CFR Presents

Renewing America

Ideas and initiatives for rebuilding American economic strength.

Print Print Cite Cite
Style: MLA APA Chicago Close

loading...

Trump’s 2017 Trade Agenda: Signs of a Sensible Direction

by Edward Alden
March 1, 2017

U.S. Vice President Mike Pence (R) swears in Wilbur Ross as Secretary of Commerce as his wife Hilary watches (Joshua Roberts/Reuters).

Share

Since the Trade Act of 1974, Congress has required the administration each year to submit an annual “trade policy agenda” outlining its goals for the coming year. It has long been a welcome exercise in transparency, forcing the administration to articulate for the Congress – which retains the constitutional authority over foreign trade – its trade policy priorities.

The new Trump administration released today its version for 2017. If this does indeed provide a blueprint for the administration’s coming approaches to trade policy, there may be less to fear and more to cheer than would be thought from the president’s own statements to date. There is no lambasting of NAFTA as “the worst trade deal ever negotiated,” no empty promises to restore millions of lost manufacturing jobs, no threats to slap large tariffs on imports. Instead there is a sober critique of the limitations of some of the current trade arrangements, problems that many critics – myself included – have long identified as serious challenges for U.S. trade policy.

At the outset, I should say clearly that no one yet knows who speaks for this administration on trade policy. Peter Navarro, who heads the new White House National Trade Council, has floated such radical ideas as repatriating much of the supply chain of U.S.-headquartered multinational companies, and doubling the percentage of Americans working in manufacturing jobs. Wilbur Ross, the new Commerce Secretary, who was just confirmed by Congress this week, has said he is “pro-trade, but pro-sensible trade.” Robert Lighthizer, the likely U.S. Trade Representative, has yet to get a hearing in Congress. Nonetheless, the new trade agenda document was prepared by USTR, and seems to have Lighthizer’s fingerprints on it. But there is certainly danger in reading too much into it.

The good news, however, is that it represents, for the most part, a clear-eyed effort to rethink U.S. trade policy. It starts, for example, from the premise that the goal of U.S. trade policy should be to “increase our economic growth, promote job creation in the United States, promote reciprocity with our trading partners, strengthen our manufacturing base and our ability to defend ourselves, and expand our agricultural and other exports.”

All of this seems boilerplate, except that the United States has long used trade policy to promote other, largely foreign policy, goals. As I wrote in my recent book, Failure to Adjust: How Americans Got Left Behind in the Global Economy, “U.S. trade policy has long had multiple goals – strengthening military alliances, developing the economies of allies, encouraging foreign investment in developing countries, expanding the international rule of law, and, if all goes well, increasing the competitiveness of the American economy.” In contrast, I wrote, other countries have “focused narrowly on economic advantage.” Given the challenges facing the U.S. economy, and the growing prosperity of many U.S. trading partners, it makes sense for the United States to starting behaving a bit more like others in pursuing its trade goals.

The document rightly notes that the economic reality of U.S. trade arrangements has not lived up to the promise, particularly since 2001 when China joined the World Trade Organization. It cites many of the same statistics I used in my book, including the slight decline in median household income over the past 15 years, the growing trade deficit with China and other countries, and the steep loss of manufacturing jobs during the 2000s.

The paper rightly puts trade policy in its place as part of a larger strategy to create “a more vibrant, and more competitive, economy.” It says that the administration intends “to work with Congress to lower taxes, reduce regulations, [and] increase funding for infrastructure.” This is a partial list unfortunately, with the biggest omission being the need for worker training, apprenticeships and other programs to ensure that Americans have the skills to prosper in a rapidly changing economy. And it should add that Washington will work more closely with state and local governments that are trying to attract investment, promote exports and spur job growth. But linking trade policy closely with U.S. economic competitiveness is a step in the right direction.

