.S. farmers and ranchers prefer to be able to sell their goods to consumers around the world rather than receive government aid because of a trade war in which they’ve been caught in the crossfire. They want their government to help them find more consumers, not turn them away.</p><img src="https://counter.theconversation.com/content/100795/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amanda M. Countryman has received funding from the United States Department of Agriculture.
</span></em></p>The Trump administration’s promise of $12 billion in aid to offset losses from retaliatory tariffs will not make up for the long-term consequences of a prolonged trade war.Amanda M. Countryman, Associate Professor of Agricultural Economics, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/998972018-07-13T10:24:50Z2018-07-13T10:24:50ZWhen Trump calls Russia a ‘competitor’ for the US, he might be talking about natural gas exports<figure><img src="https://images.theconversation.com/files/227512/original/file-20180712-27015-1hujvzs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Vladimir Putin, autographing a natural gas pipeline in Vladivostok</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Russia-Putin-Gazprom/db3ae48907c0499ca5db72a7b3bfc3c8/63/0">AP Photo/RIA Novosti, Alexei Druzhinin</a></span></figcaption></figure><p><a href="https://www.cnbc.com/2018/07/11/behind-nord-stream-2-the-russia-to-germany-gas-pipeline-that-fueled-t.html">President Donald Trump complained</a> during recent NATO meetings and through <a href="https://twitter.com/realDonaldTrump/status/1017093020783710209">Twitter</a> about how, in his opinion, Germany is “captive to Russia” because of that country’s reliance on Russian energy, especially natural gas. </p>
<p>This grievance may seem odd, given Trump’s often warm comments regarding Russian leader <a href="https://www.cnn.com/politics/live-news/trump-rally-montana-07-05-18/index.html">Vladimir Putin</a>. But it makes sense in light of how Trump keeps insisting that the U.S. and Russia are “<a href="https://www.reuters.com/article/us-nato-summit-trump-putin/trump-says-putin-competitor-not-enemy-idUSKBN1K21GD">competitors</a>” rather than adversaries.</p>
<p>As a <a href="https://www.bakerinstitute.org/experts/anna-mikulska/">scholar of European natural gas markets</a>, I can see how Trump might consider the country he leads to be Russia’s main competitor in that industry and that region. I also believe that even if Europe ends up buying relatively little natural gas from American companies, the mere existence of the competition could help reduce Russia’s ability to use its natural gas to exert political pressure in Europe. </p>
<h2>US natural gas exports</h2>
<p>Because of the spread of hydraulic fracturing and the directional drilling of shale rock formations, commonly called “fracking,” the <a href="https://www.eia.gov/todayinenergy/detail.php?id=31532">U.S. is now the world’s top natural gas producer</a>.</p>
<p>Abundant natural gas has not only kept <a href="https://www.eia.gov/dnav/ng/hist/rngwhhdM.htm">prices historically low for U.S. consumers</a> as more of the country’s <a href="https://www.eia.gov/todayinenergy/detail.php?id=35792">electricity has been generated with natural gas</a>, it has also made it possible for the nation to <a href="https://www.energyindepth.org/its-official-united-states-natural-gas-net-exporter-first-time-60-years-2017/">export more natural gas than it buys from other countries</a>. That is what happened in 2017 for the <a href="https://www.reuters.com/article/us-usa-natgas-lng-analysis-idUSKBN1700F1">first time in 60 years</a>.</p>
<p>In addition to selling natural gas to Mexico and Canada, which gets transported by pipeline, the <a href="https://www.eia.gov/todayinenergy/detail.php?id=35512">U.S. is now exporting liquefied natural gas</a>, commonly called LNG.</p>
<p>Only two LNG facilities – one in Louisiana and one in <a href="http://www.naturalgasintel.com/articles/114804-with-cove-point-shale-gas-exports-underway-ices-updated-product-reflects-shifting-market">Maryland</a> – are operating today in the U.S., with total capacity of about 5 billion cubic feet per day. But <a href="https://www.eia.gov/todayinenergy/detail.php?id=34032">at least four more are on the way</a> and a <a href="http://mustreadalaska.com/this-changes-everything-lng-imports-ahead-kenai/">shuttered plant in Alaska could be revived</a> soon. Additional U.S. LNG capacity of up to 25 billion cubic feet per day could become available before long, depending on how many of the many LNG terminals being considered are ultimately built. </p>
<p>As American production and its capacity to liquify natural gas grows, the U.S. government’s Energy Information Administration is <a href="https://www.eia.gov/todayinenergy/detail.php?id=36632">forecasting that China and other Asian countries</a> will buy most of this fuel due to their <a href="https://www.imf.org/en/Publications/REO/APAC/Issues/2017/10/09/areo1013">swift economic growth</a> and their <a href="https://www.scmp.com/news/china/policies-politics/article/2126645/china-gas-imports-soar-amid-pollution-crackdown-use">efforts to slash pollution</a>.</p>
<p>But surely European countries will buy some of America’s exported LNG, <a href="https://oilprice.com/Energy/Natural-Gas/Can-The-US-Break-Russias-Gas-Monopoly-In-Europe.html">reducing Russia’s dominance of that market</a>.</p>
<h2>Russia’s European dominance</h2>
<p>In recent years, <a href="http://ec.europa.eu/eurostat/statistics-explained/pdfscache/46126.pdf">Europe has imported about 20 percent of the natural gas it consumes</a>, mostly from Russia and Norway. </p>
<p>Even as the region began to import liquified natural gas from the U.S., Europe’s Russian gas imports <a href="https://af.reuters.com/article/africaTech/idAFL8N1OY2I2">hit record highs in 2017</a>. Demand was higher than usual thanks to the region’s <a href="https://www.euractiv.com/section/energy/news/eu-more-dependent-on-russian-gas-than-ever-despite-bid-to-diversify/">economic recovery and extremely cold winter</a>.</p>
<p>Several factors buttress Russia’s dominance of this market. First, many countries have signed long-term contracts, locking in their purchases of Russian gas for years to come.</p>
<p>Second, Russia can produce natural gas very cheaply and it costs little to bring it to Europe using <a href="https://pgjonline.com/magazine/2017/august-2017-vol-244-no-8/features/russia-s-pipeline-play-keeps-eastern-europe-on-edge">pipelines, many of which have already been built</a>. In contrast, U.S. producers spend money liquefying natural gas – even if it costs relatively little to drill – and ship it across the Atlantic Ocean. As a result, the price of the gas when it lands in Europe is more than double the price in the U.S.</p>
<p><a href="https://oilprice.com/Energy/Natural-Gas/Can-The-US-Break-Russias-Gas-Monopoly-In-Europe.html">U.S. LNG currently costs about US$6</a> per million British Thermal Units in Europe, about $1 more than the average price of Russian gas in that market. </p>
<p>Third, Russia has embarked on new pipeline projects that include the controversial Nord Stream 2, the <a href="https://www.cnbc.com/2018/07/11/behind-nord-stream-2-the-russia-to-germany-gas-pipeline-that-fueled-t.html">$11 billion natural gas pipeline</a> that is supposed to be completed next year. It will deliver Russian gas directly to Germany, <a href="https://www.theguardian.com/us-news/2018/jul/11/germany-and-russia-gas-links-trump-questions-europe-nord-stream2">bypassing Ukraine</a> – which has sparred with Russia over what it should collect for serving as a transit country repeatedly since 2005. In addition, <a href="https://www.independent.co.uk/news/world/europe/ukraine-steals-gas-owned-by-eu-says-russia-1223061.html">Russia accuses Ukraine of siphoning of gas</a> destined for Europe, allegations Ukraine denies. </p>
<h2>Diluting Russia’s political leverage</h2>
<p>The problems with Ukrainian transit gave Europeans an incentive to import natural gas using <a href="https://ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/energy-security-strategy">different routes and suppliers</a>. Countries in Central and Eastern Europe, in particular, have been trying to minimize not only supply disruptions but also – and even more importantly – the geopolitical and economic pressure that Russian has exerted in exchange for access to its gas imports.</p>
<p>The region experienced at least <a href="https://www.bakerinstitute.org/media/files/files/ac785a2b/BI-Brief-071817-CES_Russia1.pdf">17 disruptions in its natural gas flows</a> or price manipulations that were either definitely or probably politically motivated between 1990 and 2015, according to my colleague Gabriel Collins, who studies geopolitics and commodity markets.</p>
<p>This kind of intervention has made countries such as <a href="https://en.delfi.lt/eu/lithuania-joins-polands-appeal-in-eu-court-over-nord-stream.d?id=74285838">Poland and Lithuania</a> highly critical of the Nord Stream 2 pipeline. While Western Europe sees in that project a potential end to supply disruptions, Eastern Europe and the Baltic countries see the potential for the region to become even more dependent on Russian gas. If that happens, they fear, Russia could gain more geopolitical influence that goes beyond the post-Soviet bloc to include Germany, Austria and the rest of Western Europe.</p>
<p>As such, their concerns match the consternation that Trump has expressed to a great degree. </p>
<p>Even so, the U.S. government cannot guarantee that U.S.-produced LNG will be shipped to Europe or anywhere else. Private companies, which make their own decisions, do not need to heed the federal government’s geopolitical goals. And the initial U.S. natural gas <a href="http://www.politifact.com/truth-o-meter/statements/2017/jul/17/pat-robertson/us-liquefied-natural-gas-game-changer-russia-europ/">exports to Europe have proven very modest</a>.</p>
<p>The U.S. government can, however, facilitate U.S. exports with policies that encourage them. </p>
<p>In addition, I believe that U.S. natural gas exports can make a difference in Europe, even if Europe never buys very large volumes of American LNG.</p>
<p>That’s because, U.S. natural gas can dampen Russia’s geopolitical influence and economic rents as long as it poses a <a href="https://www.forbes.com/sites/thebakersinstitute/2014/03/10/a-credible-threat-approach-to-long-run-deterrence-of-russian-european-hegemony/">credible threat</a> to Russian gas. For that to happen, all of Europe – not only the Western countries – needs the <a href="https://www.bakerinstitute.org/research/gas-geoeconomics-europe/">infastructure required to handle, move and store imported liquified natural gas</a>. Simply having the ability to access U.S. gas can potentially diminish some of the political leverage Russia now wields in Europe.</p><img src="https://counter.theconversation.com/content/99897/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Mikulska receives funding from the Rice University's Baker Institute for Public Policy and the University of Pennsylvania. She is affiliated with Rice University's Baker Institute for Public Policy, the University of Pennsylvania's Kleinman Center for Energy Policy, and the Foreign Policy Research Institute. She also is on the editorial board of the Adam Mickiewicz University Law Review. </span></em></p>Even if Asia buys most of the natural gas the U.S. will be exporting soon, America’s growing role in that market could wind up reducing Russia’s political influence in Europe.Anna Mikulska, Nonresident Fellow in Energy Studies, Baker Institute for Public Policy, Rice UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/989912018-07-06T10:36:30Z2018-07-06T10:36:30ZTrade rules are deeply flawed but Trump’s tariff fixation is hurting America and the rest of the world<figure><img src="https://images.theconversation.com/files/225811/original/file-20180702-116152-1hrck55.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">New steel tariffs could hit the Tenaris seamless pipe mill in Bay City, Texas, hard.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Trump-Steel-Tariffs/a041f0006e7b4ad9a91438e45a06af72/48/0">AP Photo/David J. Phillip</a></span></figcaption></figure><p>There’s no end in sight to the tariffs President Donald Trump will impose on imports from the nation’s best customers.</p>
<p>He has <a href="https://foreignpolicy.com/2018/06/21/trump-tariffs-trade-war-us-eu-china/">hiked tariffs</a> on goods and services from China, Canada, Mexico, Europe and beyond, prompting a wave of retaliation in kind that is sure to crimp American exports of everything from <a href="https://www.cnbc.com/2018/07/04/us-pork-producers-brace-for-new-pork-tariffs-from-china-mexico.html">pork and soybeans</a> to <a href="https://www.npr.org/2018/07/02/625363659/moog-says-chinese-tariffs-may-force-a-move-overseas">synthesizers</a>.</p>
<p>The tweeter-in-chief has even speculated that tariffs alone perhaps could raise enough revenue to <a href="https://talkingpointsmemo.com/edblog/trump-tariffs-could-replace-income-tax">fund the government</a> and ditch the income taxes he recently slashed altogether. And Trump is reportedly mulling whether to <a href="https://www.axios.com/trump-trade-war-leaked-bill-world-trade-organization-united-states-d51278d2-0516-4def-a4d3-ed676f4e0f83.html">quit the World Trade Organization</a> – the global body that governs world trade – rather than follow its rules regarding tariffs.</p>
<p>Having studied the <a href="https://scholar.google.com/citations?user=e3-sujUAAAAJ&hl=en">globalization of trade, finance and investment</a> for over two decades, I agree with Trump that international trade rules are unfair. Even so, I believe Trump’s tariff-centric trade policies are a raw deal that won’t fix what’s broken about the global trading system.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1011713412596891648"}"></div></p>
<h2>Globalization’s golden age</h2>
<p>Today’s trading system began to emerge toward the end of World War II when 730 delegates from 44 nations gathered in Bretton Woods, New Hampshire, to lay the foundation of a new international economic order.</p>
<p><a href="http://www.cornellpress.cornell.edu/book/?GCOI=80140100694060">These diplomats and economists</a> sought to create a system that would stave off global wars and foster shared prosperity by spurring more trade. They laid the groundwork for the International Monetary Fund, the World Bank and the precursor of the institution that later became the WTO, to support this new economic order.</p>
<p>Highly influenced and shaped by President <a href="https://www.thebalance.com/fdr-and-the-new-deal-programs-timeline-did-it-work-3305598">Franklin D. Roosevelt’s New Deal policies</a>, the initial trade rules were calibrated toward the pursuit of financial stability and full employment. </p>
<p>A <a href="http://www.oupcanada.com/catalog/9780198287414.html">golden age of capitalism</a> ensued. Between 1950 and 1973, average incomes in the U.S. and the rest of the world grew at a faster rate than they had for the prior century – and haven’t been beaten since.</p>
<p>There were few financial crises and strong employment. In many parts of the world, workers gained important civil and human rights.</p>
<h2>Corporate power elbows in</h2>
<p>Beginning in the 1980s, the nature of trade and investment treaties changed significantly. Trade, finance and investment became ends in and of themselves, rather than the means to shared prosperity that the international economic order had been centered on. </p>
<p>On top of the WTO’s establishment, in 1994, more than <a href="http://unctad.org/en/pages/DIAE/International%20Investment%20Agreements%20(IIA)/IIA-Tools.aspx">2,000</a> <a href="https://www.wto.org/english/tratop_e/region_e/region_e.htm">regional and bilateral trade deals</a> such as the North American Free Trade Agreement proliferated. </p>
<p>Rather than tightly regulating the financial sector so finance, trade and investment flow toward productive investment and good jobs, <a href="http://www.anthempress.com/the-clash-of-globalizations">these deals</a> seek to deregulate finance and investment. They make it illegal for participating countries to enforce regulations meant to ensure productive investment, meaningful employment and social welfare. What is more, many of these treaties allow <a href="http://ccsi.columbia.edu/2017/12/11/investor-state-dispute-settlement-what-are-we-trying-to-achieve-does-isds-get-us-there/">corporations to sue governments</a> through private tribunals that usually side with foreign firms over host country regulations on finance, public welfare and the environment. </p>
<p>Free trade has been very, very good to the U.S., but it is yielding diminishing returns. By all accounts, the era of corporate globalization hasn’t delivered like the golden age did. The Peterson Institute for International Economics, a think tank, estimates that <a href="https://piie.com/publications/chapters_preview/3802/2iie3802.pdf">trade liberalization injected US$1 trillion</a> into the U.S. economy between 1947 and 2002, yet more than 90 percent of those gains had already occurred by 1982. The benefits of trade deals since that time have been marginal, and are shrinking.</p>
