Are Trump's plans beneficial to American workers?

Free trade versus protectionism

Peter Sparding

Peter Sparding is a Transatlantic Fellow at the German Marshall Fund of the United States in Washington D.C. There the political scientist is responsible for trade policy and transatlantic relations.

Rabiat, the US president changed course in trade policy - and in doing so even set himself apart from his party colleagues. He vehemently criticizes the trade deficit and tries to renegotiate the US trade treaties. The political scientist Peter Sparding analyzes with varying successes.

US President Donald Trump speaking to steel workers in Granite City, Illinois in July 2018. (& copy picture-alliance, newscom)

Trade policy is one of the few areas in which US President Donald Trump has long shown consistent positions. Even as a New York real estate investor in the 1980s, Trump repeatedly spoke on television that other countries exploited the US economically and treated it unfairly. [1] In 1987 Trump placed a full-page ad in the form of a letter to the American people in major US daily newspapers, in which he wrote that Japan in particular had exploited the US for decades and built a strong economy with the help of its surpluses. [2]

Peter Sparding (& copy GMFUS)
It was therefore not surprising that from 2015 onwards, Trump made an aggressive position on the trade issue a core brand of his presidential candidacy. In the election campaign, for example, he claimed that China's entry into the World Trade Organization (WTO) had resulted in the largest "job theft" in US history. In addition to individual countries, regional free trade agreements in particular have repeatedly been the target of furious attacks by the candidate Trump: For example, the Transpacific Partnership (TPP) negotiated with eleven other Pacific riparian states under President Barack Obama and the North American Free Trade Agreement reached in 1994 with Canada and Mexico (NAFTA), which he called "the worst trade deal ever signed by the US". [4]

In terms of trade policy, Trump set himself apart from the traditional positions of the Republicans. For a long time they were considered the free trade party. The majority of Republican members of Congress voted for Obama's TPP in 2015. [5] In trade policy, one of the biggest gaps between the established Republicans in Congress and their president has opened up - so far without any problems for Trump.

What distinguishes Trump's trade policy thinking? Two main lines of argument can be identified. For one thing, Trump clearly sees international trade as a zero-sum game in which only one side can really win. In Trump's view, the US has lost in this "game" for decades. Evidence of this is for him the longstanding American trade deficits, which he interprets as a sign of weakness. On the other hand, there is also an aversion to regional or multilateral agreements. From Trump's point of view, bilateral negotiations, in which the US always has the longer lever due to its size and power, are preferable to more complicated multi-state formats that require compromises. Both aspects now dominate US trade policy.

Trade deficits and trade surpluses

It is Trump's stated goal to reduce the US trade deficit. This deficit, the largest in the world, was around $ 552 billion in 2017, representing 2.85 percent of America's gross national product. [6] A distinction must be made between the massive American deficit in goods trade, which amounted to over 811 billion US dollars, and the surplus of around 242 billion US dollars in the service sector. In the American debate, which is mainly related to the loss of industrial jobs, the goods deficit plays a major role. The US has by far the largest bilateral trade deficit in goods trade with China (375 billion US dollars in 2017), followed by Mexico (71 billion), Japan (68 billion) and Germany (64 billion). It is therefore no coincidence that all of the countries mentioned have been the target of criticism from the President or his advisers.

Trade deficits are not a new phenomenon in the American economy. For the last time the American trade balance was in surplus in 1975. [7] In particular, the considerable bilateral deficit with China has been a thorn in the side of many American politicians, not just since Trump. And not without reason. The rapid economic rise of China and the country's entry into the WTO in 2001 had a significant impact on the American economy and, in particular, the labor market. As some highly regarded studies suggest, the "China shock" meant that individual regions and industries in the USA were hit particularly hard by the rapidly increasing influx of Chinese imports in the 2000s.

According to a study, around 2.4 million jobs were lost between 1999 and 2011 as a direct result of increasing imports from China. [8] The criticism that China has gained an advantage through unfair measures cannot be dismissed out of hand. Recent studies suggest that currency manipulation by China (and other countries) was one of the main reasons for the massive imbalance in trade balances in the 2000s. And that the US trade deficit would have been up to 35 percent lower without these artificial influences. [9]

While there is a lively academic debate about the exact share of trade in lost industrial jobs and rising inequality in the United States [10], fears about it are widespread, especially among Republican supporters. [11]

However, the President's direct action in reducing bilateral trade deficits is limited. Most economists assume that these are largely not caused by specific trade measures, such as tariffs or import quotas, but are caused by macroeconomic and structural developments and conditions. [12] Decisive factors are therefore rather the savings and investment behavior of a country, exchange rate fluctuations and different industry focuses of countries trading with one another. [13] Paradoxically, the American trade deficit rose by more than 60 billion US dollars in Trump's first year in office.

