Free Trade, Eh?

One of Donald Trump’s core assumptions – applying the bully/hyperbole lesson of his The Art of the Deal book – is that the United States is such an economic power that it can literally force the rest of the world into negotiating one-on-one trade agreements (the “bilateral” approach versus the more modern and prevalent “multinational” structures). With our power, he reasons, we should easily gain the upper hand one-on-one. He tanked US involvement in the Trans-Pacific Partnership treaty (which had a lot of goodies for American business) and is making demands on the renegotiation of NAFTA that both Mexico and Canada are finding untenable. He has announced that the US is focused primarily on the bilateral philosophy, even as the rest of the world is going in a different direction.

There are two categories of nations that are perfectly happy to engage in such bilateral negotiations with the United States: (i) the large and (ii) the desperate. Countries like India and China garner such huge economic power that they have little to fear over US bully tactics; they are capable of responding in kind.

And then you have countries in desperate need to build or rebuild their trade structures for other reasons. The United Kingdom, having severed its formal membership in the European Union effective March 29, 2019, needs a major trade agreement elsewhere like air. Like with the United States. Despite a growing resentment in Britain over Donald Trump and his malignant tweets (e.g., such as his retweet of an inflammatory and inaccurate anti-Muslim message from a very small UK right-wing white supremacist group), as she struggles with her exit negotiations with the E.U., an unpopular P.M. Theresa May is very focused on having a trade agreement with the U.S.

Meanwhile, China is laughing all the way to the international trade bank. As soon as the United States disavowed the Trans-Pacific Partnership, her trade representatives stepped in to begin a replacement treaty – now excluding the United States – as a regional substitute. China will generate trade advantages in that structure that cannot be ceded to the United States should member states wish to engage in bilateral negotiations with the Americans. Likewise, the European Union forbids member nations from such bilateral negotiations in their entirety.

China has also let NAFTA nations Mexico and Canada know that come hell or high water, no matter what the Americans believe they can force in the NAFTA re-negotiation, the People’s Republic will make sure that these two stalwarts of US trade do not come up with the short straw as they deal with Trump. Rumors suggest that any losses that Canada or Mexico might suffer by letting an American-tilted NAFTA drop will be more than made up for by China. Could that also result in a Chinese naval base in Mexico? Who knows? But even Canada is playing ball with China.

“Prime Minister Justin Trudeau landed in Beijing on Sunday [11/3], with expanding trade with China at the top of his agenda. As the United States under President Trump becomes increasingly protectionist, Canada is moving in the opposite direction.

“Along with 10 other nations, Canada is trying to revive the Trans-Pacific Partnership, a trade deal championed by the Obama administration and abandoned by Mr. Trump. It is in trade talks with numerous other countries and free-trade groups — including India, Japan and Singapore. And in late September its broad free-trade pact with Europe clicked into action.

“Now Mr. Trudeau is widely expected to add free-trade talks with China to Canada’s list of negotiations at his meeting with President Xi Jinping… Put it all together and it suggests that Mr. Trudeau, who announced that “Canada is back” after his election two years ago, is positioning his country to fill a void left by the United States by becoming the global champion of free trade. His recent trip to Beijing did not, however, produce any tangible results, suggesting that the Chinese may want Canada to be pounded a bit more by U.S. NAFTA demands, giving China an even stronger hand in dealing with our neighbor to the north. But for the U.S., rather dramatically focused on domestic policies and tax reform, international trade is on a back burner… we just don’t seem to care.

“‘The rest of the world is saying: ‘What do we do?’ ’ said Dan Ciuriak, the former deputy chief economist at Canada’s foreign affairs and trade department, referring to the Trump administration’s stance on trade. ‘There is a lack of leadership, there is a vacuum out there.’” New York Times, December 3rd. As US corporations are gloating at the massive GOP-Christmas gift – a 42% plus cut in federal taxes – the United States will increasingly face trade disadvantages, particularly with a strong dollar. Economists now predict a resulting $60 billion increase in our existing $500+ billion trade deficit.

