“Free trade” was an ideal that the United States promoted around the world ever since the country became the dominant global power after World War II. Then Donald J. Trump became president. Now, decades of economic tradition are being threatened by the same country that insisted on open markets in the first place.
The flurry of tariffs, threats to existing trade deals and a building trade war with China has made the issue of U.S. trade incredibly difficult to follow. So WikiTribune gathered questions and experts on trade under Trump. Full Transcripts at the bottom.
Robert Mccleery, Professor at Middlebury Institute of International Studies. His background in U.S. Mexico Relations and U.S. trade policy with Asia.
Debra Steger. Professor of Law at the University of Ottawa. She is a former trade negotiator for the Canadian government, including at the World Trade Organization.
Alan Sykes, Professor of Law at Stanford University. His background is in international trade law, including as a researcher on WTO policy.
Robert Scott, Senior economist at the Economic Policy Institute, a politically progressive think-tank, that is skeptical of free trade agreements.
1) Trump’s desire to renegotiate existing trade deals has been criticized for disrupting industry. How should the U.S. government negotiate trade deals in a way that offers businesses stability while also allowing for democratic input?
Trade and trade agreements necessarily create both winners and losers. In a purely democratic process, with all interests represented, a deal could only be reached if there was a mechanism for the winner to compensate the losers.
But it is not that easy. The first problem, of course, is the huge number of interest groups (in trade lingo we call them “stakeholders”) involved in a place like the US… This creates a huge incentive to bypass the democratic process, not just at the national level but internationally as well. The World Trade Organization (WTO) used to forge deals in “smoke-filled rooms” among a handful of major players, then present them to the full membership as a “take it or leave it” choice. Since moving to a more democratic system? No new deals…
This of course is the same principle as “fast-track” in the US. Each provision of a trade deal is going to affect multiple congressional districts in different ways. If each Congressman, or even just each Senator, could pick and choose what provisions to accept or reject, no deal could ever be reached…I see no way to avoid the efficiency of the “up or down” vote at the end of the process. What many objected to in NAFTA negotiations was the preferential access given to businesses in the process, as opposed to civil society groups.
I think that it is time for a freeze in all trade negotiations, as argued by EPI founder Jeff Faux . Trade and investment deals have been very good for Wall Street and for multinationals like Ford, GM, Wal-Mart and CVS, but bad for workers. Profits have soared while wages stagnated for most working Americans, especially over the past two decades. Agreements like NAFTA could be tweaked at the margin, as we have outlined here, but the negotiating process is so fundamentally flawed, and dominated by big business interests that I think we would be better off instituting a simple freeze on negotiating trade deals.
If and when the process can be fixed, EPI’s Josh Bivens has explained how to negotiate new trade deals: Reorient international policy away from regressive trade agreements and toward measures that will benefit workers in the U.S. and in other countries… addressing currency misalignments; developing international policies to enable countries to tax capital income, including clamping down on abusive tax havens; instituting an international financial transactions tax; and harmonizing national policies aimed at combating global climate change and promoting global labor rights.
2) Does Trump’s approach to trade policy fit a traditional “protectionist,” or “nationalist” mold? Or is there something unprecedented about it?
I don’t like to use terms like traditional protectionist or nationalist. Those sort of terms, to me, don’t mean very much. But is it unprecedented? Yes, and the reason is because 164 countries have been operating under the rules based system of the World Trade Organization… And the U.S. was instrumental in creating the WTO rules and insisting on all countries abide by them.
For the U.S. to now say, that free trade is bad, that they don’t want to be part of the system that they built, and have been driving and pushing on everyone else… that they don’t want to follow the rules. This is kind of a shock to everyone.
The question is what do think the true motivation is? Traditional protectionism was not about having trade deals at all. It was about protecting industries against foreign competition. The Trump administration says that’s not its goal. They say the goal is to get better access for American business abroad by re-negotiating these agreements. If that’s the true objective and if that succeeds, then in the long run, it could be good for American business.
3) China, Japan and Korea have used tariffs in the past to cultivate various domestic industries. Are protectionist trade policies sometimes useful for strengthening economies?
Japan and South Korea did use tariffs, along with… other methods, to develop key industries that contributed substantially to their development. But it was an investment in the future, accepting higher priced and lower quality consumer goods in the short run in return for developing those industries domestically.
So yes, when one takes the long view of trade policy… there is room for trade restrictions to strengthen your economy in the long run. But there are crucial assumptions in this world view, as well. Does your country, like Japan, South Korea and to some extent China, have your best and brightest minds in the public sector? Japanese policymakers identified autos as a growth sector in the 1960s… Growing these industries entailed significant costs, both to the government and to domestic consumers cut off from (at the time) lower cost and higher quality imports. Other industries failed to become internationally competitive despite being favored by industrial policy, such as aerospace in Japan. Crystal balls don’t come with money back guarantees.