The document, also encouragingly, does not suggest that the United States is prepared to blow up the dispute settlement rules of the WTO, which played such an important role in discouraging countries from returning to “beggar-thy-neighbor” import restrictions during the Great Recession. But it rightly notes, as Lighthizer and others have argued, that the WTO dispute bodies have at times overstepped their authority in challenging U.S. trade laws in such areas as the “safeguard” rules designed to protect U.S. industries from a sudden, harmful surge in imports. More importantly, it calls out the limitations of WTO rules in ensuring fair trading relationships with “large countries that do not adhere to free-market principles in the organization of their economic systems” — an unspoken reference to China. It suggests, as a growing number of scholars have, the need to adjust trading rules to address this challenge.

The agenda unfortunately – though not surprisingly – affirms President Trump’s mistaken decision to pull the United States out of the Trans-Pacific Partnership, claiming that this was a symbol of the administration’s “new approach to trade issues.” That was a blunder, because TPP was potentially an important tool for tackling exactly those trade distortions – especially in China – that seem to most trouble the authors of the new trade agenda. But one can hope that there will be future opportunities for the administration to revisit the TPP decision.

It is important, as I said, not to read too much into all of this. The balance of power between the White House “economic nationalists” like Navarro and Stephen Bannon and the sovereignty-minded trade professionals like Lighthizer has yet to be resolved. But it is clear from the administration’s 2017 Trade Policy Agenda that there remains the possibility of a new, strategic and disciplined trade policy for the United States. That is a good sign.

Post a Comment 10 Comments

  • Posted by bsetser

    Ted — how would a set of 301 challenges to China play out inside the WTO? U.S. would in the first instance i think be operating outside WTO, and presumably imposing some sanctions based on 301 against China without a favorable WTO ruling. would China then challenges in the WTO saying US overreached and imposed sanctions (withdrew concessions) w-o any WTO approval and seek approval for counter retaliation? or does China initiate cases on its own?

    Curious how you think the more aggressive/ outside the WTO approaches contemplated for China might play out?

  • Posted by Edward Alden

    Thanks Brad. I think there are several possibilities. The U.S. could go more aggressively after some of the transparency issues though bilateral talks with China (JCCT, S & ED etc.), perhaps threatening its own regulatory responses that would restrict Chinese investment in the U.S. — as the congressional China commission has recommended. It could further accelerate the number of WTO dispute cases against China, most of which have been won. And I do expect it to try to push the use of U.S. trade laws (safeguards, self-initiated AD/CVD cases etc.) far more aggressively, and wait for China to challenge those in the WTO. None of this is “outside the WTO.” The more extreme version would be to threaten seriously to go outside the WTO (as the Clinton administration did the 1995 auto fight with Japan, for example) and try to force some kind of compromise from China — which may well prefer to avoid a tit-for-tat trade war with the U.S., but would also be reluctant to wait the two-plus years it would take to challenge any WTO-illegal actions by the U.S.

  • Posted by Brad Setser

    Ted, thanks

    Agree on ADDs/ CVDs/ safeguards, and on probability that rules on investment will be tightened, and all this is possible “inside” the WTO

    but not sure there are that many more cases that can be brought (aluminum was the big one) and filing a case and waiting a couple of years for a WTO ruling doesn’t quite seem to suit the new administration’s style or the tone of the paper. So i guess the basic trade off of using 301 outside the WTO is you accelerate the negotiation but also have to be prepared for outside the WTO retaliation.

    one more question — I assume the 301 standard for bringing a case differs from the standards used to rule on WTO cases. Is there anything good to read on 301 standards, how a WTO case differs from a 301 case?

  • Posted by Edward Alden

    This is good overview here: https://www.whitecase.com/publications/article/possible-unilateral-actions-under-us-law. Section 301 is really just a procedure for launching an investigation into foreign trade barriers, under the threat of U.S. sanctions. Since the creation of the WTO, U.S. law is pretty clear, however, that in areas covered by the WTO, the United States must use the WTO dispute procedures to seek authority for imposing trade penalties. The interesting question will be whether USTR goes after areas that it claims are not “covered” by existing WTO rules. The whole area of “government measures that encourage or tolerate private, anticompetitive practices” would seem to be potentially open to unilateral action by the U.S. And as the recent Mark Wu article pointed out (https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2779781), many of China’s practices could fit under that exception.