<p>Indeed, the definitive study of NAFTA by members of the Federal Reserve, the National Bureau of Economic Research and Yale University found that the pact only led to marginal U.S. economic boost equal to a one-time <a href="https://doi.org/10.1093/restud/rdu035">0.08 percent</a> increase in GDP. If all the tariffs in the world were <a href="http://doi.org/10.2753/IJP0891-1916370103">completely eliminated</a>, there would only be a one-time bump in the world economy of just 0.7 percent. </p>
<h2>Bigger costs</h2>
<p>As the gains from trade shrank, its costs grew. <a href="https://books.google.com/books/p/inst-intl-economics?id=mpESbPrm1IQC&ie=ISO-8859-1">Financial crises</a> became more frequent. Indeed the IMF found that the countries that liberalized their financial services industry, as many <a href="https://www.unescap.org/our-work/trade-investment-innovation/trade-investment-agreements/about">trade and investment pacts</a> required them to do, were among the <a href="https://www.imf.org/en/Publications/IMF-Staff-Position-Notes/Issues/2016/12/31/Capital-Inflows-The-Role-of-Controls-23580">worst hit</a> by the Great Recession. </p>
<p>MIT economists have found that the WTO accentuated American <a href="https://www.aeaweb.org/articles?id=10.1257/aer.103.6.2121">deindustrialization</a>, likely <a href="http://www.nber.org/papers/w20395">costing as many as 2.4 million jobs</a>.</p>
<p>Rather than investing the profits from globalization into productive and employment-generating activity, global corporations have been choosing to <a href="https://hbr.org/2014/09/profits-without-prosperity">speculate with their profits</a> and buy back their own stock.</p>
<p>The government isn’t investing the gains from trade either. Research at the Brookings Institution shows that the people who lose their jobs because of free trade are <a href="https://www.brookings.edu/blog/the-avenue/2017/01/10/maladjusted-its-time-to-reimagine-economic-adjustment-programs/">not compensated</a> enough to make up for their losses through <a href="https://www.doleta.gov/tradeact/">Trade Adjustment Assistance</a>, a program that pays for people who wind up unemployed due to overseas outsourcing to get professional training and the like.</p>
<p>And these losses for American workers have not translated into widespread gains overseas. Indeed, NAFTA boosted Mexico’s trade and investment yet its per capita growth has hardly budged. Environmental damage, however, has followed since <a href="https://www.sciencedirect.com/science/article/pii/S0022199617300077">NAFTA shifted pollution-intensive</a> manufacturing south of the Rio Grande. Rural communities have suffered since more than 2 million Mexican farmers and <a href="https://www.mcclatchydc.com/news/nation-world/world/article24609829.html">farmworkers lost</a> their livelihoods to cheap imported corn and other agricultural products exported from the U.S.</p>
<h2>Bound for failure</h2>
<p>Trump’s tariff fixation and predisposition to <a href="https://theconversation.com/trumps-america-first-strategy-for-nafta-talks-wont-benefit-us-workers-81597">renege on every trade deal</a> his predecessors adopted won’t right these wrongs. Some of these moves may give temporary relief to workers and industries in areas long battered from bad policy. But this strategy will ultimately fail for three reasons. </p>
<p>First, the tariffs that do improve conditions for some workers will eventually squeeze workers in other businesses – and in foreign countries. For example, higher tariffs on imported steel and aluminum will harm the automotive industry and construction, which are big employers. That was a lesson the White House should have learned from reviewing what happened when President <a href="https://www.politico.com/story/2018/03/07/steel-tariffs-trump-bush-391426">George W. Bush experimented with similar across-the-board tariff</a> hikes in 2002. </p>
<p>Second, Trump’s alternatives to the trade entanglements he inherited – as seen in his <a href="https://www.bloomberg.com/authors/AOaOh6XkAJY/eric-martin">NAFTA renegotiation proposals</a> – would still tilt the rules toward big oil, gas and pharmaceutical companies over consumers, citizens and the environment.</p>
<p>Third and most importantly, trade policies are simply tools that should help achieve broader economic goals. And so far, Trump has not given any hints that his team is hatching a parallel set of economic policies that will benefit all Americans, let alone the world economy.</p>
<p>Rather than providing incentives for corporations to invest more in productivity and create more good jobs, Trump is doing his best to <a href="http://www.businessinsider.com/wall-street-dodd-frank-deregulation-bill-trump-gop-obama-legacy-2018-5">dismantle regulations adopted after the most recent financial crisis</a> that were supposed to force the financial sector to act more responsibly. To pay for <a href="https://theconversation.com/gop-tax-plan-doubles-down-on-policies-that-are-crushing-the-middle-class-89047">his tax cuts</a>, he is aiming to <a href="https://psmag.com/news/a-new-white-house-plan-would-restructure-the-federal-government">slash spending on research and development</a> and on other programs that make the country more competitive. </p>
<p>If he really does want to make America – and the world economy – great again, I believe that Trump should look to globalization’s golden age for inspiration rather than haphazardly slapping tariffs on imports from our trading partners and expanding many of the failed policies that got him elected in the first place.</p><img src="https://counter.theconversation.com/content/98991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin P. Gallagher does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>So far, he has not given any hints that his team is hatching a parallel set of economic policies that will benefit all Americans, let alone the world economy.Kevin P. Gallagher, Professor of Global Development Policy; Director, Global Development Policy Center, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/954872018-04-26T10:39:31Z2018-04-26T10:39:31ZHow transshipment may undercut Trump’s tariffs<p>President <a href="https://www.whitehouse.gov/briefings-statements/remarks-president-trump-prime-minister-lofven-sweden-joint-press-conference/">Donald Trump is vowing</a> to crack down on deceptive transshipment. That is the practice of moving cargo from one country to another by way of a third nation to evade trade restrictions. </p>
<p>As an <a href="https://scholar.google.com/citations?user=9_99Y6kAAAAJ&hl=en">international economist</a>, I have researched the impact of imported textiles and apparel on those industries in North Carolina over the last 20 years. Based on this recent history, I believe it will be hard for Trump to succeed. </p>
<h2>Indirect routes</h2>
<p>Not all transshipments are intentionally misleading. For example, a car shipped from Stockholm, Sweden, to Montreal, Canada, may first travel to New York City’s port, before being transferred to another boat, a train or a tractor-trailer for the NYC-Montreal leg of the trip.</p>
<p>These indirect routes <a href="https://docs.google.com/file/d/0B8MtLHcYnWCGZU8zbnB0cVN2VlE/">can reduce</a> costs when they let shipping companies move more freight on their busiest routes.</p>
<p>But the Trump administration claims something else is going on with Chinese steel. Washington is accusing Chinese steelmakers of routing their U.S.-bound product through <a href="https://www.commerce.gov/sites/commerce.gov/files/the_effect_of_imports_of_steel_on_the_national_security_-_with_redactions_-_20180111.pdf,%20Appendix%20L">Vietnam and other Asian countries</a> to avoid existing tariffs on Chinese steel. That could become even more of a problem if the administration goes ahead with plans to impose new <a href="https://www.npr.org/2018/03/08/591744195/trump-expected-to-formally-order-tariffs-on-steel-aluminum-imports">25 percent tariffs</a> on Chinese steel. </p>
<p>Federal rules of origin allow importers to say goods hail from a given country as long as they were “<a href="https://www.cbp.gov/document/publications/rules-origin">substantially transformed</a>” there. Slapping a “made in” label onto a steel slab doesn’t satisfy this criterion, while rolling that steel into finished pipes in that country definitely does. In practice, determining what qualifies as enough transformation requires exercising discretion that is hard to make objective or translate into clear and fair rules.</p>
<p>Asian officials insist that the Chinese steel now irking the Trump administration is being processed before being designated as a different product and purchased by U.S. manufacturers as “made in Vietnam” or another country. </p>
<h2>A precedent</h2>
<p>The Trump White House isn’t the first to suspect China of transshipping to dodge trade barriers. In the early 1990s, the U.S. subjected textiles and apparel imported from China and other emerging economies to annual quotas under the <a href="https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm5_e.htm">Multi-Fiber Agreement</a>.</p>
<p>At the same time, according to a Chinese-U.S. research team, <a href="https://hctar.seas.harvard.edu/files/hctar/files/gs01.pdf">these Chinese products</a> were often transshipped to the U.S. via Hong Kong. While the <a href="http://otexa.trade.gov/twgrep.pdf">U.S. Customs Service</a> tried to detect and crack down on this practice, that proved a <a href="https://www.gao.gov/assets/250/241271.html">daunting task</a>.</p>
<p>Deceptive transshipments violate international law, but are costly and hard to stamp out. I believe efforts to do so will also discourage imports that are valuable to U.S. consumers.</p><img src="https://counter.theconversation.com/content/95487/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Conway does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>This speed read explores why it’s hard to stop manufacturers in specific countries from dodging trade barriers by pretending that their goods come from somewhere else.Patrick Conway, Professor of Economics, University of North Carolina at Chapel HillLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/946252018-04-20T10:37:27Z2018-04-20T10:37:27ZTrump’s exports-good, imports-bad trade policy, debunked by an economist<figure><img src="https://images.theconversation.com/files/215634/original/file-20180419-163995-fanknv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The White House frets about how the U.S. imports more stuff than it exports.
</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Trade-Gap/1765e13121094b5db61b6b8c001110a8/9/0">AP Photo/Ben Margot</a></span></figcaption></figure><p>President Donald Trump’s trade policy leaves international economists <a href="https://scholar.google.com/citations?user=2B5IAEgAAAAJ&hl=en">like me</a> scratching our heads. </p>
<p>His apparent desire to <a href="https://theconversation.com/trumps-go-it-alone-approach-to-china-trade-ignores-wtos-better-way-to-win-93918">start a trade war with China</a> is only one example on a long list of what I see as poor trade policy choices. Others include: abandoning the <a href="https://theconversation.com/what-is-the-tpp-and-can-the-us-get-back-in-95028">Trans-Pacific Partnership</a> trade deal, threatening to <a href="https://www.politico.com/magazine/story/2018/02/26/donald-trump-nafta-negotiations-217085">abandon NAFTA</a> and the tariffs he’s imposing on <a href="https://www.marketplace.org/2018/04/17/economy/us-companies-line-be-excluded-steel-aluminum-tariffs">imported steel and aluminum</a>.</p>
<p>The U.S. has historically led the global trade system, which I’d argue has <a href="https://www.economist.com/news/united-states/21695855-americas-economy-benefits-hugely-trade-its-costs-have-been-amplified-policy">benefited the nation economically</a> overall, even if researchers estimate that <a href="https://doi.org/10.1146/annurev-economics-080315-015041">the U.S. lost 985,000 manufacturing jobs</a> to Chinese competition between 1999 and 2011. Why is this administration apparently willing to undermine a half-century-old system of rules governing the international exchange of goods and services?</p>
<p>The short answer is Trump’s “<a href="https://qz.com/890868/donald-trumps-america-first-foreign-policy-is-now-official-heres-what-it-means/">America First</a>” ideology, a term that <a href="https://theconversation.com/trumps-america-first-echoes-from-1940s-59579">among other things</a> rests on a guiding principle of economic nationalism. </p>
<h2>Modern mercantilists</h2>
<p>I can describe this trade policy’s logic, even if I can’t understand why his administration embraces it.</p>
<p>Trump essentially subscribes to a modern version of mercantilism, a school of thought most economists believe Adam Smith extinguished after he published his landmark book “<a href="https://www.adamsmith.org/the-wealth-of-nations/">The Wealth of Nations</a>” in 1776. Mercantilism rests on <a href="http://www.econlib.org/library/Enc1/Mercantilism.html">a key idea</a>: Exports are good and imports are bad. People who believe in mercantilism therefore see global <a href="https://www.dartmouth.edu/%7Erstaiger/Chapter%2014%20from%20AgeOfTrump_June2017.pdf">trade as a zero-sum game.</a></p>
<p>Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer and Peter Navarro – a presidential aide with multiple titles and roles – advise Trump on trade. This trio who I’d label modern-day mercantilists is carrying out trade policies that Trump espoused while running for president.</p>
<p><a href="https://www.ocregister.com/2016/08/16/one-of-trumps-biggest-economic-supporters-its-a-uc-irvine-economist/">Navarro</a>, a former University of California, Irvine associate professor, is the only <a href="https://scholar.google.com/citations?user=usrEMP4AAAAJ&hl=en">economist with a Ph.D.</a> of the bunch. But when I scanned <a href="https://scholar.google.com/citations?user=usrEMP4AAAAJ&hl=en">Navarro’s scholarship</a> it surprised me to find that he has not published on this topic in a leading academic economics journal. One sign that he’s outside the mainstream on trade: <a href="https://www.economist.com/news/briefing/21715017-there-are-reasons-be-worried-about-head-donald-trumps-new-national-trade-council-peter">The Economist magazine</a> dismissed him as a “China-bashing eccentric.”</p>
<p>It didn’t take Ross long to live up to his reputation as “<a href="https://www.reuters.com/article/us-usa-trump-ross/trumps-commerce-pick-wilbur-ross-is-no-stranger-to-protectionism-idUSKBN14U17M">Mr. Protectionism</a>.” Under his leadership, the Commerce Department took the lead on <a href="https://theconversation.com/what-is-a-tariff-an-economist-explains-93392">slapping tariffs</a>, taxes levied on imported goods, <a href="http://fortune.com/2018/03/08/trump-signs-tariffs-steel-aluminum/">on steel and aluminum</a> from other nations. </p>
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<a href="https://images.theconversation.com/files/215636/original/file-20180419-163995-xd8ito.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/215636/original/file-20180419-163995-xd8ito.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/215636/original/file-20180419-163995-xd8ito.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/215636/original/file-20180419-163995-xd8ito.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/215636/original/file-20180419-163995-xd8ito.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/215636/original/file-20180419-163995-xd8ito.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/215636/original/file-20180419-163995-xd8ito.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/215636/original/file-20180419-163995-xd8ito.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">From left to right, Donald Trump, Wilbur Ross, Peter Navarro and Mike Pence, at a signing ceremony for executive orders regarding trade in the Oval Office.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Trump/e571301b1a1946d98e7f3b58cb6952f1/4/0">AP Photo/Andrew Harnik</a></span>
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</figure>
<p><a href="https://www.reuters.com/article/us-usa-trump-trade/trump-names-china-critic-lighthizer-as-u-s-trade-representative-idUSKBN14N0YA">Lighthizer</a> is a lawyer with decades of experience litigating <a href="https://www.investopedia.com/terms/d/dumping.asp">anti-dumping cases</a> on behalf of American steelmakers that accuse foreign manufacturers of selling here at prices below what customers have to pay in their own countries. He is <a href="http://www.businessinsider.com/r-ustr-lighthizer-says-wto-losing-focus-must-rethink-development-2017-12">highly critical of the World Trade Organization</a>, especially the process through which it handles <a href="https://www.reuters.com/article/us-trade-nafta-lighthizer/us-trade-envoy-says-wto-dispute-settlement-is-deficient-idUSKCN1BT205">trade disputes over dumping</a>.</p>
