Take the long view: Trump's trade plan a rough deal for America
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U.S. Founding Father Benjamin Franklin once said “No nation was ever ruined by trade.”  President Donald J. Trump seems determined to prove Franklin wrong. In an April 29, 2017, Executive Order, Trump directed the Commerce Department and the Office of the U.S. Trade Representative to review all of America’s recent trade agreements.  He wants trade officials to determine if America is being treated “fairly” by it trade partners.

The Executive Order (EO) states that the president believes that trade agreements “must increase economic growth, contribute to the balance of trade, and strengthen the manufacturing base.” These agreements are not fair if they harm “American workers and domestic manufacturers, farmers, and ranchers” or fail to “protect our intellectual property; and encourage domestic research and development.”    

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The executive order is troubling for many reasons. First, Trump seems to believe that while our trade partners have many beneficiaries, few Americans benefit from trade agreement rules. But trade and trade agreements can bring both positive and negative effects upon American firms, producers, consumers, taxpayers, shareholders and citizens.  Moreover, because markets, technologies, and governance change over time, the effects of trade and trade agreements will also evolve. Yet the EO never mentions these facts.

 

Secondly, the Trump administration will rely on only one metric for determining “fairness” — the yearly trade deficit between the U.S. and a particular trade partner. However, trade deficit is not a useful tool to determine the multiple effects of a trade agreement(s) upon Americans or the many sectors in the U.S. economy.  The trade deficit generally moves in lockstep with net national borrowing, a measure of all the borrowing done annually by the U.S. government, companies and individuals minus the amount saved by these actors.  Moreover, trade deficits tell us nothing about whether a trade agreement’s provisions are fair.

Thirdly, with this executive order Trump is telling citizens, executives, and policymakers from other countries that he not only distrusts these agreements, he distrusts these individuals because he presumes they are acting in ways that are unfair to Americans.  He cites no evidence to make such claims. Moreover, should his administration determine that an agreement needs re-negotiation, Trump will struggle to regain other countries’ trust, because he has labeled them “unfair.”  

Fourth, the EO reveals that Trump administration officials don’t understand what trade agreements do. These agreements don’t free trade—they set rules to govern trade and in so doing build trust among people and firms.  Humans have drafted trade agreements since ancient times. The ancients didn’t know who made the goods they desired or how these goods were produced.  They learned to rely on trade agreements, which allowed them to make commitments, take a leap of faith, and exchange goods for money.  

These agreements have evolved as markets have changed.  In the 19th Century, trade agreements covered only border measures such as tariffs and quotas.  But in the 20th Century policymakers began to focus on domestic policies such as regulations, standards, and subsidies, which also could distort trade.  As they included such non-tariff barriers, trade negotiators expanded the definition of unfair trade beyond the misuse of border measures.

However, Trump administration officials don’t acknowledge the many types of “fairness” governed by recent trade agreements.  Since 1974, the Congress has required that trade agreements signed by the U.S. include language on non-tariff trade barriers such as health and safety regulations, product standards, and more recently even language on online privacy and regulatory transparency. Signatories must ensure that when they regulate they do so in the least trade distorting manner.  

The U.S. also requires that our trade partners allow their citizens and foreign producers to not only to comment on potential regulations that can have trade effects but also to challenge regulations that distort trade.  Because trade agreements require our trade partners to regulate transparently and in the least trade distorting manner as possible, these agreements could make trade “fairer” for more people more of the time.

In sum, Trump’s Executive Order takes a narrow view of what is fair and who is affected by unfair trade.  His approach could undermine trust in U.S. traders, negotiators, and trade agreements. Moreover, Trump’s strategy towards trade could inspire other nations to challenge America’s approach to trade as equally unfair.  Over time, the Trump administration’s strategy could lead to ruin for the U.S. as well as our trade partners.

Susan Ariel Aaronson is Research Professor of International Trade and Cross-Disciplinary Fellow at the Elliott School of International Affairs, George Washington University (GWU). She is the author of some 6 books and numerous articles on trade, trust, and good governance.


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