Death of a trade deal: US must face realities of global economy
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On Monday, President Trump killed the Trans-Pacific Partnership (TPP). It was a fait accompli.

The piper played in November when passionate voters in key electoral states coalesced around a single principle — trade agreements destroy jobs.

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Now, there is also stark clarity to the protectionist slant in the Trump administration’s trade philosophy.  

 

As President Trump stated at his inauguration: “Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families."

He was even more explicit later in his speech: "We will follow two simple rules: buy American and hire American."

The new trade triumvirate of Wilbur RossWilbur Louis Ross2020 census to run ads on 'Premio lo Nuestro' Can the US slap tariffs on auto imports? Not anymore On The Money: Slowing economy complicates 2020 message for Trump | Tech confronts growing impact of coronavirus | Manufacturing rises after five-month contraction MORE at the Department of Commerce, Robert LighthizerRobert (Bob) Emmet LighthizerGOP senator warns quick vote on new NAFTA would be 'huge mistake' Pelosi casts doubt on USMCA deal in 2019 Pelosi sounds hopeful on new NAFTA deal despite tensions with White House MORE at the Office of the U.S. Trade Representative, and Steven Navarro at the White House give further evidence of this new philosophy.

With this sea change in U.S. policy, there is no sense debating the pros and cons of the TPP. Those container ships are not sailing.

Going forward, there is a critical need for a rigorous debate over the opportunities and risks posed by a radically different approach to trade.

Congress should require a clearly defined trade and investment policy as part of a comprehensive competitive strategy that will truly benefit a broad spectrum of American workers and families.

In this debate, we should not confuse objectives and strategies.

Of course, we want the president to succeed in his objectives of reigniting the American economy, strengthening American industry and revitalizing the manufacturing sector.  

We want policies that lead the way for more Americans to have a renewed sense of the nobility of their work and a more achievable path to prosperity.

Increased infrastructure spending, broad-based education reform, worker training programs, international trade and foreign investment are all essential elements of any new competitive strategy.

In his excellent new book, "Failure to Adjust", Edward Alden advocates a well-reasoned “race to the top” competitiveness strategy of federal coordination with state and local initiatives in these areas.  

Ideally, trade and investment policy should be aimed at both opening markets and fighting unfair competition.

One-sided protectionist policy is dangerous and laden with unintended consequences. It is inherently inefficient and it deserves Congressional scrutiny.

To be fair, previous administrations have also initiated various “protectionist” trade restrictions on imported autos, steel, tires and other manufactured products, but they were more tactical.

This time, protectionist measures promise to be more overt and wide-reaching. I suggest that we need to consider several realities in a more rigorous debate on new policy.

First, the forces driving globalization are not going away and the United States will not be able to solve its economic problems on its own.

We live in an interconnected and interdependent world economy. It is true that we are not as dependent upon international trade as other countries, but, trade approaches about 30 percent of GDP and is critical for new growth.

Second, we should be honest about what contributes to American manufacturing job losses. While trade is part of the picture, it is overly vilified for its part.

Process innovation and technology, in pursuit of efficiency, are the primary culprits. Visit any automobile factory and you will see the extensive presence of robots.

Advances in 3D printing, virtual reality, data management and cloud computing will be changing the workplace with frightening speed.

Third, trade agreements have an important future role to play. In his Senate confirmation hearings, Wilbur Ross discussed the need to negotiate new bilateral free trade agreements.

One could debate whether the world is bilateral, but any new or renegotiated bilateral agreements will need a serious public relations effort.

It is unfortunate that too many Americans have become convinced that free trade agreements are responsible for the decline in American manufacturing employment.  

Over decades, unions and anti-trade forces have very effectively built this belief with an unrelenting effort to villainize trade deals.

I remember the old slogan aimed at workers, “NAFTA plus CAFTA equals SHAFTA.”  In reality, trade agreements are more directional than causal in regard to job losses. 

Fourth, we need to be wary of mercantilist economics in policy. It is dangerous to think of exports as beneficial and imports as harmful.

American society benefits from both. A perfect balance of trade should not be an objective in itself. We should not be obsessed with zero-sum thinking. That leads to tit-for-tat trade battles and a potential trade war.

At the same time, if there is one overriding trade reason for America’s current manufacturing employment woes, it is unfair, mercantilist competition from China.

Despite President Xi Jinping’s praise for free trade at The World Economic Forum in Davos, Switzerland, China does not truly practice it.

The experience of Ross and Lighthizer in dealing with Chinese dumping of steel and subsidization of state-owned enterprises brings a needed sharp edge to U.S. trade policy. 

Their experience, however, leads to a fifth issue. We need sectoral balance in trade policy.

This administration is heavily weighted toward import-competing industries such as steel, textiles and infrastructure.  

Trump officials need to be open to the needs of other sectors, particularly in export-intensive businesses and service industries that employ so many Americans. When we toughen up on Chinese steel, other industries can expect repercussions.

Finally, it is impossible to separate U.S. strategic and economic interests. They are inherently intertwined.

Anthony Scaramucci, the Trump representative at the World Economic Forum, voiced the administration’s concern about asymmetry in past trade deals when the United States pursued goals beyond those in the economic realm.

But, we should also recognize that trading with friendly nations affects the lives of American workers and citizens. If we are to live in a peaceful and secure world, trade policy plays a vital role. 

The TPP is dead and perhaps so is U.S. free trade policy. The Trump administration will need to explain how this and other protectionist moves fit into a new trade and investment strategy.

There is liability ahead. From a business perspective, protectionism begets business inefficiency, which begets higher costs.  

Higher costs beget either higher customer prices or stockholder anger. From a strategic perspective, withdrawal from engagement begets opportunity for competitive nations. Someone must pay the piper. 

 

Charles J. Skuba is Professor of the Practice in International Business and Marketing at Georgetown University’s McDonough School of Business. He previously served as an official in the International Trade Administration under President George W. Bush.


 

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