Practically every observer thought Hillary Clinton would win the US Presidential election this morning. Most went on to predict her mild hostility to further trade liberalisation meant the short-term prospects for global trade would be looking uncertain by now.
Donald Trump, though, has been consistent and unambiguous about his trade policy.
Back in the summer, he published a seven-point plan committing to:
• Withdraw from the Trans-Pacific Partnership (TPP)
• Identify every foreign country’s violation of trade agreements
• Appoint tough and smart trade negotiators
• Tell partners in the North American Free Trade Agreement (NAFTA) that the US intends to renegotiate immediately
• Instruct the Treasury Secretary to label China a currency manipulator.
• Instruct the U.S. Trade Representative to bring trade cases against China
• Use every lawful presidential power to remedy trade disputes
In late October, he was even more specific on trade issues.
He announced that on his first day in office he would announce his intention to renegotiate NAFTA or withdraw from it entirely.
“I will announce our withdrawal from the Trans-Pacific Partnership” he went on.
“I will direct my Secretary of the Treasury to label China a currency manipulator. I will direct the Secretary of Commerce and US Trade Representative to identify all foreign trading abuses that unfairly impact American workers and direct them to use every tool under American and international law to end those abuses immediately.”
The trade community has argued that many Trump commitments aren’t likely to materialise. I think they’re wrong.
– Though President Obama has consistently said he’d try to ratify the TPP after the election, doing so would now be an exercise in futility. Over two months before Trump takes office, it’s now certain the TPP is dead for the rest of this decade
– Identifying other country’s violations of trade agreements might not be as easy as Trump thinks. But Trump has huge scope for simply decreeing extraordinary measures against foreign imports. In the words of business magazine Forbes: “Trump’s mercantilist trade plan calls for using the power of the Executive Order to impose a 45% tariff on a broad swath of imports from China, 35% tariffs on items produced in Mexico, and arbitrary tariffs of between 15% and 45% for any country deemed to be a “currency manipulator.” Prime targets include the European Union, Japan and South Korea, which, taken together with China and Mexico, represent five out of America’s top six trading partners.
– For much of the past year, many American trade insiders have argued that, once he’s in power, he’ll understand why he’s wrong and they’re right. That’s naïve: Trump is a revolutionary, and in his early days he’s going to do what he said.
The uncertainty’s not about the next three months: it’s about what happens next.
Trump is almost certain to impose restrictions or higher tariffs on imports. He also has a revolutionary set of economic proposals which economists at ratings agency Moody’s estimate will create a fall in GDP of roughly 2.5% and push the country’s unemployment rate up from its current 4.6% to 7.4% by 2021.
Moody’s might be as poor at forecasting economies as the pollsters were at forecasting the Presidential election. But there’s no question that Trump’s plans for trade will push up the US price of many basic consumer goods like clothing by late spring 2017.
It’s also likely that any trade protection measures Trump imposes will provoke retaliation from America’s trade partners by summer 2017.
The big uncertainties are in the longer term.
– Is America capable of creating domestic industries able to create substitutes for imports? US apparel production has been falling for the past 20 years because businesses can’t recruit enough Americans. Fancy talk about automated production will take years if not decades to turn into working production lines.
– If Moody’s and other agencies are right, how long will Trump’s economic policies survive as the economy tumbles and unemployment grows?
– Are those agencies right?
– On a more Brit-centric point, what happens to Barack Obama’s confident assertion in May 2016 that a Britain outside the EU “would go to the back of the queue for any trade deal with the US”? The only trade deal Trump has expressed support for is with the UK.
Ironically for the next few months America’s policies on trade – at least with its biggest US partners, China Canada and Mexico – look extraordinarily clear.
After Spring 2017, though, everything starts looking extraordinarily murky