- Having played a crucial role in shaping the global trade system since the end of the Second World War, the US under the presidency of Donald Trump will no longer take the lead in pressing for new free-trade agreements and multilateral trade rules. However, the global trade system, and the US’s role in it, was in trouble before Trump’s victory in 2016. Americans are increasingly sceptical of free-trade agreements, even if they generally view free trade positively.
- Some of Trump’s success in tapping into the sentiments of voters who felt that they had been left behind by trade was based on misperceptions (such as the overstated impact of trade on jobs and wages, or a discourse that placed heavy emphasis on the US merchandise trade deficit while largely ignoring the surplus in the services sector). However, he also pointed to valid concerns about international trade (among them insufficient adjustment mechanisms for those adversely affected by trade, and unfair practices by some other countries).
- Although Trump’s campaign rhetoric suggested a fundamental change in trade policy, his administration so far seems to be taking a more moderate and conventional approach. Despite significant presidential powers on trade, there are constraints ranging from the role of Congress to infighting between major Republican factions, the involvement of the cabinet and agencies, economic considerations, voter preferences, and the prevailing international environment on trade.
- During his early months in office, Trump’s sole definitive action on trade was to withdraw from the Trans-Pacific Partnership. He has since initiated the renegotiation of the North American Free Trade Agreement. He did not, contrary to his campaign promise, designate China a currency manipulator on ‘day one’ of his administration; nor has he taken any action to impose across-the-board tariffs on imports from China and Mexico.
- Reducing the US trade deficit, making more aggressive use of trade remedies, and tackling perceived unfair practices will be key pillars of Trump’s policy. And given his preference for bilateral deals, the outlook for current negotiations with the EU and on the Trade in Services Agreement is uncertain.
- While an outright trade war – especially with China – is increasingly unlikely, more moderate trade-restrictive measures will still have negative economic consequences for the US and globally. Trump’s trade policy will also have wide geostrategic implications, from the adverse effects of withdrawal from ‘mega-regional’ trade deals on US leadership and relationships with key partners to an increased role for trade in a deal-making model of foreign relations and greater friction in international forums such as the World Trade Organization and the G20.
- Without the US as its champion, the global trade agenda risks faltering. But although productive engagement with Trump on trade will be a challenge for the US’s partners, there are other potential routes that could have a moderating effect on his protectionist intent. Moreover, there is an opportunity to move the debate forward and strengthen global trade by addressing some genuine shortcomings within the current system.