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<a href="https://images.theconversation.com/files/215635/original/file-20180419-163995-b3260t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/215635/original/file-20180419-163995-b3260t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/215635/original/file-20180419-163995-b3260t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/215635/original/file-20180419-163995-b3260t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/215635/original/file-20180419-163995-b3260t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/215635/original/file-20180419-163995-b3260t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=495&fit=crop&dpr=1 754w, https://images.theconversation.com/files/215635/original/file-20180419-163995-b3260t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=495&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/215635/original/file-20180419-163995-b3260t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=495&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">U.S. Trade Representative Robert Lighthizer, testifying on Capitol Hill.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Congress-Trade/d4863ff524d545aa8725ac4315fe68e4/11/0">AP Photo/Jose Luis Magana</a></span>
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<p>Until former Goldman Sachs President <a href="https://www.cnbc.com/2018/03/06/gary-cohn-plans-to-resign-as-trumps-top-economic-advisor-new-york-times.html">Gary Cohn resigned</a> as Trump’s chief economic adviser in March, there was at least one strong supporter of free trade inside the White House. Now that he’s moved on, the mercantilists are clearly in charge.</p>
<p>Although <a href="https://www.cnbc.com/2018/04/09/larry-kudlow-says-trump-is-warning-china-with-tariffs-youre-no-longer-a-developing-nation-act-like-it.html">Cohn’s replacement Larry Kudlow</a> has criticized the steel and aluminum tariffs, he has expressed support for Trump’s hard line on trade with China. His background as a television pundit with no formal training in economics suggests he will have a hard time pushing back on the mercantilist rhetoric, making it unlikely that the administration will adopt a more mainstream trade policy anytime soon. </p>
<h2>Three counts</h2>
<p>Like nearly all economists, I believe that contemporary mercantilism is wrong on three counts. First, trade is not a zero-sum game. Second, imposing new and higher tariffs on imports won’t make the U.S. trade deficit go away. Third, reciprocity in trade negotiations does not require all countries to cut their tariffs to the same level.</p>
<p>Actually, every one of my students at The Ohio State University can explain why trade is a positive-sum game. Most of the exchanges that occur, such as when the U.S. sells China soybeans and China sells the U.S. sneakers, are efficient uses of a country’s resources. Overall, <a href="https://www.foreignaffairs.com/articles/2016-06-13/truth-about-trade">trade boosts</a> national incomes and consumer purchasing power. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/215638/original/file-20180419-163971-w538c6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/215638/original/file-20180419-163971-w538c6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/215638/original/file-20180419-163971-w538c6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/215638/original/file-20180419-163971-w538c6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/215638/original/file-20180419-163971-w538c6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/215638/original/file-20180419-163971-w538c6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/215638/original/file-20180419-163971-w538c6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/215638/original/file-20180419-163971-w538c6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">An Adam Smith statue in Scotland.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/statue-adam-smith-edinburgh-front-stgiles-689526940?src=l73xumfL78sLNDppMxZy2g-1-1">Matt Ledwinka/Shutterstock.com</a></span>
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<p>All Macroeconomics 101 classes taught in America should quickly impart an appreciation of the <a href="https://piie.com/publications/policy-briefs/trade-balances-and-nafta-renegotiation">underlying cause of the U.S. trade deficit</a>. Currently, the value of goods and services the U.S. produces adds up to less than the total value of the nation’s consumption, investment, government spending and exports. Due to low household savings and high federal expenditures, the U.S. runs a trade deficit, imports making up the difference between consumption and production.</p>
<p>Given this macroeconomic imbalance, raising tariffs and pulling out of trade deals will not tame the trade deficit. Any reduction in imports from, say, China, would be matched by new imports from elsewhere. <a href="https://piie.com/blogs/trade-investment-policy-watch/three-ways-reduce-trade-deficit">A more effective policy</a> would encourage U.S. households and businesses to consume less and save more while cutting federal spending. </p>
<p>Thanks to global trade diplomacy, the average tariffs developed countries apply to their imports <a href="https://www.wto.org/english/res_e/booksp_e/anrep_e/world_trade_report07_e.pdf">have been falling since WWII</a> and most now <a href="https://www.wto.org/english/thewto_e/20y_e/wto_20_brochure_e.pdf">average between 10 and 15 percent</a>.</p>
<p>As you might suspect, trade negotiations are not politically feasible if they strongly favor one country over another. Some 167 countries belong to the WTO, an organization through which they conduct multilateral trade negotiations and resolve trade disputes. With the <a href="http://www.nber.org/papers/w17650">exception of developing countries</a>, its members must offer to <a href="https://aede.osu.edu/sites/aede/files/imce/images/SSRN-id3152299.pdf">cut their tariffs when other countries cut their own</a>.</p>
<p>The <a href="https://piie.com/publications/policy-briefs/trade-balances-and-nafta-renegotiation">standard approach</a> is for WTO members to reduce their tariffs by the same percentage, as opposed to reducing them to the same level. For example, at the start of a round of trade negotiations, tariffs applied to agricultural commodities may be higher in Japan than the U.S., but the reciprocity norm does not require Japan to reduce its tariffs to the same level as those in the U.S. Instead, Japan and the U.S. agree to reduce their tariffs by the same percentage. </p>
<p>Trump seems to favor a <a href="https://www.economist.com/news/briefing/21721935-idea-reciprocity-animates-white-houses-view-trade-what-donald-trump-means-fair">new approach to reciprocity</a> that would, in this example, require Japan to bring its tariffs to the same level as America’s, essentially forcing it to make a bigger concession. As a result, Japan would likely walk away from the negotiating table.</p>
<p>In short, I believe that the Trump administration’s trade policy is grounded in an ideology that was debunked long ago, lies outside mainstream economic thinking, and isn’t backed by any credible empirical evidence. This mindset could possibly push the U.S. into a full-blown trade war and <a href="https://global.upenn.edu/uploads/media_items/go-trumps-attempted-bown.original.pdf">undermine the established rules</a> of the global trading system, <a href="https://www.theguardian.com/business/2018/apr/17/world-trade-system-imf-trump-tariff-china-us-world-economic-outlook">endangering the global economy</a>.</p><img src="https://counter.theconversation.com/content/94625/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Sheldon receives funding from USDA and NSF</span></em></p>The administration embraces mercantilism, an ideology with few adherents.Ian Sheldon, Chair in Agricultural Marketing, Trade and Policy, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/927152018-03-01T21:35:51Z2018-03-01T21:35:51ZEconomic history shows why Trump’s ‘America First’ tariff policy is so dangerous<figure><img src="https://images.theconversation.com/files/208564/original/file-20180301-152584-xtorsi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Economic history suggests Trump's 'America First' trade policies will put the U.S. last.</span> <span class="attribution"><span class="source">Reuters/Kevin Lamarque</span></span></figcaption></figure><p>President Donald Trump is finally making good on his promised threats to erect protectionist walls around the U.S. economy. </p>
<p>Citing the need to protect national security, last month he released <a href="https://www.wsj.com/articles/trump-wont-quickly-announce-new-tariffs-on-aluminum-steel-1519921704">plans to impose</a> tariffs of 25 percent on foreign steel and 10 percent on aluminum for a “long period of time.” More recently, <a href="https://www.washingtonpost.com/business/economy/trump-administration-targets-chinese-electronics-aerospace-and-machinery-goods-with-50-billion-in-tariffs/2018/04/03/9be42e5e-3786-11e8-9c0a-85d477d9a226_story.html?utm_term=.abd645cd5a92">he placed</a> $50 billion worth of tariffs on China, which <a href="https://www.cnbc.com/2018/04/04/china-new-us-tariffs-including-soy-cars-and-chemicals.html">released</a> its own retaliatory tariffs. </p>
<p>The president’s new trade barriers stem directly from the <a href="https://theconversation.com/what-does-america-first-mean-for-american-economic-interests-71931">“America First” policy</a> he has been promoting since the presidential campaign. Trump is orienting the country distinctly toward protectionism and claiming that unilateralism in trade is good for the U.S.</p>
<p>But economic history should make Americans skeptical of this claim.</p>
<p>President Trump’s <a href="http://www.businessinsider.com/trump-trade-policy-agenda-2017-3">approach to trade</a> seems to be based on a false understanding of how the global economy works, one that also plagued American policymakers nearly a century ago. Essentially, the administration has forgotten an important lesson from the Great Depression. </p>
<p><a href="http://foreignpolicy.com/2017/03/06/economists-take-aim-at-trump-trade-theory-again-peter-navarro-bilateral-multilateral-trade-deals-china-germany-national-security/">Virtually all economists</a> and <a href="https://scholar.google.com/citations?user=Y58-EhUAAAAJ&hl=en&oi=ao">trade researchers like me</a> <a href="https://www.voanews.com/a/trump-trade-policy-loser-economists-contend/3323997.html">agree</a> that the costs could be steep. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/194884/original/file-20171115-19768-8hk2wk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/194884/original/file-20171115-19768-8hk2wk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/194884/original/file-20171115-19768-8hk2wk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/194884/original/file-20171115-19768-8hk2wk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/194884/original/file-20171115-19768-8hk2wk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/194884/original/file-20171115-19768-8hk2wk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/194884/original/file-20171115-19768-8hk2wk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">If Trump puts ‘America first’ in trade, other countries will follow. And that’s bad news for everyone.</span>
<span class="attribution"><span class="source">Hadrian/Shutterstock.com</span></span>
</figcaption>
</figure>
<h2>The U.S. and the global economy</h2>
<p>Trump’s “America First” orientation <a href="http://time.com/4386335/donald-trump-trade-speech-transcript/">assumes</a> that the United States, as the world’s dominant actor, can behave freely and independently in trade. </p>
<p>Unfortunately for the administration, America’s top economic position does not shield it from the dire consequences that unilateral trade policy can provoke. The constraints on U.S. action result from the basic nature of the international economy and from America’s <a href="https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci18-1.pdf">declining dominance</a> of the world trade system. </p>
<p>It is a standard principle of economics that all individual actors exist within a system. Any action taken by one actor will likely result in a response from others. This means that wise governments, in considering which policies to adopt, must make <a href="https://www.economist.com/news/economics-brief/21705308-fifth-our-series-seminal-economic-ideas-looks-nash-equilibrium-prison">difficult calculations</a> about how their actions will interact with those of others.</p>
<p>“America First” fails to make these calculations. It disregards how America’s trading partners will respond to the new U.S. protectionism – which is also what American lawmakers ignored during the Great Depression.</p>
<h2>‘Beggar-thy-neighbor’</h2>
<p>Before the 1930s, America’s trade policy was generally set unilaterally by Congress – that is, without the international negotiations used today. </p>
<p>Lawmakers, already in a <a href="http://www.nber.org/papers/w2001">protectionist mood</a>, responded to the pain of the Great Depression by passing the infamous <a href="https://www.investopedia.com/terms/s/smoot-hawley-tariff-act.asp">Smoot-Hawley Tariff Act of 1930</a>, which <a href="http://www.economist.com/node/12798595">raised duties on hundreds of imports</a>.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/194881/original/file-20171115-19823-b2itsw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/194881/original/file-20171115-19823-b2itsw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/194881/original/file-20171115-19823-b2itsw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=809&fit=crop&dpr=1 600w, https://images.theconversation.com/files/194881/original/file-20171115-19823-b2itsw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=809&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/194881/original/file-20171115-19823-b2itsw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=809&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/194881/original/file-20171115-19823-b2itsw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1016&fit=crop&dpr=1 754w, https://images.theconversation.com/files/194881/original/file-20171115-19823-b2itsw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1016&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/194881/original/file-20171115-19823-b2itsw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1016&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sen. Reed Smoot co-sponsored the famous act that bears his name.</span>
<span class="attribution"><span class="source">Everett Historical/Shutterstock.com</span></span>
</figcaption>
</figure>
<p>Meant in part to ease the effects of the Depression by protecting American industry and agriculture from foreign competition, the act instead helped prolong the downturn. <a href="https://press.princeton.edu/titles/9430.html">Many U.S. trading partners reacted</a> by <a href="http://www.nber.org/chapters/c6899.pdf">raising their own tariffs</a>, which contributed <a href="http://www.mitpressjournals.org/doi/abs/10.1162/003465398557410">significantly</a> to shutting down world trade.</p>
<p>Fortunately, the U.S. and the world learned a lesson from this experience. With the <a href="http://www.nber.org/chapters/c6899.pdf">Reciprocal Trade Agreements Act of 1934</a> and its successors, which granted the president authority to reach tariff reduction agreements with foreign governments, U.S. trade policy came to be global and strategic. This new approach was institutionalized at the international level with the creation of the <a href="https://www.wto.org/english/res_e/booksp_e/agrmntseries2_gatt_e.pdf">General Agreement on Tariffs and Trade</a> in 1948 and its successor, the World Trade Organization, in 1995.</p>
<p>The basic principle of these agreements is <a href="https://theconversation.com/why-the-wto-still-matters-34624">reciprocity</a> – that each country will agree to liberalize its trade to the extent that other countries liberalize theirs. The approach uses international negotiations to <a href="https://www.jstor.org/stable/2706411?seq=1#page_scan_tab_contents">overcome protectionist political pressures</a> and recognizes that trade is a global phenomenon that generates national interdependence.</p>
<h2>Dangers of ignoring history</h2>
<p>The dangers of ignoring history are only beginning to manifest themselves, but they can be seen in several recent developments that bode ill for us all.</p>
<p>One of the Trump administration’s <a href="https://theconversation.com/how-the-tpps-demise-threatens-us-national-security-and-pax-americana-67514">first actions</a> was to withdraw the United States from the <a href="https://theconversation.com/us/topics/transpacific-partnership-1882">Trans-Pacific Partnership</a>. This agreement, which was a major initiative of the Obama administration, would have created the <a href="https://www.nytimes.com/interactive/2016/business/tpp-explained-what-is-trans-pacific-partnership.html">largest economic bloc</a> in the world by linking America’s economy with those of 11 other Pacific nations. It would also have created an American-led liberal bulwark in Asia against any Chinese challenge to the regional economic order.</p>
<p>Withdrawing from the agreement denied American exporters enhanced access to foreign markets and was a <a href="https://www.forbes.com/sites/johnbrinkley/2017/01/24/trump-dumps-trans-pacific-partnership-sad/#4543448e75dc">gift</a> to Chinese influence in Asia. But we are only now beginning to see the longer-term repercussions of President Trump’s decision. </p>
<p>During Trump’s trip, the other 11 signatories of the original trade deal, including Japan, Australia, Canada and Mexico, <a href="http://money.cnn.com/2017/11/13/news/economy/tpp-11-without-us-what-next/index.html">agreed to move forward</a> without the U.S. This is a problem for the U.S. because it means that these countries will grant preferential market access to one another, making it harder for American companies to compete in their markets.</p>
