3 trade scenarios Trump may pursue to secure needed political win
© Getty Images

In the wake of the defeat of its efforts to "repeal and replace" Obamacare, the Trump administration finds itself desperate for a political and public relations win. Few topics proved more popular for Candidate Trump than his pledge to end “bad” trade deals and repatriate American jobs, so we anticipate significant effort on the trade front.

Like all first-term administrations, the Trump White House is quickly learning that it’s far easier to make sweeping promises in the heat of the campaign than it is to deliver on those promises under the cold lights of media scrutiny and congressional resistance. So, what will the administration’s trade policy look like? We see three plausible scenarios.

See You in Court!

The president likes to be seen as an aggressive, take-no-prisoners-style leader. This explains one reason he and his trade team love to talk tough about policing China on trade violations. The specifics of how that translates into trade policy is up for debate, but it’s likely that any administration position will start with stricter enforcement of existing trade laws.

ADVERTISEMENT

The Obama administration was a major, if underappreciated, enforcer of World Trade Organization (WTO) rules, bringing and winning a record number of cases, largely against China. Despite Obama’s unblemished string of wins, a litany of trade issues remain. No surprise then that cracking down on rule-breaking has been a key talking point for the president and his entire trade team.

 

Vastly harsher measures beyond enforcement have been proposed. Some believe that loud, aggressive actions directed toward key targets, such as China, could generate enough wins to allow the administration to declare victory.

These wins would likely take the form of bringing new WTO actions on hot-button issues like steel and aluminum dumping, formalizing complaints about unfair subsidies and illegitimate market access restrictions, all launched in the name of protecting American industries. 

The Art of the Deal

A second plausible trade scenario focuses on Trump as a dealmaker, whether that is North American Free Trade Agreement (NAFTA) renegotiation or paralleling Ronald Reagan’s 1985 Plaza Accord, which devalued the U.S. Dollar in relation to the Yen and Deutsche Mark, stimulating demand for American exports.

The president’s version could take the form of a bilateral deal with China, increasing market access and finding accommodations in some key areas of U.S. grievance. This would echo the “Voluntary Export Restrictions” that the Japanese government agreed to in the early 1980’s.

The administration could also pursue a “Grand Bargain” — maintaining the current trading framework, but negotiating concessions from partners to help equalize unsustainable trade imbalances.

This Means War

Negotiation is always possible, but threats of tariffs or withdrawal from treaties pose major risks to a fragile commercial peace. If not carefully managed, excessive application of U.S. leverage, resulting from overly aggressive tactics or locked positions, could easily provoke strong retaliation in the form of our final scenario, all-out trade war.

The administration has already threatened tariffs on China and withdrawal from NAFTA. Both China and Mexico have explicitly signaled their readiness to retaliate, setting the stage for a major trade war that will threaten politically-sensitive companies and industries, as well as neutral nations.

Whether the current rhetoric ultimately leads to détente, or eviscerates the existing dispute, settlement processes are unclear.

Conclusion

Tax reform is the next item on the Trump administration’s to-do list.  If “reform” includes the controversial border adjustment tax, then WTO disputes — and howling complaints from retailers crippled by such a tax — could occupy the entire trade agenda for the remainder of the term.

So, which of the three scenarios is most likely? Any plausible trade scenario is probably grounded in elements of our first scenario, specifically, tough talk and testing whether the WTO can be effective.

If things become more contentious and major policies change, the threat of a trade war is likely to be the main stick used for forcing a favorable deal. Whether or not we actually end up in a trade war will ultimately be decided by how successfully Trump can navigate the complex world of international negotiations.

Reach for your lifejackets, we may be heading out into rough waters.

 

Jim Singer is a partner and board of directors member at management consulting firm A.T. Kearney. Jim is based in New York City and can be reached at jim.singer@atkearney.com. Johan Gott is a principal in A.T. Kearney’s Private Equity/ Mergers & Acquisitions practice. Johan is based in Washington, D.C. and can be reached at johan.gott@atkearney.com


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