So far, however, this has not stopped the president from publicly and brutally pushing for the US to reduce its trade deficits. [14] Citing a possible threat to national security, Trump ordered punitive tariffs on steel and aluminum under Section 232 of the Trade Expansion Act of 1962, which also hit the EU from June 2018. The US government relies on WTO rules that allow the introduction of restrictive trade measures in the event of a threat to national security. On the same grounds, Trump ordered a new investigation in May 2018 to find out whether car imports can also endanger the national security of the United States. Should the responsible Commerce Department come to this conclusion, the US government threatens to impose tariffs of up to 25 percent on car imports. In contrast to the steel and aluminum tariffs, this would be of considerable importance, especially for Germany.

Trade agreement and WTO

The attempt to cut the trade deficit is also the driving force behind Trump's concern to realign US trade deals. In the official objectives of the US Trade Representative for the renegotiations of the North American NAFTA agreement, which began in August 2017, the reduction of the bilateral trade deficits with Mexico and Canada was the top priority. In other renegotiated trade agreements, such as the US-Korea Free Trade Agreement (KORUS), the bilateral trade deficit, which has doubled since the agreement came into force in 2012, was also of particular importance for the US side. [16]

With a view to the EU, the US president has repeatedly voiced criticism in this direction, claiming that Europe is "almost as bad as China, only smaller." [17] Against this background and in view of the steel and aluminum tariffs as well as the threat of further tariffs, the EU finally sought direct negotiations with the USA in the summer of 2018. At their meeting in Washington, Trump and EU Commission President Jean-Claude Juncker agreed to refrain from further tariffs as long as negotiations are ongoing. However, so far there has been disagreement about the exact extent and goal of the negotiations: While the European side assumes, for example, that the agricultural issues that are sensitive in Europe are not part of the negotiation, there is growing pressure in Washington to include them in negotiations with the EU.

The US government also kept its announcement to renegotiate the NAFTA agreement. The demands of the Americans since the summer of 2017 were in some cases so brusque that some observers interpreted them as a mere pretext for a possible withdrawal of the USA from the agreement. [18] During the negotiations, President Trump repeatedly tried to exert pressure on Canada and Mexico with aggressive public statements. In autumn 2018, the three countries tentatively agreed on changes: Canada and Mexico accepted more restrictive regulations for exports to their largest trading partner, the USA. Mexican automobile production is also threatened with considerable adjustments, as it was agreed that in future more auto parts will have to be manufactured in regions where workers earn at least 16 dollars an hour, well above the average hourly wage in Mexico.

The same applies to the government's attitude towards the WTO. Trump has repeatedly threatened to leave the WTO should it get in the way of his plans. In particular, the Appellate Body, the Appellate Body of the WTO, is a thorn in the side of the US government. Although the USA prevented the appointment of a new judge under President Barack Obama, Trump has also blocked further appointments so far, so that the body threatens to become permanently incapacitated.

The main goal of US trade policy is and will remain China

The main goal of American trade policy is and will remain China. In spring 2018, the US side demanded that China should reduce its trade surplus with the US by 200 billion US dollars within two years, which the Chinese side rejected. Then China was also subject to steel and aluminum tariffs. In the summer, the US first imposed punitive tariffs on imports worth 50 billion dollars, citing unfair Chinese trade practices, and in autumn 2018 on imports worth 200 billion dollars. Trump has already announced an increase and expansion of these tariffs if China does not respond to US demands. For its part, the Chinese side has initiated countermeasures against American imports. Another escalation seems almost certain.

The extremely aggressive dealings with trading partners and the heated rhetoric from Washington leave no doubt about the goals of US trade policy under Trump. It is less clear how this basic orientation will be reflected in detail. Within the US government, there is always a heated argument about this between more moderate (such as Treasury Secretary Steven Mnuchin) and more vehement forces (such as Commerce Secretary Robert Lighthizer). The President himself shows through his frequent and aggressive public arguments and his unwillingness to respond to counter-arguments that he personally relies on confrontation as a means of his trade policy.

It is still unclear to what extent other actors, such as the Congress, half of which has been led by the Democrats since the midterm elections in 2018, can contain Trump's ambitions. For the trading partners of the USA and especially the EU, this results in a situation in which, on the one hand, they have to react to the active measures on the US side with their own countermeasures and, on the other hand, have to maintain a negotiating atmosphere that is as productive and slow as possible in order to gain time. Given the political volatility in Washington, this balancing act is likely to be immensely difficult.

The article is a shortened and updated version of the text "America First. Donald Trump and the readjustment of US trade policy" published in APuZ 4-5 / 2018