Economy & Budget

The paradoxes and pitfalls of Trump’s trade agenda

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Whether President Trump’s trade policy can deliver on his stated goals of reducing the U.S. trade deficit and creating American jobs remains to be seen. Whether he can build congressional support for his trade agenda is also uncertain.

Many congressional Republicans support the status quo. Many congressional Democrats oppose pacts like the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP). But the trade policy alternatives that Democrats have demanded for decades do not align with Trump’s nationalist, protectionist vision.

In this context, it’s worth considering Trump’s first days. He took horrifyingly overreaching actions on immigration, but did not employ authority he actually has over the trade issues that propelled him to victory in Michigan, Ohio, Pennsylvania and Wisconsin, and thus into the White House.

He did not deliver on a prominent “first-day” promised action—declaring China a currency manipulator. China accounts for $367 billion, or about half, of the massive U.S. trade deficit.

Despite the “buy American, hire American” slogan featured during and since Trump’s inaugural speech, also notably missing was an executive order reversing the waiver of Buy American policies provided by past presidents.

{mosads}The waiver affords favored access to U.S. government contracts for all firms and goods from 45 World Trade Organization (WTO) nations and 16 additional U.S. free trade agreement (FTA) partner countries. By undermining the Buy American preferences for government purchase of U.S.-made goods in place since the Roosevelt administration, this policy offshores U.S. tax dollars rather than reinvesting them to create manufacturing jobs here.


Shockingly, last week’s executive order ostensibly requiring U.S.-made pipe to be used in all pipelines projects actually includes language reinforcing this trade-agreement Buy American waiver.

Trump did follow through on formally withdrawing from TPP. But burying the moldering corpse of a dead deal that couldn’t gain a majority in Congress since it was signed a year ago despite the Obama administration’s best efforts does not create jobs or reduce the deficit.

What Trump does with the live agreements he inherited, most notably the U.S.-China Bilateral Investment Treaty (BIT), will be telling. The Obama administration failed to quite finalize that deal, but at its heart are the investor protections found in NAFTA and included in TPP that make it easier for U.S. firms to offshore jobs.

The pact also grants new rights for Chinese firms to acquire U.S. companies, land and more, and operate them under privileged terms. It would also empower Chinese firms operating here to sue the U.S. government outside of our court system to demand taxpayer compensation via the controversial investor-state dispute settlement regime Trump says he opposes.

Given the pact’s terms and China’s role as a top target of Trump trade wrath, the absence of a first-week executive order terminating these negotiations was conspicuous.

More so given the other major trade negotiations Trump inherited, both of the multi-country variety Trump opposes, seem fated to end. The Transatlantic Trade and Investment Partnership (TTIP) already was all but derailed by European public opposition.

And if continued, the Trade in Services Agreement (TISA) would become Exhibit #1 of Trump self-dealing after refusing to divest his business holdings. There are Trump investments in many countries involved in TISA, which deregulates the real estate, construction, property management, retail, and finance sectors.

Meanwhile, Trump missed the Jan. 30 deadline to give Congress the notice needed to start NAFTA renegotiations within his first 100 days, as promised. Regardless, revisiting NAFTA  could be an opportunity to create a new trade pact model that benefits more people. Given it’s packed with incentives for job offshoring, NAFTA must be replaced, not tweaked.

If done wrong, renegotiations could increase job offshoring and our current $169 billion NAFTA goods trade deficit, push down wages, and expand the protections NAFTA provides to the corporate interests that shaped the original deal. This bad outcome is likely if the 500 official U.S. trade advisers representing corporate interests who have called the shots on past trade deals remain in place and talks occur behind closed doors without opportunities for the public to weigh in.

There are many possible pitfalls. Commerce secretary nominee Wilbur Ross says the administration will increase the amount of North American content that must be in goods to earn NAFTA benefits. But doing so without adding terms that raise Mexico’s wages—now 40 percent below labor costs in China—would likely trigger another wave of American job offshoring.

And the corporate interests that have rigged past trade deals view NAFTA renegotiation as a means to revive elements of TPP, including limits on competition from generic drugs so pharmaceutical firms can keep medicine prices high.

Starting with a clean slate and creating a new deal designed to deliver the desired outcomes is the best policy approach. It’s also how to avoid having a deal, like TPP,  that cannot get through Congress.

Even given the grand irony that Trump is the beneficiary of the fast-track authority narrowly delivered by GOP congressional leaders who oppose his trade agenda, enacting a NAFTA replacement will require House and Senate majorities.

And replacing NAFTA and rebalancing China trade will be vital to improving the relentless monthly U.S. trade deficit and jobs data that will show if Trump’s trade policies deliver.

Lori Wallach is the director of Global Trade Watch at Public Citizen.

The views of contributors are their own and are not the views of The Hill.

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