  • Posted by Chip Roh

    Type your comment in here…agree it was a relief that the administration made no promises to breach WTO obligations, but expecting trade policy to deal with a situation of rising US manufacturing production while employment declines is nuts. Also, I negotiated trade agreements for many years for both parties and your smug assumption that US economic interests were secondary is just flat wrong. What is your evidence? But I do agree that a major challenge for us and virtually all countries is dealing with the speed of adjustment required slightly by trade and overwhelmingly by technological development

  • Posted by Abigail Field

    Re your statement that it was wrong to leave the TPP, do you support ISDS in TPP and other trade deals?

    The nation state must be more powerful than transnational capital. Transnational capital can price “political risk” into deals. Companies should not be able to sue for damages as a result of legitimate sovereign actions, such as cigarette labeling laws, denial of a permit for a pipeline, etc.

  • Posted by Charles Blum

    Good comment, Ted. There’s a lot more right than wrong in this preliminary policy statement. It is, as you put it, a “clear-eyed effort to rethink U.S. trade policy.” Let’s build on it.

  • Posted by Edward Alden

    Thanks for the question Abigail. No, I am largely not in support of ISDS in trade agreements, though I possibly could be if it were modified significantly. I wrote about this issue here a couple of years ago, and my views have not changed. http://blogs.cfr.org/renewing-america/2014/03/05/investor-state-arbitration-in-trade-agreements-a-bad-idea/.

    But I don’t think the ISDS provision was a good reason for the U.S. to walk away from TPP. In fact ISDS has always been a U.S. demand; other countries would have been more than happy to drop ISDS if the Trump administration had demanded it as the price for supporting TPP.

  • Posted by Abigail

    Thanks. But ISDS as an “American” demand is interesting–it is certainly not a demand of American workers or voters, which highlights who US trade negotiators really represent. And that makes it very reasonable for American workers and voters to demand killing the pacts, even if it is a blunt instrument that involves collateral damage.

    To me, ISDS and the fight over the TPP and similar deals reflects the larger struggle to try to make the U.S. government become a ‘representative’ democracy instead of a vehicle for sovereignty by transnational capital. Your 2014 link is interesting because it shows how well understood, across the political spectrum, the ISDS problem is. Why did “our” government insist on such provisions anyway?

    I’m no fan of President Trump, and have no reason to think that what bothered him about TPP is what bothers me, but I am grateful that it is done if only because it interrupts the progress of ISDS expansion.

  • Posted by Mike Holt

    After reviewing the TPP, my conclusion was that it was rather bland except for the provisions regarding State Owned Enterprises, which was obviously intended to pressure China (and Vietnam) to reform their interventionist economic systems if they want to engage in trade with other Asian-Pacific countries.

    That made sense until I read the book “Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy” by Usha and Geoge Haley, particularly Chapter 7 in which they explained that when the following three conditions exist, foreign subsidies or protectionism could give foreign competitors cost advantages that later entrants could not match:

    1. large economies of scale with minimum efficient scales;

    2. steep learnings curves that bestow first-mover advantages; and

    3. sizable R&D requirements that erect barriers to entry.

    Once firms fall behind in these industries, recovering profitability would become unlikely. And, potential new competitors abiding by free market principles would be unlikely to allocate resources to these industries after they have been put at such a disadvantage. In light of this, the speed and intensity with which firms act become critical.

    Recognizing this, it seems to me that the indirect manner in which the TPP was intended to gradually bring about reforms to the Chinese economy in which state owned enterprises still account for over 60% of business revenues was much too slow to effectively safeguard against the CCP’s stated objective to maintain absolute control over seven strategic industries through dominant state-owned enterprises, including armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, civil aviation, and shipping.

    The CCP has also identified five “heavyweight” industries in which the state will remain heavily involved, including machinery, automobiles, information technology, construction, and iron, steel, and nonferrous metals. Foreign firms will have restricted participation in these industries and will experience heavy regulation.

Post a Comment

CFR seeks to foster civil and informed discussion of foreign policy issues. Opinions expressed on CFR blogs are solely those of the author or commenter, not of CFR, which takes no institutional positions. All comments must abide by CFR's guidelines and will be moderated prior to posting.

* Required

Pingbacks