The Future of Free Trade under a Trump Administration
My colleague Iain Murray has an excellent analysis today in Brexit Central of how a future international trade deal between the United States and a post-Brexit UK could be the beginning of a new “global prosperity zone.”
While the incoming Trump administration has given much of the world something to fear regarding future US trade policy, for good reason, there is a bright spot for the United Kingdom, which can look forward to a warm reception in Washington. And America can benefit as well. Done right, a US-UK trade deal could set the stage for a major rethink of trade policy that could set the stage for productive liberalisation in the future.
The President’s team seem quite OK with imports from countries with free and open economies —who are by nature more open to imports from America. That suggests that the prospects of negotiating a Global Free Trade Association (GFTA) of free economies are bright indeed. GFTA member countries would agree to minimal trade barriers between them as long as they maintain free market economic policies, such as low tariffs and few non-tariff barriers, openness to foreign investment, strong adherence to property rights, and regulations that are not overly burdensome on businesses. British Ministers David Davis and Liam Fox have explored that option in their “prosperity zone” proposal.
A new trade deal with Britain is just one of the five ways that President Trump could jump-start economic growth, according to another of Iain’s recent op-eds.
We find ourselves at an odd crossroads for economic policy. Observers expect the incoming administration to reverse and limit government regulation across the board, but at the same time to pursue greater control over international trade relationships. Stranger still, skepticism about the last two decades or so of free trade agreements was one of the few issues that seemed to unite both Democrat and Republican candidates during the 2016 election season. As CEI adjunct scholar Fran Smith wrote all the way back in March, bashing trade was a popular target this election year:
Pundits are opining that Bernie Sanders’ significant win in the Democratic primaries in Michigan was primarily due to his vehement anti-trade stance. Donald Trump’s surge in the Republican primaries in Michigan and Mississippi also came in part from his own protectionist position. The Wall Street Journal has a lengthy front-page article on the rise of protectionist sentiment among both Democratic and Republican voters. Major newspapers such as the Washington Post have pointed to Sanders’ use of “bogus numbers” when attacking free trade in his stump speeches and in his debates.
Almost every candidate is pointing to trade agreements as being largely responsible for U.S. job losses and citizens’ angst. Even 22 years after the North American Free Trade Agreement (NAFTA) went into effect, NAFTA is blamed for large job losses in the automotive sector and in traditional manufacturing centers. And that rhetoric seems to be registering with the voters.
Part of the problem with modern trade agreements is that they have long since stopped being primarily about eliminating barriers to trade. As Iain wrote for CapX earlier this year:
It used to be common to call a trade deal “free” – from NAFTA to the Central American/Dominican Republic free trade agreement. Then in 2012, a batch of “trade promotion agreements” with various countries, including Panama, came along. Now, with the Trans-Pacific Partnership (TPP), not only the word “free,” but even the word “trade” is missing from its title. The reason: Free trade deals aren’t mainly about free trade any more, and haven’t been for some time.
The TPP, for instance, includes long chapters on “harmonizing” environmental and labor standards as much as is acceptable to all parties. This has led the AFL-CIO to oppose the deal, believing it will harm American labor standards. Meanwhile, conservatives have warned that the Partnership will result in a back-door ratification of the Paris climate agreement.
While these objections can be debated, one thing is certain: The TPP is a step on a road to trade bureaucracies controlling what policies are permissible in these areas. NAFTA included some similar provisions, leading my colleague Fran Smith to comment at the time that, “NAFTA threatens to undermine national sovereignty by internationalizing domestic environmental policies.” The TPP goes much further by raising these provisions’ routine enforcement procedures to the level required for actual trade disputes.
Given this mess, Iain has also suggested a renewed role for Congress to influence the future of trade policy:
…trade deal negotiations are actually a power delegated to the President by Congress, which theoretically has the right to amend trade deals in legislation, but routinely agrees to give up this power by granting Trade Promotion Authority (TPA) to the President. The idea behind TPA is to give the other parties to the negotiations certainty that the USA will stand by its commitments and not change things to suit political interests when a treaty comes before Congress.
This, however, means that Congress can instruct the President to undertake and, indeed, prioritise certain trade deals. With the Republicans retaining control of Congress, it is probable that we will see progress on the United Kingdom Trade Continuity Act, a bill introduced by Senators Mike Lee (R-UT) and Tom Cotton (R-AR) that instructs the President to start negotiations on a US-UK trade agreement very quickly.
In the end, the world will wait anxiously to see whether Mr. Trump’s actions on trade match his campaign trail rhetoric. Cooler heads may yet prevail, with his actions as President falling short of a trade war.
Finally, in the spirit of avoiding that possible trade war, we would all do well to remember the admirable re-statement of truths about trade that CEI Fellow Ryan Young wrote in September:
Trade is how to stimulate a moribund economy. It doesn’t matter if that trade takes place within a single neighborhood, across state lines, or across international borders. Buyers and sellers will only make deals if both parties expect to benefit. Preventing people from making good deals is a recipe for economic disaster.
The next president should not only refrain from adding additional trade obstacles, he or she should work to remove existing obstacles such as tariffs, quotas, and unnecessary red tape.