<p>American companies are already feeling the impact of what happens when they’re left out of a trade deal. A recent <a href="https://www.nytimes.com/2017/11/12/business/trump-trade-lobster-canada.html">New York Times article</a>, for example, highlights the plight of American lobster producers whose prices are being undercut by Canadian producers in the wake of a new <a href="http://ec.europa.eu/trade/policy/in-focus/ceta/">Canada-European Union trade agreement</a>. </p>
<p>If the United States is reluctant to participate in multilateral trade agreements, other countries have every incentive to do deals that exclude and even may hurt the U.S.</p>
<p>Trump’s <a href="https://theconversation.com/trumps-threat-to-withdraw-from-nafta-may-hit-a-hurdle-the-us-constitution-81444">ongoing efforts</a> to renegotiate the North American Free Trade Agreement also pose potential dangers. The administration has a tendency to speak of renegotiation as if it can <a href="http://money.cnn.com/2017/10/11/news/economy/trump-nafta/index.html">dictate the terms</a>. But while Canada and Mexico may be more dependent on the U.S. than the U.S. is on them, an <a href="https://www.cfr.org/backgrounder/naftas-economic-impact">implosion of NAFTA would be devastating</a> for many U.S. industries that rely on North American trade. <a href="https://www.cnbc.com/2017/11/13/the-next-big-worry-for-markets-nafta-fails-and-trade-wars-erupt.html">Market analysts increasingly worry</a> that NAFTA may not survive the negotiations. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/194882/original/file-20171115-19789-ujcuha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/194882/original/file-20171115-19789-ujcuha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=407&fit=crop&dpr=1 600w, https://images.theconversation.com/files/194882/original/file-20171115-19789-ujcuha.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=407&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/194882/original/file-20171115-19789-ujcuha.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=407&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/194882/original/file-20171115-19789-ujcuha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/194882/original/file-20171115-19789-ujcuha.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/194882/original/file-20171115-19789-ujcuha.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trade representatives from Canada, the U.S. and Mexico have been meeting to renegotiate NAFTA.</span>
<span class="attribution"><span class="source">AP Photo/Manuel Balce Ceneta</span></span>
</figcaption>
</figure>
<p>In addition to withdrawing from and renegotiating trade agreements, the administration has <a href="https://fivethirtyeight.com/features/trumps-trade-policies-keep-backfiring/">ramped up</a> unilateral efforts to sanction U.S. trading partners for receiving subsidies or for dumping their products on the American market. </p>
<p>Decisions to impose trade penalties – such as <a href="https://www.washingtonpost.com/business/economy/trump-administration-targets-chinese-electronics-aerospace-and-machinery-goods-with-50-billion-in-tariffs/2018/04/03/9be42e5e-3786-11e8-9c0a-85d477d9a226_story.html?utm_term=.abd645cd5a92">those against China</a> – risk severe blowback, as when sanctions on Bombardier drove the Canadian plane manufacturer into the <a href="https://fivethirtyeight.com/features/trumps-trade-policies-keep-backfiring/">arms of Airbus</a>, Boeing’s top foreign rival. The <a href="http://www.independent.co.uk/sunpower-layoffs-job-losses-donald-trump-solar-panel-tariff-30-per-cent-a8233866.html">imposition of sanctions</a> on imports of solar panels is having <a href="https://www.politico.com/story/2017/09/22/solar-tariff-trump-china-trade-243021">a similar effect</a>, damaging American panel installers and encouraging foreign retaliation. China’s <a href="https://www.cnbc.com/2018/04/04/china-new-us-tariffs-including-soy-cars-and-chemicals.html">already-announced</a> retaliatory tariffs could be just the beginning. </p>
<h2>Trade needs a champion</h2>
<p>President Trump assumes the U.S. can act unilaterally without consequences. </p>
<p>Economic history shows this doesn’t work. The world’s economies are far more interdependent than they were during the Great Depression, so the impact of governments all following a “my country first” trade policy – as the president said <a href="http://www.eaglenews.ph/trump-says-us-wont-tolerate-other-countries-unfair-trade-practices-anymore-to-protect-america-first/">he expected world leaders to do</a> – could have disastrous consequences. </p>
<p>Today, the international trade system the U.S. helped create, one based on open markets and classically liberal principles, is <a href="https://www.brookings.edu/research/the-twilight-of-the-liberal-world-order/">under threat</a> as never before. Yet President Trump’s “America First” approach is a total abdication of the traditional U.S. role as its defender. And in fact, the president is doing his best to <a href="https://www.nytimes.com/2017/10/31/business/economy/trump-trade.html?_r=0">undermine that system</a>. </p>
<p>In my final analysis, the Trump administration is reverting to a policy that is, I would argue, dangerous for the U.S. economy and for the international system. </p>
<p>If the U.S. abdicates as champion of the international trading system, China may be the only country that can take the reins. The question is, what would that mean for the current system of open and free markets?</p>
<p><em>This article was updated on April 4 with new details about trade tariffs.</em></p><img src="https://counter.theconversation.com/content/92715/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Charles Hankla does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The president’s tariffs on steel and China mirror the misguided trade policies that helped precipitate the Great Depression.Charles Hankla, Associate Professor of Political Science, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/874812017-12-21T11:12:43Z2017-12-21T11:12:43ZBetter ways to foster solar innovation and save jobs<figure><img src="https://images.theconversation.com/files/199324/original/file-20171214-27597-65ltw6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Most of the growing number of jobs in the solar industry have more to do with maintaining and installing panels than manufacturing them.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/filter-tone-electrician-working-on-checking-513147361">only_kim/Shutterstock.com</a></span></figcaption></figure><p>The U.S. solar industry is nervously awaiting President Donald Trump’s decision whether to impose punitive duties on <a href="https://theconversation.com/how-trump-could-undermine-the-us-solar-boom-82038">imported solar panels</a> and related equipment or even restrict some of those imports altogether. It could come any day between now and <a href="https://www.pv-magazine.com/2017/12/01/request-pushes-back-deadline-for-us-solar-tariff-decision/">late January</a>.</p>
<p>This is the final stage of a process that began when two U.S. subsidiaries of foreign solar panel makers filed a rarely used kind of <a href="https://www.usitc.gov/press_room/us_safeguard.htm">trade complaint</a> with the International Trade Commission. The independent U.S. agency has <a href="https://www.usitc.gov/press_room/documents/solar201_remedy_commissionerstatements.pdf">recommended</a> a course of action officially intended to protect domestic manufacturers from unfair competition. </p>
<p>But far from protecting U.S. interests, the tariffs would stifle the current solar boom, destroying American jobs and dragging down clean energy innovation. As economists who research <a href="https://link.springer.com/article/10.1007/s10584-014-1321-y">climate and energy</a> policies that can foster a <a href="http://www.utpjournals.press/doi/abs/10.3138/cpp.2015-017">greener North American economy</a>, we argue the government should instead create targeted subsidies that support innovation and lower costs across the supply chain. This approach would do a better job of helping the U.S. industry fend off foreign competition without harming the industry itself.</p>
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<h2>A booming industry</h2>
<p>The U.S. solar industry has enjoyed unprecedented growth in recent years, thanks to the rapidly declining cost to install solar systems and <a href="https://www.seia.org/initiatives/solar-investment-tax-credit-itc">tax breaks</a> for homeowners, businesses and utilities that have expanded demand but are being <a href="https://news.energysage.com/congress-extends-the-solar-tax-credit/">phased out</a>. Prices have plunged to roughly US$1.50 per watt from around $6 in 2010 due to both <a href="https://news.energysage.com/solar-panel-technology-advances-solar-energy/">innovation</a> that made it less expensive to make panels anywhere and <a href="https://www.nrel.gov/docs/fy17osti/68925.pdf">cheap imports</a>. </p>
<p>In 2016, <a href="https://www.greentechmedia.com/articles/read/5-ways-to-encourage-us-solar-manufacturing-without-import-duties#gs.0fzsSkI">87 percent</a> of U.S. solar installations used foreign-produced panels, also known as modules, primarily from China.</p>
<p>The <a href="https://www.worldenergy.org/wp-content/uploads/2017/03/WEResources_Solar_2016.pdf">rapid decline</a> in solar panel costs has been driven by <a href="http://www.sciencedirect.com/science/article/pii/S1364032114009976">policies</a> in <a href="https://www.scientificamerican.com/article/why-china-is-dominating-the-solar-industry/">China</a> and elsewhere intended to expand domestic manufacturing of these products.</p>
<p>The problem is not unique. Other countries dependent on cheap solar imports, including Germany and Canada, are also grappling with how to sustain the solar boom while <a href="http://www.mitpressjournals.org/doi/full/10.1162/GLEP_a_00255">protecting</a> their own domestic manufacturers from unfair foreign competition.</p>
<p>The trade commission sent Trump its recommendations on Nov. 13, giving him <a href="https://pv-magazine-usa.com/2017/11/13/the-clock-ticks-itc-turns-section-201-over-to-president-trump/">until Jan. 13</a> to accept or reject its guidance. Later, U.S. Trade Representative <a href="https://d12v9rtnomnebu.cloudfront.net/paychek/1243576-629905.pdf">Robert Lighthizer</a> asked the agency to draft a “supplemental” report, effectively extending the president’s deadline for setting the tariffs to Jan. 26.</p>
<p>The request, observers surmise, could signal that the administration is concerned about the this case’s potential to spiral into a broader <a href="https://www.bloomberg.com/news/articles/2017-11-29/trump-seeks-more-detail-on-solar-imports-before-setting-tariffs">trade dispute</a> with China and other major U.S. trading partners.</p>
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<h2>Solar job growth</h2>
<p>Solar job growth took off in 2010. By 2016, <a href="http://www.politifact.com/illinois/statements/2017/apr/25/brad-schneider/are-there-three-times-many-solar-energy-jobs-coal-/">more than 260,000 Americans</a> worked in the industry, up from fewer than 95,000 seven years earlier.</p>
<p>An uninterrupted solar boom would create even more jobs. The number of solar panel installers, for example, would more than double from <a href="https://www.bls.gov/ooh/fastest-growing.htm">11,300 to 23,000</a> within 10 years at the current pace of growth, which would make it the fastest-growing profession, according to the Bureau of Labor Statistics. Another renewable energy mainstay, <a href="http://www.wbur.org/hereandnow/2017/01/31/wind-turbine-technician">wind turbine technician</a>, came in a close second. </p>
<p>Imposing tariffs on imported panels would cloud that outlook, largely because
<a href="https://www.qualityinfo.org/-/careers-in-solar-power-manufacturing-and-installation">manufacturing</a> accounts for <a href="https://www.solarstates.org/#states/solar-jobs/2016">less than 15 percent of U.S. solar jobs</a> while installation amounts to more than half of them, according to the Solar Foundation’s annual census. If panels get more expensive, the cost to go solar will rise and demand will fall – along with the impetus to employ so many installers.</p>
<p>The Solar Energy Industries Association, a trade group that represents many companies in the industry and opposes the duties, <a href="https://www.greentechmedia.com/articles/read/88000-solar-jobs-are-under-threat-from-sunivas-trade-case-says-sei#gs.=Eash0U">estimates</a> that imposing them could double solar prices and <a href="https://www.seia.org/news/solar-energy-advocates-manufacturers-installers-testify-washington-against-trade-petition">cost the industry 88,000 jobs</a>. </p>
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<h2>Smarter subsidies</h2>
<p>Despite the robust growth in wind and solar employment and its official support for an “<a href="https://www.utilitydive.com/news/energy-week-perry-touts-all-of-the-above-strategy-in-push-for-energy-domi/446052/">all of the above</a>” energy policy that combines fossil fuels, nuclear power, biofuels and renewable energy alternatives like wind and solar, the Trump administration has sought to slash support for alternative energy through the <a href="http://money.cnn.com/2017/06/08/investing/renewable-energy-trump-budget-cuts/index.html">federal budget</a>.</p>
<p>We agree that the government should encourage solar panel manufacturing within the nation’s borders. But there are better ways to support this important priority than by raising prices on imported equipment through punitive tariffs.</p>
<p><a href="http://pubs.rsc.org/en/Content/ArticleLanding/2013/EE/c3ee40701b#!divAbstract">China’s edge</a> in solar panel manufacturing – apart from low wages – is driven by scale and supply-chain development, spurred by cost inducements like low-interest loans, technology development assistance and cheap land. Other newly industrialized countries like <a href="http://www.sciencedirect.com/science/article/pii/S0305750X1730102X">South Korea and Taiwan</a> have followed China’s lead by fostering their own solar manufacturing bases with targeted subsidies.</p>
<p>We believe the U.S. should follow suit. In addition to directing subsidies to reduce the costs of the <a href="https://www.greentechmedia.com/articles/read/5-ways-to-encourage-us-solar-manufacturing-without-import-duties#gs.0fzsSkI">solar supply chain</a>, the government should also increase subsidies for private research and development for green innovation. Currently, <a href="http://www.sciencedirect.com/science/article/pii/S1364032114000410">federal</a> financing for private solar R&D lags far behind levels seen in China and the European Union. </p>
<p>These subsidies could be <a href="https://www.nytimes.com/2014/12/17/business/energy-environment/-us-imposes-steep-tariffs-on-chinese-solar-panels.html">funded by</a> the tariffs the government is already collecting on solar panels imported from China and elsewhere.</p>
<p>If the U.S. government deems that additional restrictions are required, then it makes sense to follow a <a href="https://www.usitc.gov/press_room/documents/solar201_remedy_commissionerstatements.pdf">separate recommendation</a> to freeze solar panel imports at 2016 market share levels. The government should then auction off the rights to import foreign solar panels to U.S. installers. </p>
<p>The government could spend the proceeds from these auctioned import licenses on domestic innovation and other efforts to cut supply chain costs for U.S. manufacturers of solar panels and related equipment. </p>
<p>While World Trade Organization rules limit the use of <a href="https://surface.syr.edu/jilc/vol42/iss1/3/">subsidies</a> that explicitly promote a country’s exports in global markets, the ones we are proposing would likely be WTO-compliant.</p>
<p>This is because their aim is to make the U.S. solar industry more competitive within the domestic market, given the government’s earlier findings that cheap imported panels are <a href="https://www.reuters.com/article/us-usa-trade-solar/u-s-sets-anti-dumping-duties-on-solar-imports-from-china-taiwan-idUSKBN0FU29D20140725">being dumped</a> – sold too cheaply – here.</p>
<h2>Why make an exception</h2>
<p>Like most economists, we believe that <a href="http://www.utpjournals.press/doi/abs/10.3138/cpp.2015-017">subsidies should be avoided</a> except in special circumstances. Here are three reasons why this industry is an exception.</p>
<p>First, when one nation subsidizes solar panel production and exports those panels, it makes it cheaper to go solar in other countries, effectively cutting the cost of implementing climate policies abroad.</p>
<p>Second, when solar energy replaces fossil fuels in one place, the declining carbon emissions benefit people around the globe. Climate change, after all, affects the entire world. </p>
<p>Third, <a href="https://academic.oup.com/oxrep/article/30/3/469/549542">R&D investments</a> made in any one economy eventually add to the global knowledge base. Improving solar technology will ultimately benefit the entire industry worldwide. </p>
