I was fortunate enough to be on a panel last week with four foreign government representatives to discuss trade. The meeting was informative and I thought I would share my take-aways. My conclusion is that Trump’s trade policy is headed towards a more balanced trade agenda. Although there are some anti-free traders in the inner circle, there are also proven free traders who are simply looking to make trade more fair.
We have lived through this type of trade policy in the past. Just think of United States trade relations with Japan in the early 90s. Commerce Secretary Wilbur Ross supports trade yet will use the laws to punish those that don’t follow the rules. Like Ross, Robert Lighthizer, who is expected to be confirmed as U.S. Trade Representative, supports the WTO trade regime, although he did feel duped by China’s embracing of capitalism without giving up state-owned enterprises. Lighthizer has significant trade experience both on the Hill and in the U.S. Trade Representative’s office under President Reagan (a positive point for everyone).
Even President Trump’s more controversial nominees are more much more reasonable than they may seem at first. Although Peter Navarro, who has been selected to chair the newly created National Trade Council (NTC), is known for his harsh words for Chinese trade policy, he is a believer in the WTO and developing a more equitable trading relationship with China is certainly not a position that is beyond the pale of positions taken by several mainline trade experts.
Other talent to join the Trump White House includes Treasury Secretary Steve Mnuchin, whose main trade policy concern is to safeguard intellectual property rights, a very reasonable position indeed. Recently Mnuchin surprised some when he expressed support for using the Trans-Pacific Partnership (TPP) as a starting point for renegotiating North America Free Trade Agreement (NAFTA). Another voice of reason is Gary Cohn, former head of Goldman Sachs and friend of the Kushners. Cohn heads the National Economic Council. These appointments may keep the scale balanced and bring a number of moderate views into the mix.
So what does it mean for trade policy? It is too early to tell, but my bet is that enforcement will be the key. Rather than leaving the WTO or NAFTA, President Trump’s focus seem to be to make trade fairer under the agreements we have now. To do this, he will likely take specific, targeted actions. Despite the absence of a formal policy announcement regarding president’s trade policy, impressions can be gleaned from anecdotal evidence in recent weeks:
- President Trump does not appear to repudiating free trade so much as challenging the rationale and results of existing deals under U.S. negotiating frameworks, such as NAFTA. Renegotiating or modifying some of those agreements appear to be the preferred approach to resolving issues of concern to the Administration. This is consistent with what Canadian and Mexican officials have reported. All three countries are have expressed support for renegotiating NAFTA.
- The Administration is set to take a bilateral approach to trade agreements rather than the multilateral approach taken by the Obama Administration in negotiating the TPP. Without TPP, the U.S. could benefit from a bilateral agreement with Japan, and Japan is content to negotiate bilaterally. As soon as the United Kingdom extricates itself from the European Union, it is likely that negotiations will quickly move forward. It is important to note that Mexico, Canada, Japan, and the U.K. comprised 37.8 percent of U.S. exports in 2016.
- President Trump has toned down his rhetoric toward China, as shown by reaffirming the “One China” policy. But the future of U.S.-China relations is unpredictable at this point and could be touch and go on trade issues. While Navarro is seen by many as a hardline on China, it is possible that he could be tempered by others such that the Administration will focus on enforcing existing laws rather than taking more drastic unilateral action under U.S. law provisions that have not been used since the establishment of the WTO.
- There is continued apprehension regarding the implications of the President’s “Hire America, Buy America” program that the NTC is developing. It remains to be seen whether this program will propose changes to U.S. procurement and export control laws, We will know more when the team is actually in place. However, if the Administration wants to increase exports, it will not broadly tighten our export control laws. Rather it will narrowly tailor its reforms to target specific weaknesses in our system.