The Trump Presidency could mean a world trade war but Congress may push a US-UK trade deal

Against all the odds, Donald Trump has just pulled off a surprising victory in the US Presidential election. Given that much of his loudest rhetoric during the campaign cycle focused on the issue of international trade, we can expect him to put it front and centre of his new administration. Unfortunately, it is likely that his policies will start a trade war, to the detriment of the world and the American citizens he purports to champion – and Britain could end up as collateral damage.

Much of The Donald’s anti-trade rhetoric has been directed at two targets – Mexico and China. Mexico, as part of the North American Free Trade Agreement (NAFTA), has come under fire for benefiting at the expense of traditional US manufacturing (although the US is actually manufacturing more than ever before), leading to his famous quip in Flint, Michigan (currently suffering from a tainted water supply): “It used to be, cars were made in Flint and you couldn’t drink the water in Mexico. Now, the cars are made in Mexico and you cannot drink the water in Flint.”

China, meanwhile, has long been a target for outrage given that country’s practice of suppressing the value of its currency. While most free-market economists view such an action as a subsidy by the people of China to the citizens of their trading partners, Donald Trump’s advisors view it as an attempt to hollow out America’s manufacturing base, and a contributing factor to the decline of the American middle class (as the working class is known here).

Indeed, strong action against China might very well plunge the world into a trade war, as experts warned when GOP candidate Mitt Romney threatened such actions in 2012. It is to President Obama’s great credit that he recognised the value of trade with China and Mexico – not least to the American middle class, whose dollar goes a good deal farther thanks to more affordable goods.

It should also be noted that the President has extraordinary powers to abrogate trade deals and impose tariffs, much of which actually derive from a World War I-era statute, the Trading with the Enemy Act. The Peterson Institute for International Economics recently examined Trump’s proposals and suggested three forms of trade war that could result:

  • Full trade war, with the US imposing high tariffs on imports from China and Mexico, and those countries responding in kind. Under this scenario, the US would experience a ten-year recession, with nearly 5 million jobs destroyed.
  • Asymmetric trade war, where the other countries raise tariffs to World Trade Organisation levels, with targeted sanctions. Specific American industries, such as aircraft manufacture and soybean agriculture, could suffer badly, with significant concentrated local effects.
  • Aborted trade war, where the US realises its mistake and backs down, could still lead to the loss of a million American jobs. 

Would a President Clinton have been much better? She avoided the heated rhetoric, but she followed the populist trend tapped into by President-Elect Trump. Indeed, her campaign even pointed out the similarities between her position and The Donald’s.

This means that Hillary Clinton would have likely abandoned the Trans-Pacific Partnership negotiations that her predecessor started, would have sought to renegotiate NAFTA to “dramatically strengthen NAFTA’s labor and environmental provisions; change NAFTA’s investment provisions that grant special rights to foreign companies; [and] strengthen NAFTA’s enforcement mechanisms,” and taken action against what she argued were China’s trade abuses. So it is entirely plausible that we’d be in the same boat anyway, even if she took a more measured approach.

As regards trade with the UK, Mr. Trump has said he is relaxed about a post-Brexit trade deal, but it is easy to see the UK’s trade with the US suffering anyway as a result of any recession in America, and the Trump US Trade Representative might be too busy fighting fires to push for an early deal. However, 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.

Moreover, it is likely that some states will make their voices heard too. The influential American Legislative Exchange Council (ALEC), a nationwide association of conservative-leaning state-level legislators, will be debating a model policy on a US-UK trade deal at its conference in Washington in early December. State legislators often use ALEC motions to write their own bills, so it is possible that a large number of states will urge the President to prioritise US-UK trade negotiations over the next year.

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. If that is the case, then we can expect a warm welcome for Liam Fox in Washington.

Originally posted to Brexit Central