<p>The proposed tariffs the Trump administration is considering will yield none of these benefits. In fact, they could instigate a trade war over clean energy products with our trading partners globally.</p>
<p>That is why we believe that the smarter subsidies we are proposing are a better way to sustain the U.S. solar industry and protect jobs.</p><img src="https://counter.theconversation.com/content/87481/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Trump administration can boost domestic solar panel manufacturing without slapping duties on all imports.Edward Barbier, Professor of Economics, Colorado State UniversityTerry Iverson, Associate Professor of Economics, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/845562017-09-22T19:53:25Z2017-09-22T19:53:25ZChina’s leverage over ‘Rocket Man’ is key to avoiding nuclear war in East Asia<p>U.S. President Donald Trump and North Korean leader Kim Jong-Un are playing a dangerous game of brinkmanship while also trading personal insults.</p>
<p>Most recently, Trump <a href="https://www.nytimes.com/2017/09/19/world/trump-un-north-korea-iran.html?_r=0">blasted the “Rocket Man”</a> in his inaugural speech to the United Nations, promising to “totally destroy” North Korea if it threatens the U.S. or its allies. The Trump Administration also <a href="http://www.independent.co.uk/news/world/americas/us-politics/north-korea-sanctions-trump-china-banks-announcement-latest-a7960106.html">added new sanctions</a> aimed at strangling its ability to work with banks. </p>
<p>Kim, for his part, <a href="http://www.cnn.com/2017/09/22/asia/north-korea-dotard/index.html">resorted to calling</a> Trump “mentally deranged” and a “dotard,” while his foreign minister <a href="http://www.npr.org/sections/thetwo-way/2017/09/22/552861261/north-korea-says-pacific-test-of-nuclear-warhead-is-possible">threatened to test</a> a hydrogen bomb in the Pacific. </p>
<p>With <a href="http://www.foxnews.com/world/2017/08/08/north-korea-trump-ratchet-up-tension-with-threats-fire-hours-apart.html">tensions escalating</a>, it is important to be realistic about how we can get out of this mess. </p>
<p>In short, any nonmilitary solution will rely on China choosing to apply its massive economic leverage over the North Korean regime. In a positive sign, <a href="http://www.npr.org/2017/09/21/552708231/china-cuts-off-bank-business-with-north-korea-as-trump-announces-new-sanctions">China’s central bank recently told Chinese financial companies</a> to stop doing business with North Korea.</p>
<p>Overall, however, it appears that China has increased its trade with North Korea in recent years while doing fairly little to forestall North Korea’s nuclear ambitions. China’s foremost objective seems to be promoting greater stability from its volatile neighbor, in part because it fears being faced with a massive humanitarian crisis should the regime collapse.</p>
<p>But while the <a href="https://www.washingtonpost.com/news/worldviews/wp/2017/07/05/the-messy-data-behind-chinas-growing-trade-with-north-korea/?utm_term=.41435ab3f758">poor quality of the data</a> hinders a detailed analysis, a quick look shows just how much leverage China has, if it wishes to use it. </p>
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<h2>North Korea’s primary patron</h2>
<p>In general, exports from one country to another <a href="http://www.cepii.fr/pdf_pub/wp/2013/wp2013-27.pdf">can be mostly explained</a> by the distance between them and the sizes of their markets, a pattern that holds for China and North Korea.</p>
<p>Geographically, they share a long border, which makes China a natural, though not inevitable, partner for trade. As a case in point, North Korea also shares a long border with South Korea, but these countries have almost no trade between them. In addition, North Korea shares a small border with Russia, with whom it has little, though ever-increasing, trade. </p>
<p>China’s large market, proximity and – most importantly – willingness to trade with North Korea has led to a situation in which North Korea has become highly dependent on trade with what has become its primary patron. <a href="http://atlas.media.mit.edu/en/profile/country/prk/">About half</a> of North Korean exports and imports go directly to and from China and most of the rest of its trade is handled indirectly by Chinese middlemen. </p>
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<p>North Korea’s dependence on its neighbor has grown alongside China’s increasing economic dominance of East Asia, which gained momentum 15 years ago when China <a href="https://www.wto.org/english/thewto_e/countries_e/china_e.htm">joined the World Trade Organization</a>. Since then, both Chinese gross domestic product as well as its annual trade with North Korea have increased nearly tenfold, to around <a href="http://data.worldbank.org/country/china">US$11 trillion</a> and <a href="http://atlas.media.mit.edu/en/profile/country/prk/">$6 billion</a>, respectively. </p>
<p>North Korea <a href="http://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/chn/prk/show/2015/">imports nearly everything</a> from China, from rubber tires to refined petroleum to pears, with no single category dominating. Meanwhile, <a href="http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/chn/prk/show/2015/">coal constitutes about 40 percent</a> of North Korean exports to China. </p>
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<h2>Time to use that leverage?</h2>
<p>However, recent events – such as the use of front companies by Chinese firms to <a href="http://www.reuters.com/article/us-northkorea-nuclear-usa-idUSKCN11W1SL">evade sanctions</a> imposed on North Korea and China’s <a href="http://english.chosun.com/site/data/html_dir/2017/01/05/2017010501412.html">reluctance to cut off</a> energy supplies to the country – have led to some uncertainty about the extent to which China is willing to use this economic leverage to rein in North Korea’s military ambitions. </p>
<p>On one hand, <a href="https://www.nytimes.com/2017/02/18/world/asia/north-korea-china-coal-imports-suspended.html">China previously claimed</a> to have stopped coal imports from North Korea as part of recent efforts to punish the regime for missile tests and the <a href="http://www.cnn.com/2017/02/20/asia/kim-jong-nam-death-timeline/index.html">suspected assassination of Kim Jong-nam</a>, the estranged half-brother of North Korean leader <a href="https://theconversation.com/what-makes-kim-jong-un-tick-77143">Kim Jong Un</a>. This was an important signal of China’s willingness to support U.S. concerns about the missile program since oil represents <a href="http://atlas.media.mit.edu/en/profile/country/prk/">about a third</a> ($930 million) of North Korea’s import revenue. </p>
<p>On the other hand, there is evidence that coal shipments in fact <a href="http://www.slate.com/blogs/the_slatest/2017/07/05/trump_tried_to_make_china_to_do_his_bidding_against_north_korea_and_is_shocked.html">never ceased</a>. And, in any case, China <a href="https://www.washingtonpost.com/news/worldviews/wp/2017/07/05/the-messy-data-behind-chinas-growing-trade-with-north-korea/?utm_term=.41435ab3f758">may have increased</a> its imports of iron ore from North Korea to offset the lost coal revenues. </p>
<p>This is consistent with the idea that China carefully considers the resources and revenue that are available to the North Korean regime at any moment, and uses trade as a lever to control them. In this way, China walks a fine line between providing too many resources, and thus allowing the regime to prosper, and not enough resources, such that North Korea is in danger of collapsing. Ultimately, trade may be used as a lever to do some light scolding, but China’s overwhelming concern is preventing North Korea’s collapse.</p>
<p>Further evidence that China has tight control over the North Korean economy comes from <a href="https://c4ads.org/reports/">a recent report</a> from <a href="https://c4ads.org">C4ADS</a>. The research group found close, and often common, ownership ties between most of the major Chinese companies who do business with North Korea. This suggests that trade with North Korea is highly centralized and thus easily controlled.</p>
<h2>Russia: North Korea’s other ‘friend’</h2>
<p>China is not the only country that North Korea trades with, though the others currently pale in comparison. Other top export destinations include India ($97.8 million), Pakistan ($43.1 million) and Burkina Faso ($32.8 million). In terms of imports, India ($108 million), Russia ($78.3 million) and Thailand ($73.8 million) currently sell the most to North Korea. </p>
<p>Russia in particular may soon complicate <a href="http://www.cbsnews.com/videos/nikki-haley-says-u-s-will-propose-tougher-sanctions-against-north-korea/">U.S. efforts to isolate the regime</a>. While still small, <a href="https://www.usatoday.com/story/news/world/2017/06/05/russia-boosts-trade-north-korea-china-cuts/102389824/">Russian trade with North Korea increased</a> 73 percent over the first two months of 2017 compared with the same period of the previous year. </p>
<p>But whereas China is legitimately worried that an economic crisis in North Korea could lead to a flood of refugees or all-out war, Russia likely sees engagement with North Korea in much simpler terms, namely as an additional way to gain geopolitical advantage relative to the U.S.</p>
<h2>A way out?</h2>
<p>Nearly all experts agree that there is no easy way to “solve” the North Korea problem. However, one plausible approach is to encourage South Korea and Japan to begin to develop nuclear weapons programs of their own, and to only discontinue these programs if China takes meaningful steps to use its trade with North Korea to reign in the regime. </p>
<p>Threatening to introduce new nuclear powers to the world is clearly risky, however stable and peaceful South Korea and Japan currently are. But China is highly averse to having these economic and political rivals acquire nuclear capabilities, as it would threaten China’s ongoing pursuit of regional control. In short, this is a sensitive pressure point that could be used to sway the Chinese leadership.</p>
<p>One way or another, China must become convinced that the costs of propping up the North Korean regime through trade are higher than the costs of an increased probability that the regime will collapse.</p>
<p><em>This is an updated version of <a href="https://theconversation.com/how-china-could-use-trade-to-force-north-korea-to-play-nice-with-the-west-80609">an article</a> originally published on July 6, 2017.</em></p><img src="https://counter.theconversation.com/content/84556/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Greg Wright does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The latest salvo of insults and threats between President Trump and North Korea’s Kim brought the region a little bit closer to war. China, North Korea’s closest trading partner, may be the only way out.Greg Wright, Assistant Professor of Economics, University of California, MercedLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/820382017-09-21T00:11:19Z2017-09-21T00:11:19ZHow Trump could undermine the US solar boom<p><a href="https://energy.gov/eere/sunshot/articles/2020-utility-scale-solar-goal-achieved">Tumbling prices</a> for solar energy have helped stoke demand among U.S. homeowners, businesses and utilities for electricity powered by the sun. But that could soon change.</p>
<p>President Donald Trump – whose proposed 2018 budget would <a href="https://www.washingtonpost.com/graphics/politics/trump-presidential-budget-2018-proposal">slash support</a> for alternative energy – will soon get a new opportunity to undermine the solar power market by imposing duties that could increase the cost of solar power high enough to <a href="https://static1.squarespace.com/static/5790d1efe58c624620780af3/t/599c2f2f579fb35b895cd2a3/1503407919563/Mounting+Manufacturers+Letter+in+Opposition+to+Petition+to+ITC.pdf">choke off the industry’s growth</a>.</p>
<p>As scholars of how public policies affect, and are affected by, energy, we have been studying how the solar industry is <a href="https://doi.org/10.1093/isq/sqw055">increasingly global</a>. We also research what this means for who wins and loses from the renewable energy revolution in the <a href="http://www.sciencedirect.com/science/article/pii/S0301421517301283">U.S.</a> and <a href="http://www.tandfonline.com/doi/full/10.1080/13563467.2017.1330878">Europe</a>.</p>
<p>We believe that imposing steep new duties on imported solar equipment would hurt the overall U.S. solar industry. That in turn could discourage choices that slow the pace of <a href="http://www.ren21.net/wp-content/uploads/2017/06/GSR2017_Highlights_FINAL.pdf">climate change</a>.</p>
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<h2>Trade complaints</h2>
<p>A bankrupt manufacturer has <a href="https://www.reuters.com/article/us-usa-trade-solar-insight/prospect-of-trump-tariff-casts-pall-over-u-s-solar-industry-idUSKBN1AA0BI">petitioned the Trump administration</a> to slap new <a href="https://www.greentechmedia.com/articles/read/a-guide-to-the-latest-solar-trade-case">duties</a> on imported crystalline silicon photovoltaic cells, the basic electricity-producing components of solar panels – along with imported panels, also known as modules.</p>
<p>This case follows earlier and narrower <a href="https://www.greentechmedia.com/articles/read/solarworld-wins-again-big-anti-dumping-tariffs-in-us-china-solar-panel-tra">complaints filed by SolarWorld</a>, a German solar manufacturer with a factory in Oregon, that Chinese companies were getting an unfair edge as a result of <a href="https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm">subsidies and dumping</a>. </p>
<p>Due to those cases, the U.S. has imposed duties on solar panels and their components imported from <a href="https://www.pv-magazine.com/2017/07/24/u-s-court-upholds-strict-scope-for-duties-on-chinese-taiwanese-imports/">China and Taiwan</a>. The punitive Chinese tariffs averaged 29.5 percent last year, <a href="https://www.greentechmedia.com/articles/read/solarworld-files-for-insolvency-citing-ongoing-price-erosion">according to the Greentech Media</a> research firm.</p>
<p>Suniva, a U.S. company that – oddly enough – is <a href="https://www.bloomberg.com/news/articles/2017-04-26/china-owned-u-s-solar-maker-seeks-u-s-tariffs-on-china-imports">majority-owned by a Chinese company</a>, lodged this complaint in April under a rarely activated <a href="https://legcounsel.house.gov/Comps/93-618.pdf">1974 Trade Act</a> provision called Section 201. <a href="https://www.solarworld-usa.com/newsroom/news-releases/news/2017/solarworld-americas-joins-section-201-trade-action">SolarWorld Americas</a> joined in a month later.</p>
<p>The key difference in this new case is that it will potentially lead to tariffs on all imported solar cells and panels, rather than specific kinds from particular countries.</p>
<p>Suniva’s petition calls on the Trump administration to set a 40-cent-per-watt duty on cells and a minimum 78-cent-watt price for panels.</p>
<p>Prior to the complaint, global prices for solar panels had fallen to <a href="https://www.bloomberg.com/news/articles/2017-04-26/china-owned-u-s-solar-maker-seeks-u-s-tariffs-on-china-imports">34 cents a watt</a>. </p>
<h2>Enormous progress</h2>
<p>This big increase in import duties could undermine the enormous progress the industry has made in cutting the cost of solar-generated electricity. The <a href="https://www.nrel.gov/docs/fy17osti/68925.pdf">National Renewable Energy Laboratory</a> finds that tumbling solar module prices contributed a lot to the 61 percent reduction in the cost of U.S. household solar power systems – typically located on rooftops – between 2010 and 2017.</p>
<p>The Solar Energy Industries Association, which represents the sector in the U.S., calculates a blended average price that takes residential, commercial and utility-scale systems into account. It finds prices fell more sharply, dropping by more than 73 percent during that period. </p>
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<p>Likewise, the <a href="https://energy.gov/eere/sunshot/articles/2020-utility-scale-solar-goal-achieved">Energy Department’s SunShot Initiative</a> declared in September that U.S. utility-scale solar systems were already generating electricity at the competitive rate of 6 cents per kilowatt-hour – three years ahead of the program’s ambitious target for 2020. Falling costs for solar panels played a big part in helping the industry hit this milestone ahead of time.</p>
<p>The International Trade Commission issued a preliminary finding on Sept. 22 that imported cells and panels are “<a href="https://www.usitc.gov/press_room/news_release/2017/er0922ll832.htm">substantial cause of serious injury, or threat of serious injury</a>” to domestic manufacturers. The independent, bipartisan U.S. agency will hold a hearing on <a href="http://www.utilitydive.com/news/breaking-itc-finds-injury-to-us-solar-manufacturers-sending-tariff-decisi/505602/">Oct. 3</a> to explore ways to respond.</p>
<p>Regardless of what remedies the commission recommends, the White House would get broad powers to increase the cost of imported solar cells and panels to at least <a href="https://pv-magazine-usa.com/2017/08/09/suniva-solarworld-claim-trade-protections-could-generate-114800-solar-jobs/">theoretically</a> protect Suniva.</p>
<h2>Jeopardizing jobs</h2>
