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What Trump means for US trade and globalisation

EPA/Ernesto Arias

What Trump means for US trade and globalisation

Trade was one of the cornerstones of Donald Trump’s campaign for the US presidency. And, as observers across the board scurry to make sense of what a Trump presidency will actually look like, it is likely to be an area of US foreign policy that will receive significant attention from the president-elect in the next four years.

Trump promised a radical trade agenda. He vowed to withdraw from the Trans-Pacific Partnership (TPP) trade deal, which has not yet been ratified, and renegotiate the North American Free Trade Association (NAFTA) – America’s trade deal with Canada and Mexico – “to protect US workers”. He pledged to aggressively challenge countries that violate international trade agreements and, in particular, bring cases against China for using unfair subsidies and currency manipulation.

In many ways, Trump’s tough stance is not too dissimilar to that adopted by the likes of Barack Obama and Hillary Clinton during their own presidential campaigns. Trade bashing is, in fact, a fairly well-established practice among US presidential candidates.

The difference this time, though, is that Trump may be a president who is actually willing to deliver on this rhetoric. Not necessarily because he actually opposes free trade, but because, unlike many promises made during his campaign, those relating to trade policy could be achieved with relative ease.

While repealing Obamacare or withdrawing from the Paris Climate Change Treaty would be politically contentious and involve lengthy and complex legislative processes, most of Trump’s trade policy proposals are bureaucratic in nature. With the exception of the renegotiation of NAFTA (which requires an agreement with Mexico and Canada), Trump’s trade policy is perfectly feasible.

The NAFTA agreement with Canada and Mexico will be hard to repeal. EPA/Daniel Aguilar

By far the most significant commitment would be a rejection of the TPP. The TPP, a free trade agreement which encompasses most Pacific Rim economies (but excludes China), ranks among an emerging group of large, regional trade agreements that are significant not just in terms of the size of the economies they represent, but also in terms of their geopolitical and economic importance. As well as TPP, these include the EU-US Transatlantic Trade and Investment Partnership, or TTIP, and the China-backed Regional Comprehensive Economic Partnership (RCEP), which would include ASEAN economies and India (but not the US).

These big regional trade agreements were designed by the US as tools to reassert US leadership in global economic governance by countering the growing influence of China and promoting US “rules of the road” on trade.

A no-brainer

Despite this, doing away with TPP would be a no-brainer for Trump. It would be fairly easy to achieve; the Obama administration has already confirmed that it won’t seek to push the agreement in the lame-duck session and, for Trump, once sworn in, it would simply be a matter of not putting it to a vote before Congress. Most importantly, it would also be a hugely and immediately popular move domestically.

Free trade – and the free trade agreements which promote it – have become politically toxic in Western liberal democracies. In the US, globalisation and free trade are blamed for job losses in the manufacturing sector and wage depression more generally. As a result, Trump had huge support in Rust Belt states, where (mostly white) blue-collar workers are a key constituent and tipped the balance of votes in his favour.

Trump won Rust Belt states like Ohio. dankeck/flickr

The assumption that putting an end to free trade will restore manufacturing jobs to these parts of America is to a large degree incorrect. But the presidential candidates did nothing to dispel them. To do so would be tantamount to electoral suicide.

And this phenomenon is not unique to the US. It can also be found in Europe, where there is mounting opposition to TTIP, but also the EU’s recent struggles to get its member states to sign off on CETA, the EU-Canada trade deal.

Reforming the fundamentals?

Opposition to trade agreements is not just a by-product of the populism that now pervades politics in the US and Europe and feeds off anti-globalist sentiment. It also taps into legitimate concerns about the continued relevance of free trade and the idea of an international trading system exclusively designed to promote economic liberalism – that is, to remove government constraints on economic operators and markets. Ironically, it is the US that has been one of economic liberalism’s biggest proponents since World War II.

But not everyone has evenly benefited from free trade and economic liberalisation. And so there are growing calls to manage the effects of globalisation. Some have called for the development of policies which would redistribute its costs by re-investing in areas which have lost out from globalisation. Others have advocated a shift in emphasis of trade agreements away from economic liberalisation and towards issues such as labour and environmental protection.

Of course, Trump does not propose to go that far. There is no sign of reforming the fundamentals of the international trading regime. Trump’s promise is far more basic. It is one based on a retreat from free trade with, perhaps, a dash of old-fashioned economic isolationism. That being so, Trump discarding the TPP in the short to medium-term is a fairly safe bet.

The irony is inescapable. The TPP was designed by the US specifically to counteract its waning influence in Asia and combat the rise of China. The TTIP was espoused as an essential tool to consolidate trade rules that reflect the US’s interests and values. And yet the likelihood is that both agreements may eventually be destroyed by a president whose entire sales pitch has been based on reasserting the US’s greatness on the global stage.

Meanwhile, China – which only decided to pursue its own big regional trade agreements as a response to the TPP – is on the verge of finalising its RECP pan-Asia-Pacific trade deal. This would represent around 40% of global GDP and would not only firmly cement its position of leadership in the region, but also strengthen its role as a rule-maker in the global trading system.

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