While Trump Rejects Free Trade, the Rest of the World Embraces It
Donald Trump’s opposition to the current system of international trade (one built largely by the United States) has long been evident, and this opposition to the current state of international trade was a key component of his victory in last year’s presidential election in the US. By blaming foreign competition for the woes of lower-skilled and lower-educated workers in recent years, he was able to win their support, and he turned many former reliably-Democratic voters into supporters of a Republican candidate for the US presidency. Repeatedly, President Trump has claimed that the United States is the victim of trade deals that are unfair to the US, while the US bore the bulk of the cost of maintaining the world’s current international trading system.
Since taking office, President Trump has moved quickly to call into question the US’ commitment to a range of multilateral trade deals, including his withdrawal of the United States from the Trans-Pacific Partnership (TPP), a move viewed by most as a victory for China in the struggle for power and influence in the Pacific region. Furthermore, while the US under Trump has turned its back on the notion of free trade, many of the world’s other leading economies are rushing forward to expand their trade relationships with one another.
Having built the 21st century’s system of international trade, the United States’ sudden rejection of many of the organizations and deals that the US had championed was a major shock for the global trading system. Most shockingly, having worked so hard to create a trade deal aimed at offsetting the rising political and economic influence of China in the Pacific region, the United States’ sudden withdrawal from the Trans-Pacific Partnership (TPP) trade deal was a major blow to those countries looking to the US to prevent Chinese domination of their economies. At the same time, the already-fading hopes for a trade deal between the United States and the European Union appear to have been dealt a death blow by the Trump Administration, although it was always unlikely that this deal would have ever come to fruition. Now, President Trump has NAFTA in his sights, and, while he favors strong trade ties with Canada, he appears increasingly likely to ditch NAFTA in order to restructure US trade ties with Mexico.
These moves highlight the US president’s preference for bilateral trade deals in which the vast scale of the US economy will allow for the US to make favorable deals with its individual trading partners. Under such a system, President Trump believes that the trade deficits that the US has with individual countries such as China, Japan and Mexico will disappear, allowing the US to record large trade surpluses in the future.
While the Trump Administration is turning its back on large-scale free trade deals, most of the world’s other leading economies have accelerated their efforts to secure major trade deals with one another. For example, large economies that are dependent upon exports for much of their growth (such as the European Union and Japan) know that their future economic success is dependent upon their ability to secure favorable access to key export markets. Likewise, many countries view enhanced trade relations as a key to their ability to preserve a degree of economic independence from larger economies.
This is one of the main reasons why the Trans-Pacific Partnership (TPP) has found a way to survive the near-fatal withdrawal of the United States, as the other eleven members of the TPP seek to avoid becoming increasingly dependent upon China for trade and investment. Meanwhile, rising powers, most notably China, are using trade and investment deals (such as the One Belt, One Road project) to project their growing power and influence further abroad.
Despite widespread opposition from most economists to the trade policies being enacted by the Trump Administration, the US president appears set to continue to reject the international trading system put in place by his country. However, these policies could severely backfire. With the rest of the world enhancing their trade relationships, US exporters could find themselves at a distinct disadvantage in many of the world’s leading export markets. For example, corn farmers in states such as Iowa and Nebraska are fearful that the dissolution of NAFTA would cause them to lose access to the vast Mexican corn market. This would serve only to increase the US’ overall trade deficit, rather than shrink it as the Trump Administration intends.
Furthermore, while the US’ fast-growing high-tech industries are unlikely to be badly impacted by these trade deals, lower-tech industries in which the US is not so competitive will likely bear the brunt of these policies. As many of these industries are based in areas of the United States in which President Trump enjoys a higher level of support, those voters who backed the US president last year are likely to be the ones who suffer disproportionately from the trade policies being enacted these days in Washington.