Trust — not trade — is the deficit that will damage us most

Trust — not trade — is the deficit that will damage us most
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Nearly two decades ago, a former colleague, Robert Putnam, wrote a powerful book lamenting the deterioration of “norms of reciprocity and trustworthiness” in the United States.  

Today this can be applied internationally as well, on a variety of economic issues. We see it in myriad tensions around the world: the United Kingdom v. the European Union, Iran v. Saudi Arabia. But the greatest danger lies in the decline of mutual trust on issues such as trade and investment between the U.S. and numerous nations, traditional friends and allies as well as — and perhaps most importantly — China.    

Trusting personal relationships across borders often have their inception when men and women in key positions interact and form personal bonds early in their careers. It is during such periods that cooperation based on common norms of engagement and mutual trust are shaped. These become especially important when such people assume senior positions of responsibility in their governments.    

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For decades, personal ties of trust and mutual confidence have been critical to solving international economic problems, coordinating policy and managing crises.  

Recently a palpable deterioration has occurred. This is, in part, because of a lack of confidence abroad that top U.S. policymakers share the same underlying values of openness and multilateralism held by the U.S. in the past and most of America’s traditional friends and allies today. More pointedly, it is the result of repeated decisions in Washington giving rise to the view abroad that while many U.S. economic officials and negotiators are well respected as individuals, their statements or the results of their negotiations often are second-guessed or overruled by top leaders at home.    

This is not because U.S. negotiators are dishonest or duplicitous. I know and have worked with many of them; they are people of high integrity, greatly respected as experienced, world-class negotiators. It is, rather, because foreign counterparts frequently lack confidence that what they commit to will not be reversed or undermined soon after by America's leaders or their top policy advisers. This is a key source of the trust deficit. The U.S., of course, has trust issues with other countries that add to the problem.

This deterioration has profound implications for America’s and the world’s economic prospects. It affects the ability of the United States or the international community to prevent and resolve future financial crises and trade conflicts.  

One reason past financial crises have been resolved is that key officials in key countries often had worked together for many years, knew and trusted one another, and shared the same basic goals of promoting solutions that served their nations’ common, collective long-term interests.  

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The 2008 financial crisis, for example, was managed effectively, and recovery was engineered, through cooperation based on such factors. This occurred because of close cooperation among top government and private-sector financial leaders who forged relationships over decades in the U.S., the U.K., Germany, Japan, France and the EU — but also, lest we forget in the midst of current economic tensions, because of constructive cooperation between top officials of the U.S. and China.  

None of this trust and cooperation can be assumed today. If there were to be another global financial crisis, distrust and zero-sum political philosophies — “If you win, I lose” — could prevail over cooperative negotiations based on shared norms and trust aimed at achieving mutually beneficial outcomes.   

Will “America First,” for example, or similar views by other nations, complicate or derail the search for cooperative solutions that overcome the crisis and make America and the rest of the world better off? And can the consistency and reliably of the word of U.S. officials (or that of others) be counted on, or will midstream reversals, second-guesses or unilateral demands from the top in Washington cause mistrust that prevents mutually sound solutions?  

America is engaged in trade disputes with a multitude of countries. Washington has legitimate, strong arguments on its side in many cases. And there is bipartisan support for many of the main objectives the U.S. seeks.  

U.S. officials occasionally cite other countries altering their positions. But if the U.S. is to achieve the constructive outcomes it seeks, and expect other nations to fulfill their negotiated commitments, as it should, America must be relied upon do likewise. There is considerable doubt abroad — including among traditional friends and allies — that it can be. This discourages foreign negotiators from making concessions to forge deals with the U.S. for fear that, soon after agreements have been reached, the president or a top White House adviser will up the U.S. demands required to sustain the deal.  

Two recent examples:  

Soon after the new U.S.-Mexico-Canada Agreement (the revised NAFTA) had been reached, with full White House support, the president — to the surprise of Mexico and many of his own advisers — threatened to impose a new 5 percent tariff unless Mexico tightened its efforts to stem immigration, an issue extraneous to the original negotiations. A multilateral deal had been followed by surprise unilateral action that appeared unconnected from any deliberative process involving those who negotiated the original deal. 

Then, soon after agreeing with China at the Osaka G-7 Summit to a trade “ceasefire” to give time to U.S. and Chinese negotiators to reach a deal, the White House, reportedly over the opposition of key advisers and negotiators, said it planned to impose new tariffs on an additional $300 billion of Chinese goods.  

And, in the case of China, messages from some parts of the White House often contradict the approaches pursued by U.S. negotiators. American negotiators are seen to be proceeding under the premise that the U.S. wants a deal for, inter alia, mutual fair trade, protection of intellectual property/trade secrets of both nations, and investment rules that put U.S. companies on a level playing field with Chinese companies. Other U.S. officials in the White House, however, advocate “decoupling” — cutting trade and investment ties with China.   

Those who make the latter case cause some senior leaders in Beijing to question the value of China’s negotiators putting forth any substantial compromises. If the U.S. truly wants decoupling, they argue, what is the use of negotiating and making concessions in the hope of resolving issues? That, in turn, limits the deal-making ability of our negotiators.  

A major deal with China will be difficult in any case — but unless our negotiating partners know what version of American policy objectives to trust, success in trade negotiations with China or, indeed, any country is highly problematic.  

For a multitude of reasons, but especially those noted above, the large mutual trust deficit on these and other issues must be narrowed substantially and then eliminated. All countries should do their part. Just as U.S. Treasury bonds are backed by “the full faith and credit of the United States,” the commitments of American negotiators and key officials must have a similar backing if our government is to achieve goals that serve the interests of our country and ensure the stability and effectiveness of the global financial and trading systems so vital to our interests.  

Robert D. Hormats, vice chairman of Kissinger Associates, was undersecretary of State for Economic Growth, Energy and the Environment, 2009-13; assistant secretary of State, 1981-82; and a former ambassador and deputy U.S. trade representative, 1979-81. As senior economics adviser to three White House national security advisers from 1969 to 1977, he helped to oversee the U.S. opening to China. He is a former vice chairman of Goldman Sachs (International). Follow him on Twitter @BobHormats.