Viewed in this light, current U.S. trade restrictions are not consistent or forward-looking industrial policy. There is no anticipated boom in global steel and aluminum demand, no new technology to develop, nor the high level of saving and investment to fund such an expansion, and no consistency with other economic policies.
There’s quite a bit of evidence that countries that are more open to trade have done better in the long run. But there are certain things that are also true on the other side. There’s certain developing countries that have never been asked to make big concessions because their markets weren’t very important. And now that they’ve become more important, they’re sitting with higher tariffs than we have on their sales to us because we never really bargained very hard with them…
4) Is the U.S. currently in a “trade war” with China? How much of the Trump administration’s stance towards China is about maintaining its position as the world’s most powerful economy?
I don’t know what President Trump’s reason for his position toward China is, quite frankly. If I was trying to be logical, I would say that it appears that this is about China’s alleged intellectual property violations. There’s also a large deficit in trade with China and that’s something else that President Trump keeps talking about. He doesn’t like having trade deficits, and the biggest trade deficit that the United States has is with China…
I don’t know that it’s so much about the status (of the U.S.) as number one as it is a sense that China has taken advantage of it’s government influence over the economy to do things that seem unfair, at least for certain U.S. constituencies. I think the administration is capitalizing on the sense that China has been kind of a bull in a china shop in the world trading system in recent years. And he’s following through on his promises to try and do something about it. Whether he’ll succeed or make things worse is something that certainly remains to be determined.
I do not agree with the statement. The United States is in a trade skirmish with China which today covers about five percent of our imports from China… and about 20 percent of U.S. exports to China… I do not think that Trump has yet developed an effective trade strategy(ies) for confronting the Chinese trade challenge. China is now the world’s leading exporter of manufactured goods, and is, or soon will be, the largest producer of those products. The United States is already on the cusp of losing its competitive lead in manufactured products to China and other advanced nations with large trade surpluses (Japan, Korea, EU).
In my view, the Trump administration is engaged in trade policy by press release. It is a campaign designed to generate lots of heat and light (fireworks, if you will), and to send signals to key constituent groups that he is “fighting for them” (e.g. steel cos and workers, high tech industries); but there is no evidence that the administration has developed a coherent plan for fighting either for the particular needs of the U.S. steel industry, or general competitiveness of U.S. manufacturing.
5) Sen. Elizabeth Warren criticized “investor-state dispute settlement” provisions when the TPP was being debated under Obama. The idea of allowing corporations to take legal action against governments for passing laws that improve such things as air quality or labor standards is a hot button issue for environmentalists, labor unions and other activists. Are such provisions important for robust trade relations?
This is a tricky one. Investor-state dispute settlement provisions (ISDS) need to balance the interests of corporations and governments.
One problem is that few people try to actually read such provisions, and fewer still understand them. Thus misconceptions abound. Many still believe that ISDS can prevent countries from passing laws that improve labor or environmental standards, which is not true. They protect corporations against the impacts of such laws, but only if the laws are not grounded in science, or violate “national treatment” by applying differentially to foreign investors.
I was excited about TPP in a positive way. I felt it would strengthen US allies and alliances, provide an alternative to China’s economic leadership in the region, and have a modest, positive impact on the US economy… If a combination of better ISDS provisions and better understanding of how such provisions work in practice will remove some of these objections and rally more support for something like TPP in the future, then that needs to be done.
Well, some of the newer trade agreements don’t have investor-state dispute settlement mechanisms at all… The EU, for example, no longer negotiates (investment-state dispute settlement) chapters with Canada. Neither is Australia or India. These countries are saying: “we can resolve these types of disputes in our own domestic courts.”
Now, the U.S. administration has proposed to opt out of investor state dispute settlement in NAFTA. So Canada’s response is, “if you’re going to do that, then we don’t want to be a part of it either.”
What might happen in the NAFTA modernization is that maybe they’ll go back to the original Canada U.S. free trade agreement approach, which would be that there would be rules between the governments, but no ability for corporations to sue the governments. That would probably be the best outcome, quite frankly, that I think most people would be quite happy with.
Certainly it’s a concern for investors. They are vulnerable to being taken advantage of once they’ve made these large investments in developing countries. The returns on those investments can be stolen from them in various ways. Oppressive tax policies that come as a surprise, things like that.
My own assessment of investor-state is that criticisms are greatly exaggerated. Most of the criticisms are based on the notion that businesses have the right to challenge governments that engage in legitimate health and safety, environmental regulation, and things like that.
While there might have been some concerns for that in the abstract years ago, now (the law) is very deferential to governments regulating in the public interest… As long as they don’t deceive investors by lying, or deny due process in how the regulation proceeds, and things of that nature.