<p>Imposing duties on imported solar equipment will not help the U.S. industry as a whole. Like most experts, we believe that the remedy sought in this case will make solar power more expensive for businesses and consumers, which will reduce its competitiveness against other sources of energy.</p>
<p>Imposing new import duties also ignores the fact that the U.S. solar industry <a href="https://www.thesolarfoundation.org/national/">employs an estimated 260,000 people</a> in installation, manufacturing, sales and other related activities, according to the Solar Foundation, but only a small fraction of these workers are involved in cell production. </p>
<p>Protecting certain manufacturers would thus come at the costs of harming other parts of the industry. The Solar Energy Industries Association, which opposes Suniva’s petition, <a href="http://www.seia.org/news/solar-industry-expects-loss-88000-jobs-us-next-year-if-government-rules-companys-favor-trade">estimates</a> that 88,000 jobs may be at risk. Steep duties could thus undermine the contribution solar power makes to the U.S. economy. </p>
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<h2>Solar globalization</h2>
<p>Along with ignoring the effects on jobs across the entire industry, the petition misses the <a href="https://academic.oup.com/isq/article-abstract/doi/10.1093/isq/sqw055/3813359/Globalizing-Solar-Global-Supply-Chains-and-Trade">bigger picture</a>. Cell and panel manufacturing composes a small part of a much larger industry that takes advantage of the global manufacturing base.</p>
<p>The rise of China as a solar manufacturing hub is an integral part of what has helped drive costs down for installation companies and consumers around the world. Lowering the cost of solar power systems makes solar energy more competitive against more carbon-intensive sources of electricity, including coal-fired power plants.</p>
<p>The growth of solar energy is one factor helping many U.S. states <a href="https://www.eia.gov/environment/emissions/state/analysis/">reduce their energy-related greenhouse gas emissions</a>.</p>
<p><a href="https://www.washingtonpost.com/news/monkey-cage/wp/2017/06/01/trump-says-goodbye-to-the-paris-climate-agreement-heres-what-that-means/">Experts disagree</a> about how much the Trump administration’s decision to withdraw from the Paris Agreement on climate change matters, particularly as states like California continue to work hard on reducing their <a href="https://www.arb.ca.gov/cc/inventory/inventory.htm">carbon footprints</a>.</p>
<p>But there is no debate over whether imposing duties on imported solar cells and panels would hinder the growth of renewable energy in the U.S. – reversing climate progress.</p>
<h2>Timeline and punishment</h2>
<p><a href="https://www.usitc.gov/press_room/us_safeguard.htm">Section 201 cases differ</a> from more standard trade complaints because they do not require a determination of unfair trade practices. They also open the door to broader trade restrictions to remedy the perceived problem in a given industry. </p>
<p>The <a href="https://energytradeaction.org/section-201-trade-case/">International Trade Commission</a> is expected to give the White House its recommendations by Nov. 13. Trump will probably <a href="https://www.usitc.gov/press_room/us_safeguard.htm">respond within 60 days</a>.</p>
<p>It took decades of research and investment to drive down the cost of solar power to the point where it is <a href="https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf">competitive with conventional</a> sources of electricity. Should these latest trade woes increase the cost of going solar, it would be likely to kill domestic jobs and slow progress toward cutting greenhouse gas emissions across the nation.</p>
<p><em>Editor’s note: This is an updated version of an article originally published on Sept. 20, 2017.</em></p><img src="https://counter.theconversation.com/content/82038/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonas Meckling receives funding from the Climate Works Foundation for research not discussed in this article. </span></em></p><p class="fine-print"><em><span>Llewelyn Hughes does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A trade spat could jack up the cost of going solar, killing jobs and obstructing efforts to do something about climate change.Llewelyn Hughes, Associate Professor of Public Policy, Australian National UniversityJonas Meckling, Assistant Professor of Energy and Environmental Policy, University of California, BerkeleyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/822572017-08-09T14:58:55Z2017-08-09T14:58:55ZChina is the key to avoiding nuclear ‘fire and fury’ in North Korea<figure><img src="https://images.theconversation.com/files/181557/original/file-20170809-26073-11t3vve.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The news of an exchange of threats between the U.S. and North Korea is reported in Tokyo on Aug. 9, 2017.</span> <span class="attribution"><span class="source">AP Photo/Shizuo Kambayashi</span></span></figcaption></figure><p>U.S. President Donald Trump and North Korean leader Kim Jong-Un are playing a dangerous game of brinkmanship.</p>
<p>North Korea got the world’s attention – and Trump’s – when it <a href="http://www.independent.co.uk/news/world/asia/north-korea-missile-icbm-pentagon-trump-not-seen-before-a7825541.html">successfully launched</a> an intercontinental ballistic missile for the first time on July 4. In response, the United Nations <a href="https://www.washingtonpost.com/world/national-security/un-imposes-new-sanctions-on-north-korea-following-missile-tests/2017/08/05/dc382962-7a29-11e7-8f39-eeb7d3a2d304_story.html">approved new economic sanctions</a> against North Korea which, predictably, inspired a bellicose response from the rogue regime. </p>
<p>Trump <a href="http://www.foxnews.com/world/2017/08/08/north-korea-trump-ratchet-up-tension-with-threats-fire-hours-apart.html">threatened</a> that further provocations will be met with “fire and fury and frankly power, the likes of which this world has never seen before.” </p>
<p>In response, North Korea issued a threat of its own – <a href="https://www.yahoo.com/news/north-korea-says-seriously-considering-plan-strike-guam-222757124.html">missile strikes</a> on the U.S. territory of Guam.</p>
<p>With tensions escalating, it is important to be realistic about how we can get out of this mess. </p>
<p>In short, any nonmilitary solution will rely on China choosing to apply its massive economic leverage over the North Korean regime. This is a point that Trump clearly recognizes. In July, he tweeted that Chinese trade with North Korea “<a href="https://twitter.com/realDonaldTrump/status/882560030884716544">rose 40 percent in the first quarter</a>,” highlighting China’s reluctance to punish North Korea for its pursuit of nuclear weapons. </p>
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<p>While the <a href="https://www.washingtonpost.com/news/worldviews/wp/2017/07/05/the-messy-data-behind-chinas-growing-trade-with-north-korea/?utm_term=.41435ab3f758">poor quality of the data</a> hinders a detailed analysis, Trump’s overall sentiment is correct. China has increased its trade with North Korea in recent years and done little to forestall North Korea’s nuclear ambitions besides backing the most recent round of U.N. sanctions. China’s foremost objective seems to be promoting greater stability from its volatile neighbor. </p>
<p>Yet a quick look at the data, however murky, shows just how much leverage China has, if it wishes to use it. </p>
<h2>North Korea’s primary patron</h2>
<p>In general, exports from one country to another <a href="http://www.cepii.fr/pdf_pub/wp/2013/wp2013-27.pdf">can be mostly explained</a> by the distance between them and the sizes of their markets, a pattern that holds for China and North Korea.</p>
<p>Geographically, they share a long border, which makes China a natural, though not inevitable, partner for trade. As a case in point, North Korea also shares a long border with South Korea, but these countries have almost no trade between them. In addition, North Korea shares a small border with Russia, with whom it has little, though ever-increasing, trade, as I discuss below. </p>
<p>China’s large market, proximity and – most importantly – willingness to trade with North Korea has led to a situation in which North Korea has become highly dependent on trade with what has become its primary patron. <a href="http://atlas.media.mit.edu/en/profile/country/prk/">About half</a> of North Korean exports and imports go directly to and from China and most of the rest of its trade is handled indirectly by Chinese middlemen. </p>
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<p>North Korea’s dependence on its neighbor has grown hand-in-hand with China’s increasing economic dominance of East Asia, which gained momentum 15 years ago when China <a href="https://www.wto.org/english/thewto_e/countries_e/china_e.htm">joined the World Trade Organization</a>. Since then, both Chinese gross domestic product as well as its annual trade with North Korea have increased nearly tenfold, to around <a href="http://data.worldbank.org/country/china">US$11 trillion</a> and <a href="http://atlas.media.mit.edu/en/profile/country/prk/">$6 billion</a>, respectively. </p>
<p>North Korea <a href="http://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/chn/prk/show/2015/">imports nearly everything</a> from China, from rubber tires to refined petroleum to pears, with no single category dominating. Meanwhile, <a href="http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/chn/prk/show/2015/">coal constitutes about 40 percent</a> of North Korean exports to China, followed by “non-knit men’s coats.” </p>
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<h2>Time to use that leverage?</h2>
<p>However, recent events – such as the use of front companies by Chinese firms to <a href="http://www.reuters.com/article/us-northkorea-nuclear-usa-idUSKCN11W1SL">evade sanctions</a> imposed on North Korea and China’s <a href="http://english.chosun.com/site/data/html_dir/2017/01/05/2017010501412.html">reluctance to cut off</a> energy supplies to the country – have led to some uncertainty about the extent to which China is willing to use this economic leverage to rein in North Korea’s military ambitions. </p>
<p>On one hand, <a href="https://www.nytimes.com/2017/02/18/world/asia/north-korea-china-coal-imports-suspended.html">China claims</a> that coal imports from North Korea have recently been stopped as part of an effort to punish the regime for recent missile tests and the <a href="http://www.cnn.com/2017/02/20/asia/kim-jong-nam-death-timeline/index.html">suspected assassination of Kim Jong-nam</a>, the estranged half-brother of North Korean leader <a href="https://theconversation.com/what-makes-kim-jong-un-tick-77143">Kim Jong Un</a>. If true, this would be an important signal of China’s willingness to support U.S. concerns about the missile program as it would represent a loss of <a href="http://atlas.media.mit.edu/en/profile/country/prk/">about a third</a> ($930 million) of North Korea’s import revenue. </p>
<p>However, there is evidence that coal shipments in fact <a href="http://www.slate.com/blogs/the_slatest/2017/07/05/trump_tried_to_make_china_to_do_his_bidding_against_north_korea_and_is_shocked.html">never ceased</a>. And, in any case, China <a href="https://www.washingtonpost.com/news/worldviews/wp/2017/07/05/the-messy-data-behind-chinas-growing-trade-with-north-korea/?utm_term=.41435ab3f758">may have dramatically increased</a> its imports of iron ore from North Korea to offset the lost coal revenues. </p>
<p>This is consistent with the idea that China carefully considers the resources and revenue that are available to the North Korean regime at any moment, and uses trade as a lever to control them. In this way, China walks a fine line between providing too many resources, and thus allowing the regime to prosper, and not enough resources, such that North Korea is in danger of collapsing. Ultimately, trade may be used as a lever to do some light scolding, but China’s overwhelming concern is preventing North Korea’s collapse.</p>
<p>Further evidence that China has tight control over the North Korean economy comes from <a href="https://c4ads.org/reports/">a recent report</a> from <a href="https://c4ads.org">C4ADS</a>. The research group found close, and often common, ownership ties between most of the major Chinese companies who do business with North Korea. This suggests that trade with North Korea is highly centralized and thus easily controlled.</p>
<h2>Russia: North Korea’s other ‘friend’</h2>
<p>China is not the only country that North Korea trades with, though the others currently pale in comparison. Other top export destinations include India ($97.8 million), Pakistan ($43.1 million) and Burkina Faso ($32.8 million). In terms of imports, India ($108 million), Russia ($78.3 million) and Thailand ($73.8 million) currently sell the most to North Korea. </p>
<p>Russia in particular may soon complicate <a href="http://www.cbsnews.com/videos/nikki-haley-says-u-s-will-propose-tougher-sanctions-against-north-korea/">U.S. efforts to isolate the regime</a>. While still small, <a href="https://www.usatoday.com/story/news/world/2017/06/05/russia-boosts-trade-north-korea-china-cuts/102389824/">Russian trade with North Korea increased</a> 73 percent over the first two months of 2017 compared with the same period of the previous year.</p>
<p>But whereas China is legitimately worried that an economic crisis in North Korea could lead to a flood of refugees or all-out war, Russia likely sees engagement with North Korea in much simpler terms, namely as an additional way to gain geopolitical advantage relative to the U.S.</p>
<h2>A way out?</h2>
<p>Nearly all experts agree that there is no easy way to “solve” the North Korea problem. However, one plausible approach is to encourage South Korea and Japan to begin to develop nuclear weapons programs of their own, and to only discontinue these programs if China takes meaningful steps to use its trade with North Korea to reign in the regime. </p>
<p>Threatening to introduce new nuclear powers to the world is clearly risky, however stable and peaceful South Korea and Japan currently are. But China is highly averse to having these economic and political rivals acquire nuclear capabilities, as it would threaten China’s ongoing pursuit of regional control. In short, this is a sensitive pressure point that could be used to sway the Chinese leadership.</p>
<p>One way or another, China must become convinced that the costs of propping up the North Korean regime through trade are higher than the costs of an increased probability that the regime will collapse.</p>
<p><em>This is an updated version of <a href="https://theconversation.com/how-china-could-use-trade-to-force-north-korea-to-play-nice-with-the-west-80609">an article</a> originally published on July 6, 2017.</em></p><img src="https://counter.theconversation.com/content/82257/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Greg Wright does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The most viable nonmilitary solution to the standoff with North Korea is to get China to apply pressure. But that’s not so easy.Greg Wright, Assistant Professor of Economics, University of California, MercedLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/810292017-07-27T20:16:55Z2017-07-27T20:16:55ZHow trade policies can support global efforts to curb climate change<figure><img src="https://images.theconversation.com/files/179729/original/file-20170726-23211-sgmupo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Eliminating trade barriers on green technologies could help countries to shift away from fossil fuels. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/download/success?src=VdfhR6HHNMN5nBj6wBkkVA-1-13">from www.shutterstock.com</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Climate change will have a big impact on the global economy as nations seek to adapt to a warmer world and adopt policies to keep global warming below two degrees. In the wake of the US withdrawal from the <a href="http://unfccc.int/paris_agreement/items/9485.php">Paris Agreement</a>, it is important that policies around trade and investment support national efforts to adapt to global warming while trying to curb it. Four issues stand out:</p>
<h2>1. Border tax adjustments</h2>
<p>Border tax adjustments, or BTAs, refer to import taxes on goods from countries where companies do not have to pay for their emissions. </p>
<p>This is highly controversial and problematic for practical reasons and difficult to reconcile with World Trade Organisation (WTO) compliance requirements. The arguments in favour rest on punishing free riders and protecting the competitiveness of national firms subject to climate change costs in their home country. Such taxes are also held up as a way of avoiding “carbon leakage” caused by production shifting to countries with more lax climate change policies.</p>
<p>The latter two arguments are similar to those that have been applied in the past to environmental protection regulations. The problem with them is that there is very poor empirical evidence for either <a href="http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=ECO/WKP(2016)6&docLanguage=En">competitiveness risk or for carbon leakage</a>.
