This year has gradually revealed itself to be an exciting roller-coaster journey characterized by several astonishing ups and downs in the global economy.
The expected tsunami of trade protectionism, primarily stirred up by US President Donald Trump’s intriguing “America first” agenda and aggravated by the withdrawal of the UK from the EU — the so-called “Brexit” — has surprisingly not invoked broadly devastating effects on the global economy, nor has it undermined the solid direction of global free trade as many pundits expected.
Although Trump’s rhetoric of economic nationalism has not yet caused any conspicuous damage, compared with the remarkable progress of economic globalization in the past two decades, optimistic prospects for the world economy have been irrefutably overshadowed by a rising skepticism over globalization and the looming storm of trade protectionism, which has not been seen since the 1999 WTO protest in Seattle.
Trump’s “America first” agenda has mainly focused on job creation and a reduction of the trade deficit by encouraging manufacturing firms to shift their production back to the US and by renegotiating the terms of trade deals to be more favorable to the US, while wielding the stick of trade sanctions to accomplish the goal of boosting sales of US goods in overseas markets.
Although the volume of Trump’s protectionist rhetoric has been set extraordinarily loud, his actions have been relatively moderate and prudent. Except for his audacious abandonment of the Trans-Pacific Partnership (TPP) immediately after he took office, none of the hardline trade protectionist remarks of his presidential campaign have translated into real policy.
Trump, who vociferously threatened to impose Chinese imports with tariffs of up to 45 percent, has failed to fulfill his promise. Neither has his administration dared to list China as a currency-manipulating nation, as Trump had insisted.
The highly anticipated US-China Comprehensive Economic Dialogue, which was established by Trump and Chinese President Xi Jinping (習近平) during their first meeting in April and aimed to resolve US-China bilateral economic issues in 100 days, has also fallen short of expectations and ended up with few concrete achievements.
In August, the Trump administration formally declared that it was launching a Section 301 investigation into Chinese intellectual property rights theft. It seemed as though Washington had finally taken a tough stance with Beijing, but, given that the final determination might take more than a year, its current impact is more approximate to a symbolic warning than any actual harm to China.
Even so, Trump’s ostensibly harsh policy toward Beijing could kill two birds with one stone: Washington can soothe domestic discontent among US industries regarding China’s violations of international property rights while applying more pressure on Beijing for future trade negotiations. Nevertheless, this trade investigation by no means suggests that Washington is determined to wage a trade war with China.
Trump claimed that the North American Free Trade Agreement (NAFTA) is the worst trade pact ever, that it has led US manufacturing firms to move their factories to lower-wage Mexico and caused unemployment among US workers. Hence, the US should either get rid of it or renegotiate a better deal.
As a result, the objective of Washington in NAFTA renegotiation is to reduce the US trade deficit with Mexico, which was up to US$59 billion last year. The Trump administration also intends to revise the existing causes of rule of origin (ROO) in NAFTA, which Washington considers to be too loose and disadvantageous to US domestic manufacturing firms.
However, because regional supply chains are highly interconnected in NAFTA, it would be naive to think that Trump could boost US domestic production and shake up the existing manufacturing networks by single-handedly utilizing the ROO instrument.
After the first round of NAFTA negotiation in August, Washington received a backlash of concerns from the US Big Three automakers in Detroit, pressuring Trump to be more prudent when negotiating ROO.
So far, Trump’s trade protectionism has been more bluff than real policy. In other words, Trump uses trade protectionism as tactical leverage to obtain a better bargaining position for the US in upcoming trade negotiations, but has not fully implemented it as a lethal weapon that could actually harm the US’ trading partners.
Why does Trump’s trade protectionism not prevail and translate into actual action? The following five points provide some answers.
First, as a primary advocate of economic globalization for decades, the US has integrated its economy into the world economy, as characterized by its highly complex and interconnected economic interdependence with other economies. Any reckless action to cut off these costly bonds would bring more harm than benefit.
Second, the Trump administration ultimately wants to create more jobs in the US and to boost US exports, but it does not intend to initiate a trade war that would lead to costly consequences and mutual damage.
Trump’s protectionist rhetoric and related punitive policies are simply tools to these ends; they aim to change unfavorable trading rules or force trading partners to make concessions.
Third, the opposition from US domestic industries over Trump’s protectionist tendency pose constraints on his administration’s actual policy output.
For instance, Trump’s hasty withdrawal from the TPP has invoked widespread disappointment from US agricultural groups, as the TPP held promise for them.
There are reports that the Trump administration plans to impose quotas and tariffs on Chinese steel and aluminum imports. This idea, though welcomed by the US steel industry, is broadly opposed by the US business community, as they believe that imposing tariffs would drastically boost steel prices and undermine the overall competitiveness of US businesses.
Meanwhile, conflicting views on trade policy in the Trump administration have weakened its credibility and capability to negotiate with its trading partners.
Fourth, the consequences of adopting trade protectionism in the US, the largest import market in the world, will devastate the global economy and ultimately shatter US hopes of job creation and economic growth.
Imposing protectionist regulations to push private firms to buy US goods instead of imported goods will raise production costs. Although it might boost US job creation in the short term, it will certainly hurt the market competitiveness of US goods in the long run, which is exactly why many US business leaders are so anxious about Trump’s economic policy.
Finally, Trump’s trade protectionism is an aberrant countercurrent against the mainstream of expanding regional economic integration. Despite Washington’s abandonment of the TPP and postponement of the Trans-Atlantic Trade and Investment Partnership with the EU, the departure of the Trump administration from the route of regional integration has not triggered a widespread ripple effect.
Conversely, Trump’s economic nationalism has actually exacerbated the anxiety of other nations and has accelerated the pace of regional integration. In July, the EU concluded a free-trade pact with Japan and, last month, implemented a trade agreement with Canada. Other megaregional trade negotiations are proceeding without wavering from the theme of free-trade liberalism.
So far, no nation has attempted to imitate Trump’s protectionist policy, indicating not only that his policy has not been well-perceived, but also that most countries would rather pursue comprehensive benefits in a global environment of free trade rather than chase short-term and narrow self-interest.
The lack of a like-minded global audience will eventually undermine the legitimacy of Trump’s protectionist policy and weaken his domestic support. The US public would certainly not want “Trump taking on all others” to become “the US against the world.”
Although Trump’s pompous rhetoric on trade protectionism might hold an attractive populist appeal to his political base, it is certainly not a good cure to stimulate the US economy. Thankfully, given the reasons for the failure of his trade protectionism, we should be able to sleep tight, dreaming of a world in which global trade wars cannot come true.
Eric Chiou is an assistant professor at National Chiao Tung University and a visiting scholar at the National Graduate Institute for Policy Study in Tokyo.
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