But Canadians, representing an economy that is only about 10% of that of the U.S., are equally sanguine about their economic relationship with the United States, if for no other reason than proximity reflected in the trading history of these two nations: “‘We have to be realistic,’ said Dominique Anglade, the deputy premier of Quebec and its cabinet minister responsible for trade. ‘You can’t say that something will replace the United States.’

“Still, there’s a broad consensus among Canadians that their country benefits from open trade, making Mr. Trudeau’s program relatively easy to sell politically. No mainstream party in export-dependent Canada echoes the protectionist views of Mr. Trump, who was carried into office on a wave of doubt about whether past trade policy had helped American workers.

“Since World War II, the United States has led the world in championing free trade. Washington played the leading role in designing a system of global trading rules, persuading other countries to lower barriers and forging pacts that allowed American companies to expand globally…

“Critics of the Trump administration’s trade policy have pointed to the progress of other countries like Canada in advancing trade pacts without the United States as evidence that Mr. Trump’s more protectionist turn would hurt American companies and workers.

“Stefan M. Selig, a former undersecretary of commerce during the Obama administration who pushed for the Trans-Pacific Partnership, called the United States’ withdrawal from the proposed agreement a loss commercially, diplomatically and strategically.

“‘The timing of it serves as an extraordinary indictment, that the other 11 countries reached a T.P.P.-lite agreement,’ Mr. Selig said. ‘The notion that we are not sitting at that table to be able to influence those countries strikes me as an extraordinary missed opportunity.’Top of Form

“Even industry groups that were critical of some provisions of the proposed deal are now concerned about the United States’ absence from it. John Bozzella, the chief executive of Global Automakers, an industry association, said a revived TPP, along with other deals, would put Canada and Mexico on ‘a path forward.’ He added: ‘I think the path forward for the United States in terms of continuing to find markets for our exports is less certain.’

“Mr. Trudeau’s trip to China is taking place while talks to revise Nafta appear deadlocked over demands from the Trump administration that Canada and Mexico view as being worse than having no deal at all… For Canada, the announcement of a trade deal with China and a more prominent role in the global trade scene could be both a form of insurance against the risk of losing Nafta and a signal to the United States that Canada has other options.” NY Times.

Even as Trump seemed to be more than welcome in Japan during his recent Asia trip, Tokyo still refused his invitation to go one-on-one in a bilateral trade agreement, knowing it was a negotiation that they could only lose. Instead, on December 8th, Japan and the European Union finalized a sweeping trade agreement that would create a free trade area covering more than a quarter of the world’s economy, an agreement that most certainly did not include the United States.

“The [EU/Japanese] agreement also reaffirms its parties’ commitment to the Paris climate accord, from which the Trump administration has said it will withdraw… Tokyo and Brussels began trade talks in 2013, and said in June that they were nearing a deal. Japan trades less with the European Union than it does with the United States or China. But completing a deal with the European Union became a more urgent priority for Tokyo after President Trump’s decision in January to withdraw the United States from another agreement, the Trans-Pacific Partnership. Japan has also pushed to revive that deal, even without the United States.

“Japan had effectively paused its talks with the European Union while it focused on the larger Pacific Rim deal, which included 10 other nations along with the United States and Japan. Mr. Abe has made liberalizing trade a centerpiece of his economic agenda — a notable shift in a country that, despite its success exporting cars, electronics and other merchandise, had long shied away from trade deals.” New York Times, December 8th.

Trump’s rather shallow understanding of the world, assumptions based on his rather checkered path in business, generally flaunt economic experts, but as an ostensible populist, his entire political career is staked on betting against the experts. The problem is, of course, is that if the experts prove right, Trump’s billionaire lifestyle is pretty safe; the vast majority of Americans… not so much. Will we become “the biggest loser”? We are sure giving up our economic leverage at warp speed.

I’m Peter Dekom, and a fact-averse, slogan-driven dilettante president could be a pretty nasty lesson for those who put him in office.