Home World Economy The Trump administration starts to turn up the heat on trade

The Trump administration starts to turn up the heat on trade

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“WELL, I’m mostly there on most items,” said Donald Trump of his 100-day plan. As far as trade policy is concerned, his self-assessment would indeed be true—if tweets and executive orders ratcheting up tensions in a growing number of trade disputes constituted progress.

However, although Mr Trump has withdrawn America from the Trans-Pacific Partnership (TPP), a 12-country trade deal, he has neither labelled China a currency manipulator nor made progress in renegotiating the North American Free-Trade Agreement (NAFTA). On April 26th his administration denied reports that it was poised to trigger America’s withdrawal from the agreement. No new “America-first” trade deals have emerged, and his trade-related executive orders have requested reports or investigations. Mr Trump has created more work for pencil-pushers than for exporters.

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The slow pace might reflect the obvious ideological infighting within his team, a desire for evidence before acting or the realisation that Congress, which sees trade policy as within its remit, must be kept on side. Congress officially delegates responsibility for trade to the United States Trade Representative. But it has yet to confirm Robert Lighthizer, Mr Trump’s pick for the job. Another reason for delay is that other priorities have intervened. Seeking China’s help over North Korea’s nuclear programme, for example, Mr Trump has explicitly used American trade concessions as an inducement.

Mr Trump has done enough, however, to prod America’s trading partners into action. Both the Canadian and Mexican governments have been busily strengthening trade ties elsewhere. Mexican officials say they have stepped up efforts to finish a trade deal with the EU by the end of the year. They also report that Mr Trump’s threats have swayed private-sector opinion: business now understands that Mexican negotiators will have a stronger hand in talks with America if they can credibly threaten to import wheat and corn from Brazil or Argentina. So it now backs the government’s courtship of Brazil.

The EU has seen its proposed trade deal with America plunged into the deep freeze. So its trade commissioner, Cecilia Malmström, has trumpeted trade talks with Japan and the ASEAN countries of South-East Asia, as well as with Australia, New Zealand and Chile. If Mr Trump does not want to party, goes the implicit threat, others do. Mr Trump may even have eased Ms Malmström’s job by making anti-trade sentiment less cool and fashionable, particularly in Germany. She claimed on March 29th that “there has never been a more important time to defend the global, rules-based system.”

With Mr Trump seemingly hostile to America’s traditional role as promoter of that rules-based system, the Japanese are also keen to fill the gap. Shinzo Abe, Japan’s prime minister, had called the TPP “meaningless” without America, but his government is now trying to salvage it. Too much time, effort and political capital had been invested in TPP to give it up without a fight. And the advanced trade rules TPP imposed are too valuable to waste. Japanese officials are busy garnering support to revive the deal. In time, its economic and strategic benefits might even lure America back. A distant dream, though some joke that renaming the deal the Trump Pacific Partnership might do the trick.

The travails of the TPP had been expected to invigorate the other big trade deal in Asia and the Pacific, the Regional Comprehensive Economic Partnership (RCEP). That does not involve America, and is seen as a chance for the Chinese government to show regional leadership. Although the pace of talks picked up after Mr Trump’s election, progress remains glacial. Mari Pangestu, a former Indonesian trade minister, says that some of the seven TPP members who are also in RCEP would like to see some elements moved across. “But at this point in the negotiations it’s probably best to focus on what is already on the table.”

Steel yourself

Even were he interested in new multilateral trade deals, Mr Trump would find his authority constrained. On NAFTA, a drastic action such as triggering withdrawal would be his prerogative. But in any renegotiation, he will be partly beholden to Congress. On trade disputes, however, more is at stake, and there is more cause for alarm at the damage Mr Trump’s trigger-happy approach might wreak.

Since 1995 the World Trade Organisation (WTO) has been the main arbiter of international trade disputes. But on April 19th Mr Trump’s administration seemed to take matters into its own hands, starting an investigation into whether steel imports are a threat to national security (see article). A similar probe into aluminium imports was announced this week. America has also imposed duties averaging 20% on imports of Canadian lumber (see article).

Wilbur Ross, the commerce secretary, will oversee the investigations. He cites the improbable worry that cheap metal imports are undermining America’s skills base and its ability to mount a rapid military build-up if needed. Current steel policy, a slew of 152 narrow tariffs on various products, are too easy to circumvent. He is considering broader measures. His department has 270 days to assess the problem and recommend action. Mr Trump said he expected results within 30 to 50 days.

Fans of the rules-based system are aghast. Chad Bown, a trade expert at the Peterson Institute for International Economics, a think-tank, describes the Trade Expansion Act, the law from 1962 the Trump administration has invoked, as the “nuclear option”, adding that “it calls the whole rules-based system into question.” The act, sparse on details, gives the president huge discretion. WTO rules bar countries from slapping tariffs on randomly, but make an exception for national security. James Bacchus, a former chief judge for the WTO (and a former congressman), comments that “no one knows what it means and no one wants to know what it means.” He says it could be a “Pandora’s box”, used to justify any type of trade restriction.

Mr Bacchus worries that if America looks for excuses to violate trade rules, other countries will too. “WTO law only succeeds if those who are bound by it engage in mutual self-restraint. We Americans should be the first to show self-restraint.” Mr Trump has relinquished America’s role of stewardship of the global rules-based system. The question is whether the system will survive such a loss.

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