They also rest on the assumption that combating climate change is always a net cost. This is being increasingly <a href="http://newclimateeconomy.report/2014/">challenged</a>. </p>
<p>The argument against BTAs centres on the potential of unilateral measures being used to coerce developing countries. The sensitivity of such measures is shown by the fact that, until very late in the negotiations of the Paris Agreement, developing countries insisted on including the following clause.</p>
<p>“Developed country parties shall not resort to any form of unilateral measures against goods and services from developing country parties on any grounds related to climate change.” </p>
<h2>2. Trade liberalisation in climate-friendly goods and services</h2>
<p><a href="https://www.wto.org/english/news_e/news16_e/envir_29jul16_e.htm">Eliminating trade barriers on solar panels</a> and other green technologies could help countries to shift away from fossil fuels. This is fully within the scope of the WTO and indeed the mandate of the <a href="https://www.wto.org/english/tratop_e/dda_e/dda_e.htm">current Doha trade round.</a> There are several work streams within the WTO covering <a href="https://www.wto.org/english/tratop_e/envir_e/envir_neg_serv_e.htm">this area</a>, though progress is slow. </p>
<h2>3.International carbon trading and offsets</h2>
<p>The <a href="http://unfccc.int/kyoto_protocol/items/2830.php">Kyoto Protocol</a> includes several mechanisms (<a href="http://unfccc.int/kyoto_protocol/mechanisms/clean_development_mechanism/items/2718.php">Clean Development Mechanism</a>, <a href="http://unfccc.int/kyoto_protocol/mechanisms/joint_implementation/items/1674.php">Joint Implementation and Emissions Trading</a>) that can be used by countries that have tabled a 2020 target (European countries and Australia). </p>
<p>International market mechanisms beyond 2020 have not yet been created under the Paris Agreement but its Article 6 foresees them. Such mechanisms are being developed bottom-up by groups of countries, which can make much faster progress than is possible within the <a href="http://unfccc.int/2860.php">United Nations Framework Convention on Climate Change</a> (UNFCCC). </p>
<p>However, any new mechanisms are likely to be linked in some way to the UNFCCC. There is no coverage of carbon trading under the WTO at present and there appears to be no appetite for bringing it within WTO disciplines.</p>
<h2>4. Compatibility of climate measures and trade rules</h2>
<p>One fear is that WTO rules will have a chilling effect on climate change measures such as subsidies, technical regulations or bans on certain products. However, Article 3.5 of the UNFCCC (which applies to the Paris Agreement as it does to the earlier Kyoto Protocol) is clear. </p>
<p>It uses WTO language to state that “measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade”. The UNFCCC, like the WTO, acknowledges the legitimate purpose of climate measures, including that they may involve restrictions on trade. </p>
<p>There is ample and growing WTO jurisprudence on measures taken for environmental purposes which confirms their legitimacy in WTO law. The jurisprudence is not static; it evolves with international thinking as expressed in treaties and less formal agreements. </p>
<p>Helpfully the WTO Treaty (1994) included an objective relating to protection and preservation of the environment that went further than the earlier General Agreement on Tariffs and Trade (GATT). This provision has already been used in interpretation by the highest WTO jurisdiction, the Appellate Body. </p>
<h2>Conclusions</h2>
<p>I expect that some carbon markets will develop amongst carbon clubs. Trading rules will be determined by those countries involved and will rest on the environmental integrity of the units traded. </p>
<p>Border tax adjustments (BTAs) are problematic. Some commentators have predicted a <a href="http://www.spiegel.de/international/business/the-threat-of-pollution-tariffs-economists-warn-of-a-climate-trade-war-a-668635.html">climate change trade war</a>, arguing that countries are vulnerable if their climate measures are seen as inadequate. </p>
<p>This is now an improbable scenario. Any attempt to impose BTAs against countries which have signed up to the Paris Agreement would face enormous practical difficulties. It would also risk undoing the international consensus. </p>
<p>Transparency, peer review and naming and shaming of countries with inadequate pledges (Nationally Determined Contribution or NDCs), or countries that fail to implement an adequate one, may prove more effective than any of these unilateral measures. Evidence from the climate change negotiations is that countries do care about their reputation. </p>
<p>A further resource to encourage countries to act would be carbon clubs, where countries wanting to accelerate their transition to a low-carbon economy would link their climate measures through a common carbon price via their <a href="https://theconversation.com/a-new-approach-to-emissions-trading-in-a-post-paris-climate-78746">emissions trading schemes</a>.</p>
<p>The threat of BTAs - clearly foreseen by major American companies after the <a href="http://money.cnn.com/2017/06/01/news/economy/us-trade-paris-climate-deal-tariffs/index.html">Trump Administration’s decision to leave the Paris Agreement</a> - may be a useful political lever to gain cooperation. But there are other ways of achieving similar ends. </p>
<p>One example is to require all goods, domestic or imported, to meet sustainability standards. This is potentially allowable under the WTO Technical Barriers to Trade agreement (TBT) as a type of processing and production method. But even if not, the existence of the Paris Agreement – a universal agreement with clear objectives and requirements on all parties to act on climate change – would be a useful reference in any dispute settlement proceedings.</p><img src="https://counter.theconversation.com/content/81029/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adrian Henry Macey receives funding from Victoria University of Wellington.
He is Board Chair of the New Zealand Centre for Global Studies</span></em></p>Climate change will have a big impact on the global economy, for better or worse. We explore four issues that bring climate and trade negotiations head to head.Adrian Henry Macey, Senior Associate, Institute for Governance and Policy Studies; Adjunct Professor, New Zealand Climate Change Research Institute. , Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/722892017-02-03T13:59:46Z2017-02-03T13:59:46ZHas Donald Trump really inspired the US stock market to new heights?<p>In the middle of the pomp of a presidential inauguration and the fervour of the mass protests that followed you might have heard the cheering of financial traders as the US benchmark stock index, the Dow Jones Industrial Average <a href="http://www.telegraph.co.uk/business/2017/01/25/ftse-100-jumps-7200-markets-reignite-trump-infrastructure-rally/">surged past 20,000 points</a> for the first time. This symbolic moment signals a hope among investors that Donald Trump’s pro-business policies will fuel the US economy. Other key markets, the S&P 500 and the tech-heavy Nasdaq also saw significant gains. </p>
<p>Since the arrival of Trump in the White House, both household and business <a href="https://www.bloomberg.com/news/articles/2017-01-10/u-s-small-business-optimism-index-surges-by-most-since-1980">sentiment indicators have risen</a>. Bloomberg analysis of small businesses and consumer confidence reports a <a href="https://www.bloomberg.com/news/articles/2017-01-10/u-s-small-business-optimism-index-surges-by-most-since-1980">substantial boost to optimism</a>. And Trump’s pledges on deregulation and tax reforms have been perceived as a step in the right direction by business. Both have been <a href="https://www.bloomberg.com/news/articles/2017-01-25/at-t-projects-growth-in-line-with-estimates-amid-video-shift">cheered by corporate leaders</a>, including Randall Stephenson, the CEO of telecoms giant AT&T, and JP Morgan boss Jamie Dimon.</p>
<p>The “Make America Great Again” slogan seemed to be resonating with the stock market fraternity; “America First” rhetoric pushing investor sentiment towards euphoric levels.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/155391/original/image-20170202-1641-1eao2vw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/155391/original/image-20170202-1641-1eao2vw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/155391/original/image-20170202-1641-1eao2vw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/155391/original/image-20170202-1641-1eao2vw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/155391/original/image-20170202-1641-1eao2vw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/155391/original/image-20170202-1641-1eao2vw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/155391/original/image-20170202-1641-1eao2vw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/155391/original/image-20170202-1641-1eao2vw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Cap and trade.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/gageskidmore/27149010964/in/photolist-Hn4M6W-97LuaK-9LPBnH-9M2DUT-9NJybd-9NGabs-tEsAP-3UN759-9NAqQe-dq54Yq-9NFVNX-6fSXcE-9NED8w-5vDSaf-9NBTQp-6fNE8x-6fSGWA-gB42MB-9NEdXe-6fSSyE-6fNEBM-5SBGXx-6fSNzy-9NC9uz-9NvNDw-6fNCrV-9NEKvf-6fNCoV-6fNDGX-6fNFPt-6fNEPP-6fNEGM-6fNCmz-6fSRFs-6fNDbM-6fSNFG-6fNBQr-9NCE48-iEicEt-6fSQGQ-6fNEmt-adZXHx-fTPiU-9NDgMs-9NvFDv-9b86ti-6fSHdG-6fSHgU-6fSHrC-6fNEVF">Gage Skidmore/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Obstacles, of course</h2>
<p>However, the excitement that has greeted a new, “pro-business” administration has many hurdles to clear. The first test comes in the form of <a href="https://theconversation.com/why-trumps-travel-ban-is-bad-for-business-72301">Trump’s tough stance on immigration</a> and the imposition of travel restrictions on seven, mainly Muslim countries. There has been widespread condemnation, from Canada, Germany, France, the UK and from within the US itself. US companies, notably auto companies which boast <a href="http://content.time.com/time/nation/article/0,8599,1865121,00.html">large numbers consumers and staff of Arab origin</a>, have largely stayed silent on the matter. Car makers during the height of the 20th century industrial boom, especially Ford, hired workers from Yemen and other parts of the Middle-East. This gave rise to a new Arab community around Ford’s factory <a href="http://michiganradio.org/post/what-explains-michigans-large-arab-american-community">in Highland Park, Michigan</a> that grew alongside the booming sector. </p>
<p>But some have been noisy in opposition, particularly tech firms. The CEOs of <a href="https://www.bloomberg.com/politics/articles/2017-01-31/washington-immigration-suit-cites-microsoft-amazon-com-workers">Google and Microsoft</a> have shared their dismay over the policy, while Amazon chief Jeff Bezos – concerned about the impact on staff around the world – is <a href="http://www.telegraph.co.uk/technology/2017/01/31/amazon-boss-jeff-bezos-mounts-legal-challenge-against-donald/">supported Washington state’s legal action</a> against the ruling.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/155393/original/image-20170202-1673-eak3zq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/155393/original/image-20170202-1673-eak3zq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/155393/original/image-20170202-1673-eak3zq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=466&fit=crop&dpr=1 600w, https://images.theconversation.com/files/155393/original/image-20170202-1673-eak3zq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=466&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/155393/original/image-20170202-1673-eak3zq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=466&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/155393/original/image-20170202-1673-eak3zq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=585&fit=crop&dpr=1 754w, https://images.theconversation.com/files/155393/original/image-20170202-1673-eak3zq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=585&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/155393/original/image-20170202-1673-eak3zq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=585&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">US stocks over the last month.</span>
<span class="attribution"><a class="source" href="https://www.google.co.uk/search?q=djia+chart+week&oq=djia+chart+week&aqs=chrome..69i57l2j69i60j69i61j69i65j69i60.4017j0j7&sourceid=chrome&ie=UTF-8">Google Finance</a></span>
</figcaption>
</figure>
<p>The impact of all this is uncertain, of course. But it is hard not to conclude that the outcry over Trump’s immigration position, and the challenge from the tech industry, has had an impact on market sentiment. The Dow Jones Industrial Average has since fallen back below the 20,000 level and <a href="https://www.google.co.uk/finance?q=INDEXDJX:.DJI">now sits at about 19,900</a> points. The political wrangle that followed, including the <a href="https://www.bloomberg.com/news/audio/2017-01-31/sally-yates-out-after-disagreement-with-trump-audio">firing of acting Attorney General Sally Yates</a> over the immigration order, also caused jitters in the market. </p>
<p>But let us assume for now that the Trump administration’s “business friendly” rhetoric helps to smooth over the shock: Wall Street won’t have to wait long before investor resolve is tested again. </p>
<h2>Trade offs</h2>
<p>This will likely come from Trump’s position on global trade. The president has been <a href="https://www.bloomberg.com/view/articles/2017-01-16/can-china-survive-a-trump-led-trade-attack">particularly contemptuous</a> of efforts by China and Japan to weaken their currencies to obtain an advantage over of the US. He directly <a href="https://www.bloomberg.com/view/articles/2017-01-16/can-china-survive-a-trump-led-trade-attack">criticised the Bank of Japan</a> for using aggressive monetary policy to devalue the Yen with the intention of boosting Japanese exports and substantially reducing the cost the imports. The difficulty for stock market traders lies in assessing the veracity and significance of the Trump’s interventionist approach to monetary policy, beyond its political propaganda. The US dollar saw a <a href="http://www.reuters.com/article/global-markets-idUSL1N1FK1I2">decline against the Yen</a> before recovering its ground. This indicates some nervousness perhaps, but most of all a lack of certainty. </p>
<p>There is more confidence over Trump’s oft-repeated commitment to reduce the budget and trade deficits, which <a href="http://federal-budget.insidegov.com/l/119/2016">stand at US$552 billion and US$45.2 billion</a>, respectively. He may yet take a leaf out of Japan and China’s monetary policy book. Devaluing the dollar, equal to the devaluation of the Yen, to encourage US exports would certainly address the trade deficit. </p>
<p>An interventionist approach is also on the cards. Trump has vowed, since being elected, to introduce import tariffs to curb what he views as exploitative imports from countries like China and Japan, which are destroying the <a href="http://federal-budget.insidegov.com/l/119/2016">US balance of payments</a>. Trump’s tough rhetoric gives US trading partners cause for concern. Haruhiko Kuroda, governor of the Bank of Japan, <a href="http://www.cnbc.com/2017/01/18/trumps-protectionist-trade-policy-could-be-a-concern-says-japans-kuroda.html">warned</a> that Trump’s protectionist measures could have a detrimental impact on international trade, which might lead to global economic deceleration. Whether the US can “win” in that environment is difficult to guess.</p>
<p>The Trump administration’s first week ebbed and flowed on investor confidence, public outcry and trade rhetoric. The Dow stock index record was a bright spot, but many testing times lie ahead. Hopes for growth-lifting stimulus, deregulation and tax reforms will have to battle with harsh realities of a divisive immigration policy and the potential for a contentious and unpredictable global trade war. Wall Street remains bullish – an avowedly business-friendly president is not to be sniffed at after all – but fingers will be hovering over the sell button if the Trump mantra starts to wobble.</p><img src="https://counter.theconversation.com/content/72289/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Hassaan Khan is the Deputy Head for Financial Research and Enterprise at Anglia Ruskin University. </span></em></p>Investors have given Donald Trump the thumbs up, so far, but trader sentiment can’t be guaranteed.Hassaan Khan, Deputy Head of Department (Accounting & Finance), Anglia Ruskin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/722432017-02-02T02:57:30Z2017-02-02T02:57:30ZTrump’s trade policy is more predictable and less isolationist than critics think<p>In his first full week in office, President Donald Trump unleashed a whirlwind of actions that have deep ramifications for U.S. trade. Although critics have labeled the actions “<a href="http://www.newsweek.com/donald-trump-united-nations-trade-nafta-tpp-549407">unpredictable</a>,” “<a href="http://www.nationalreview.com/article/444321/trumps-foreign-policy-isolationism-america-first-not-countrys-interest">isolationist</a>” and “<a href="http://www.nbcnews.com/politics/white-house/analysis-trump-s-america-first-vision-could-upend-postwar-consensus-n714741">chaotic</a>,” they provide an instructive outline of his new trade policy. </p>
<p>The president began the week by <a href="https://www.whitehouse.gov/the-press-office/2017/01/23/presidential-memorandum-regarding-withdrawal-united-states-trans-pacific">signing</a> a memorandum directing the United States’ withdrawal from the Trans-Pacific Partnership (TPP). Later in the week, he <a href="https://www.theguardian.com/commentisfree/2017/jan/27/the-guardian-view-on-the-trump-may-meeting-they-are-playing-with-fire">met</a> with British Prime Minister Theresa May to discuss greater bilateral cooperation, including a post-Brexit <a href="http://www.telegraph.co.uk/news/2017/01/22/theresa-may-donald-trump-hold-talks-trade-deal-cuts-tariffs/">trade deal</a>.</p>
