https://www.businesstimes.com.sg/opinion-features/beware-trump-20s-trade-policies
Beware of Trump 2.0’s trade policies
A second Trump term will mark the end of trade liberalisation
Leon Hadar
Published Tue, Sep 12, 2023
IF YOU didn’t like President Donald Trump’s trade policies during his term in office, assume that they won’t get better in his second term, if there will be one. Indeed, they are likely to get worse.
According to press reports, the former president, who is seeking a return to the White House after the 2024 presidential election, recently told a group of supporters that he was planning to enact a “universal baseline tariff” on virtually all imports to the United States.
This idea, said Trump, would create a “ring around the US economy”, representing what would amount to a massive escalation of a geo-economic war.
“I think we should have a ring around the collar” of the US economy, the self-proclaimed economic nationalist told Fox Business recently. “When companies come in and they dump their products in the United States, they should pay, automatically, let’s say, a 10 per cent tax… I do like the 10 per cent for everybody.”
Setting this tariff at 10 per cent “automatically” for all countries would lead to higher prices for American consumers, devastate American exporters, and eventually lead to the collapse of the liberal international trade order.
Currently, the United States imposes an average tariff on imports of just above 3 per cent. The tariff is higher for some countries, with Chinese goods facing an average import duty of 19 per cent.
“To bring tens of thousands more manufacturing jobs back to South Carolina, I will impose a border tariff on all foreign-made goods,” Trump said recently in an address in Columbia, South Carolina. “So if they want to sell (in) our country and if they want to take our jobs by doing that, we’re going to have a tax that’s going to be a ‘privilege’ tax.”
Trump is also promoting a universal reciprocal tariff that would see the United States imposing tariff rates on foreign goods equivalent to what the exporting country charges on US goods.
He challenged the bipartisan pro-free trade approach when he first ran for office in 2016, pledging to confront the economic rise of China through trade protectionism.
And, indeed, as president, he employed his unilateral authority to impose tariffs on a wide range of foreign products, including solar panels, washing machines, steel and aluminium.
In 2018, Trump imposed tariffs on US$200 billion worth of imports from China, leading Beijing to slap retaliatory tariffs on US agricultural exports. He also imposed tariffs on Mexico and Canada, before signing a new trade agreement with the country’s North American allies in 2019.
This protectionist strategy, especially when it comes to China, has enjoyed widening bipartisan support in Congress, including among members of the progressive wing of the Democratic Party and among a rising force of Republican populists.
And despite his criticism of these trade policies during his 2020 presidential campaign, Democratic President Joe Biden has embraced his predecessor’s protectionist policies as part of an overall economic nationalist strategy. He has even placed added restrictions on trade and investment ties with China.
The good news for free traders is that there is still a powerful pro-free trade wing in the Republican Party and in the conservative movement that has been very critical of Trump’s assault on free trade, including his latest proposal of a minimum tariff on all imports.
“After his record of failure on specific tariffs for washing machines or steel and aluminium during his presidency, a universalised version of that failure is in nobody’s best interest – except trade lawyers in Washington, DC,” insisted the influential conservative magazine National Review in a recent editorial.
Indeed, as the National Review and other detractors suggest, the new tariff would not be universal despite its label as such, with every lobbyist from every company with international trade demanding exemptions from Washington.
These exemptions would be granted as political favouritism, opening the door to political corruption, as political and financial support is exchanged for favourable treatment by the government.
Moreover, while protectionists like Trump describe tariffs as a tax on other countries, American consumers end up paying the price – a total of US$80 billion during Trump’s term, according to a Tax Foundation analysis. This cost the United States 166,000 full-time-equivalent jobs, the analysis noted, and Trump’s trade tax wiped out roughly 12 per cent of the economic benefit of the 2017 Tax Cuts and Jobs Act.
And as the National Review points out, while Trump and other protectionists promise to save jobs, “a universal tariff would be disastrous for American workers”. Since about half of all US imports are inputs for domestic production, raising the prices of those inputs would lead many companies to compensate by hiring fewer workers or laying off existing workers.
Then there is the impact of Trump’s tariffs on the global economy. The last American president to consider such a sweeping trade idea was Herbert Hoover in 1930 with the Smoot-Hawley Tariff Act.
That across-the-board border tax triggered global retaliation that shrank world trade and contributed to what became the Great Depression, and the trade wars that followed devastated the global economy and were one of the causes of World War II. President Hoover became a symbol of the Republican Party’s reputation for economic mismanagement.
And while the trade and investment curbs on China can be justified based on national security considerations, it makes no sense for an American president to launch trade wars against America’s economic and strategic partners across the Atlantic and the Pacific, whose support the United States needs in order to counter threats from its global adversaries, China and Russia.
Put another way, Japan and Germany aren’t America’s leading geo-economic rivals, and imposing tariffs on them makes it more difficult to rally them to back sensible trading rules. The nationalist Trump should recognise that making it harder to trade with them as well as other economic and diplomatic partners would erode the United States’ global position and harm its national interests.
If anything, most countries want to sell to the United States, the largest consumer market in the world, and Washington’s ability to exert global influence would increase by liberalising international trade. Hence, the most effective way to change China’s trade policies and strengthen the US position in the Indo-Pacific region would have been by joining the reconstituted Trans-Pacific Partnership trade pact, and not by rejecting it as presidents Trump and Biden did.
In fact, the Biden administration has failed to reverse most of the Trump tariffs, and the Inflation Reduction Act it promotes is full of trade-distorting subsidies that are sparking a trade war with the European Union.
Which brings us to the bad news for free traders. For the first time in more than 100 years, neither of the two major candidates running for the presidency in 2024 is an advocate of free trade.