<p>His new envoy to the United Nations, Nikki Haley, called for reform of that organization. She even issued a blunt <a href="http://www.cnn.com/2017/01/27/politics/haley-un-first-day/">warning</a>: “For those who don’t have our backs, we’re taking names.”</p>
<p>As if these developments were not complicated enough, President Trump <a href="https://www.whitehouse.gov/the-press-office/2017/01/27/executive-order-protecting-nation-foreign-terrorist-entry-united-states">signed</a> an executive order on Friday requiring the “<a href="http://www.cnn.com/2017/01/29/politics/donald-trump-executive-order-statement/">extreme vetting</a>” of citizens of seven Muslim majority countries seeking to enter the United States. The related <a href="https://theconversation.com/trumps-order-barring-refugees-flies-in-the-face-of-logic-and-humanity-72061">travel ban</a> sparked <a href="http://www.cnn.com/2017/01/29/politics/us-immigration-protests/">protests</a> at airports around the country.</p>
<p>While it still remains unclear how President Trump’s trade policy will evolve, his first full week has provided some good indications of what to expect in the next four years. The new policy is also more nuanced and consistent than his critics have given him credit for. </p>
<h2>Shift from multilateralism to bilateralism</h2>
<p>As shown by his handling of the TPP, the United Nations and Anglo-American relations, President Trump harbors a strong distrust of the existing multilateral system. This system covers not only the United Nations, the World Trade Organization (WTO) and the World Bank but also regional efforts such as the TPP, the Transatlantic Trade and Investment Partnership (TTIP) and the North American Free Trade Agreement (NAFTA).</p>
<p>This shift away from multilateralism is a major departure from the Obama administration. While President Barack Obama <a href="https://www.brookings.edu/research/mr-obama-goes-to-new-york-the-president-and-the-restoration-ofmultilateral-diplomacy/">went</a> out of his way to team up with other nations, President Trump wants none of this.</p>
<p>Instead, he prefers bilateral negotiations that will maximize the United States’ bargaining strengths, drawing on the country’s superpower status and 300-million-strong market. Such one-on-one negotiations will also ensure a dedicated focus on those core issues that are important to both sides.</p>
<p>Although some commentators and pundits may characterize this changing approach as isolationist, the <a href="https://www.whitehouse.gov/the-press-office/2017/01/23/presidential-memorandum-regarding-withdrawal-united-states-trans-pacific">presidential memorandum</a> concerning TPP withdrawal made it clear that the administration will continue to negotiate trade deals with other members of the partnership. Those deals will just have to be negotiated through the bilateral route.</p>
<h2>Preference for the ‘John Wayne’ approach</h2>
<p>Going hand in hand with a renewed emphasis on bilateral negotiations is the administration’s <a href="http://www.washingtontimes.com/news/2016/dec/6/donald-trump-rattles-us-businesses-with-twitter-th/">preference</a> for hard bargaining and ultimatums. Stemming from President Trump’s <a href="http://theowp.org/reports/the-problems-with-donald-trumps-foreign-policies/">penchant</a> for negotiation from strength, this preference will likely result in a lot of saber-rattling between the United States and its trading partners.</p>
<p>While the embrace of this “John Wayne” approach will undoubtedly make the United States unpopular within the international community, hardball tactics will enable the country to obtain more of its demands while offering fewer concessions. These tactics, in turn, will allow President Trump to keep his campaign promise of putting <a href="http://www.freep.com/story/opinion/columnists/brian-dickerson/2017/01/21/trump-america-first/96865480/">America first</a>.</p>
<p>At times, the administration will surely make missteps by overplaying its hand. For example, President Trump’s repeated insistence that Mexico will pay for his proposed border wall appears to have backfired after Mexican President Enrique Peña Nieto <a href="http://www.cnn.com/2017/01/25/politics/mexico-president-donald-trump-enrique-pena-nieto-border-wall/index.html">canceled</a> a previously scheduled face-to-face meeting. The two eventually <a href="http://www.usatoday.com/story/news/politics/2017/01/27/trump-speaks-mexico-president-after-meeting-cancelled/97139096/">settled</a> for a phone conversation.</p>
<p>For countries with complicated politics such as China and India, strong-arm tactics and hard bargaining could also complicate the negotiations. In these countries, things could easily get out of control with the <a href="https://www.nytimes.com/2016/12/15/world/asia/trump-taiwan-china.html">increasingly nationalistic</a> populace. </p>
<p>If the Chinese and Indian populace fails to get the correct signals and overreacts, their leaders may find their hands are tied, even if President Trump offers to provide follow-up private clarifications.</p>
<p>For China especially, such complications could arise if the administration <a href="http://www.forbes.com/sites/sarahsu/2016/11/14/how-far-can-trump-go-on-chinese-trade-policy">insists</a> on naming the country a currency manipulator and slapping its imports with a 45 percent tariff. Such <a href="http://fortune.com/2016/11/10/donald-trump-china-trade/">drastic measures</a> could not only lead to a mutually destructive <a href="http://www.vox.com/world/2016/11/22/13676356/trump-trade-war-china">trade war</a> but also undesirable <a href="http://www.reuters.com/article/us-usa-china-trade-idUSKBN13I2DO?il=0">WTO complaints</a> or even penalties against the United States.</p>
<h2>Reduced regional emphasis</h2>
<p>Under the Trump administration, trade deals are unlikely to be developed through a region-based approach, whether through the bilateral or multilateral route. Within Asia, for example, Cambodia and Laos are just not as important as Japan and South Korea.</p>
<p>Instead, the deals the administration negotiates are likely to be more opportunistic. They could emerge in Asia, Europe and the Middle East at the same time without the constraints imposed by a region-based trade policy.</p>
<p>This nongeographical yet ironically global approach stands in sharp contrast to the Obama administration’s “<a href="http://www.foreignpolicyi.org/content/obama-administrations-pivot-asia">pivot to Asia</a>.” President Obama was not only eager to <a href="https://www.washingtonpost.com/opinions/president-obama-the-tpp-would-let-america-not-china-lead-the-way-on-global-trade/2016/05/02/680540e4-0fd0-11e6-93ae-50921721165d_story.html?utm_term=.df3befdec1b8">rewrite</a> the trade rules for the Asia Pacific region, but he emphasized the region’s importance by <a href="http://www.cnn.com/2009/POLITICS/02/15/us.clinton.asia.trip/">sending</a> his first secretary of state, Hillary Clinton, to Asia on her first state visit.</p>
<p>For the Trump administration, it will still be interesting to see where newly confirmed Secretary of State Rex Tillerson will visit first. That trip, however, may not be as indicative of the administration’s policy focus as Secretary Clinton’s was.</p>
<h2>Trump’s trade policy takes shape</h2>
<p>The Trump administration’s new trade policy is still at its infancy. So it will continue to evolve. A raging debate concerning its expediency and sustainability will also continue, especially in this highly polarized post-election environment.</p>
<p>Nevertheless, this policy is not as “<a href="http://www.newsweek.com/donald-trump-united-nations-trade-nafta-tpp-549407">unpredictable</a>” and “<a href="http://www.nbcnews.com/politics/white-house/analysis-trump-s-america-first-vision-could-upend-postwar-consensus-n714741">chaotic</a>” as many critics have claimed. Instead, the policy is more nuanced and consistent. It can be traced back to not only the president’s campaign promises but also his early <a href="https://theconversation.com/america-has-never-been-truly-isolationist-and-trump-isnt-either-71689">open letters</a> in the mass media.</p>
<p>For those who strongly believe in the multilateral trading system, which dates back to the end of the Second World War, his policy will undoubtedly undermine the stability of this system. This policy could also lead to new tensions and confrontations in the international trade arena.</p>
<p>We will just have to wait and see as President Trump’s new trade policy slowly takes shape.</p><img src="https://counter.theconversation.com/content/72243/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter K. Yu does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Trade under Trump will mean more bilateral agreements, hard bargaining and ultimatums, a sharp departure from Obama’s multilateral, win-win approach.Peter K. Yu, Professor of Law and Co-Director of the Center for Law and Intellectual Property, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/670882016-10-19T14:54:58Z2016-10-19T14:54:58ZTrade can help poor countries cope with water shortages, and food security<figure><img src="https://images.theconversation.com/files/142140/original/image-20161018-16191-1m8zgw0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Intelligent trade policies needed to counter uneven distribution of water resources</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Many people believe that water shortages will threaten global food security. That is not true. The world is not short of <a href="https://www.oecd.org/governance/regional-policy/48885867.pdf">water</a>. Even with climate change, there will be enough to grow all the food needed by the 10 billion people expected to <a href="https://www.un.org/development/desa/en/news/population/2015-report.html">populate</a> the earth by 2050. Or even the 11 billion expected by the end of the 21st century. </p>
<p>But global food security will remain a massive challenge, and water provides us with a useful lens through which to view the problem. </p>
<p>An <a href="http://www.sciencedirect.com/science/article/pii/S095937801400137X">analysis</a> of the water challenges suggests that the real obstacles to greater food security are the uneven distribution of land, people, productive capital – and water. Bridging the gaps that arise because of this uneven distribution will remain the primary challenge. And trade policies must help not hinder this process.</p>
<p>Why this conclusion? In a recent <a href="http://www.ictsd.org/themes/environment/research/trade-and-water-how-might-trade-policy-contribute-to-sustainable-water">report</a> “Water and Trade”, we sought to understand how water contributes to, and is affected by, trade rules and practices. Specifically, we asked whether trade policy could help to resolve local water problems. Water is a very bulky low value commodity which cannot be easily distributed. So local differences in water availability highlight the larger distributional challenges.</p>
<p>We did not think that <a href="http://doc.utwente.nl/77179/">proposals</a> to restrict trade in goods from water-scarce countries would be effective or fair.</p>
<p>Environmental advocates have suggested that countries should meet externally imposed water efficiency standards if they want to export their produce. The most extreme proposal is to regulate the amount of water that a country can use to produce goods and services, so-called “virtual water”, and enforce such limits through trade regulations. We suggest that attempts to solve water problems through such trade processes would be unhelpful and unworkable.</p>
<h2>Cities taking up more water</h2>
<p>So what should be done? While there is no global water shortage, there are many local challenges. Many places will have to limit their use of water for food production so that they can supply the needs of cities and industries and protect the natural environment. </p>
<p>China is the most obvious example. Its economic growth has been accompanied by massive migration from countryside to cities and urban water demand for domestic and economic uses is soaring. Greater prosperity also drives demand for more and different foodstuffs, which in turn need more water. A choice has to be made between people in cities, farmers and the environment. Many other countries face similar challenges, albeit at a smaller scale.</p>
<p><a href="http://journals.rienner.com/doi/abs/10.5555/ggov.2008.14.4.503">Modelling work</a> has shown that food production in the dry north of China will fall as water is diverted to cities and industries. Some people will lose their livelihoods. Given its still rapidly growing economy, and low population growth, China will be able to offer them alternatives. This is not so easy in other countries with less diverse and dynamic economies.</p>
<p>If water shortages mean that food cannot be produced locally and there are no alternative sources of income, the logical response is for people to migrate elsewhere. It has already been suggested that current waves of migration from the Middle East, <a href="http://www.smithsonianmag.com/innovation/is-a-lack-of-water-to-blame-for-the-conflict-in-syria-72513729/?no-ist">Syria</a> in particular, were driven by conflict that was originally triggered by a long drought. </p>
<h2>Dealing with shortfalls</h2>
<p>Trade could help to solve this problem. Globally there is enough under-used land and water to produce more than enough food to meet the world’s needs. For a start, farmers in places like Argentina, Brazil, Canada and the US would be happy to produce and sell far more food than they do today. So the food needs of places with water (or land) stress could be met through trade. </p>
<p>This approach is attractive for countries that want to protect and expand their current agricultural markets. But it does not address the over-arching challenge which is to ensure that people in poorer countries can earn enough to afford the food (and other things) that they need.</p>
<p>How will farmers who have to give up their water to the cities make a living? What will happen in countries that need to import food but where many people are too poor to buy it? And critically, will countries trust the world’s trade system to provide reliable supplies in times of political stress and climatic unpredictability?</p>
<p>We concluded that trade has helped maintain food security in countries where water availability limits domestic production. This is exactly how the oil-rich countries of the <a href="http://www.rubincenter.org/meria/1998/03/allan.pdf">Middle East</a> have managed to overcome their natural resource constraints. Closer to home, the experience of South Africa and other Southern African Development Community (SADC) countries is that we import gains when drought cuts local production. </p>
<p>This shows that trade and investment in agriculture can help countries buffer the impact of climate variability and shocks, such as floods and droughts. It can also provide an important mechanism to offset climate change-induced production decreases and improve access to food. </p>
<p>But in some cases trade will make only a limited contribution to addressing water shortages. Countries with very large populations such as India and China will be concerned about the ability of global food trade to supply the huge quantities needed by their massive populations. </p>
<p>For poorer countries, including many in Africa, our other conclusion is that trade policies should help and not hinder people to improve their livelihoods from agriculture. Trade policy should encourage agricultural support mechanisms that help to achieve efficient and sustainable water use and offer livelihoods to poor people. Too often, they do the opposite. For example, subsidies to help Indian farmers improve their irrigation efficiency are technically illegal in terms of WTO rules.</p>
<p>Trade policy should also support the long-term efforts by African governments to attract investment aimed at increasing productivity of domestic agriculture, including greater water use efficiencies. Foreign investment in African agriculture is sometimes characterised as “<a href="https://www.ifad.org/documents/10180/c7d51222-fbf3-41d1-b72c-2df3912f9b41">land grabbing</a>”, prompting concerns that it will place additional <a href="http://www.water-alternatives.org/index.php/alldoc/articles/vol5/v5issue2/166-a5-2-2/file">stress</a> on local water resources. </p>
<p>But in many cases, external investment can enable under-utilised resources to be productively mobilised. This kind of investment has helped Kenya and Ethiopia become major exporters of cut flowers and fresh vegetables, reducing rural poverty. </p>
<p>So water and food security in poor countries will only be assured if overall trade policy supports people to use their land and water resources productively, efficiently and sustainbly. As we are already witnessing, if this does not happen, the world will continue to experience waves of desperate migration as well as environmental degradation.</p><img src="https://counter.theconversation.com/content/67088/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mike Muller received funding from the International Centre for Trade and Sustainable Development for this project. He has also received funding from a range of development finance agencies as well as the South African Water Research Commission.</span></em></p>Intelligent trade policies can help limit the threats, including food security, that come with an uneven distribution of water resources across the globe.Mike Muller, Visiting Adjunct Professor, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.