Donald Trump won the Presidency promising to upend decades of American trade policy. A year and a half into his administration, has he delivered on these promises? And what is the future of American trade policy?
Will Trump Launch a Trade War?
The most immediate concern for many trade policy analysts, both in the US and abroad, is that President Trump is seeking a trade war. In March, Trump tweeted that “trade wars are good, and easy to win.” There are at least three potential fronts in this looming war: North America, where the US has demanded a renegotiation to the North American Free Trade Agreement (NAFTA); Europe, where the US and EU are arguing over American steel and aluminum tariffs, among other topics; and Asia, where Trump has frequently complained about the trade practices of both allies (Japan, South Korea) and competitors (China). Indeed, Trump’s protectionist impulses appear to be one of his most deeply-held policy beliefs; he’s been complaining about other countries “ripping off” the United States on trade since the 1980s.
Yet, while Trump’s rhetoric has certainly departed from standard US trade policy, in practice his actual policies have been far less revolutionary. He has not followed through on his threats to withdraw from trade agreements. Trump’s calls for reciprocal taxes have gone nowhere. And while his administration has repeatedly announced plans for new tariffs, it has delayed and watered down their implementation.
It is, of course, still possible Trump could change paths. But the empirical record to date suggests the US is unlikely to launch an all-out trade war. Instead the US and its trade partners are likely to continue muddling through a series of endless negotiations, with the threat of trade war always on the horizon but never quite materializing.
Searching for a New China Strategy
While Trump’s aggressive rhetoric is garnering all the headlines, beneath the surface there is a separate, potentially more important shift in American trade policy. Today there is an emergent consensus among the American trade policy community that the US needs to seriously rethink its approach to China.
Over the last two decades, American policy toward China was based on the premise that China was on a long term path toward a more market-based, liberalized economic model. (And indeed, that such economic liberalization might eventually spur political liberalization.) US policy was designed to encourage and accelerate this shift, including by welcoming the country into the World Trade Organization (WTO). While it was always understood that there would be some setbacks and difficulties along the way—and while opportunistic politicians could score some temporary political points by bashing China—the long term strategy had been to engage and integrate China into the liberal global economic order.
In the last year or two, however, American policymakers have become increasingly skeptical about this approach. This shift was driven, in part, by new research showing that Chinese import penetration had much greater costs on American communities than previously understood. Even more importantly, however, has been growing disillusion and impatience with China’s own actions. American policymakers see little evidence that China is on a path toward liberalization, or that the Communist Party will adopt a less commanding role in the market. If anything, the “Made in China 2025” strategy suggests even more intervention. American multinational companies that were previously willing to put up with China’s technology transfer demands in order to gain access to the country’s market are rethinking this bargain. At the same time, there are worries that the current rules and institutions of the global economy—chief among them the WTO—are ill-equipped to deal with China’s form of state capitalism. Something must change.
Yet, while American trade policymakers are increasingly frustrated with the status quo, there is no real consensus on what a new strategy would look like. There is little appetite for imposing new tariffs. There is more interest in making it easier to block Chinese foreign investment, though this will do little to change the dynamics of the economic relationship. Regionally, the US has stumbled in its responses to the Asian Infrastructure Investment Bank (AIIB) and Belt and Road Initiative, expressing concerns and raising alarms but not proactively offering any concrete alternatives. (Of course, the Trans Pacific Partnership could be one such alternative, if the US later chooses to rejoin.)
This appears to be a moment of transition in American trade policy toward China. It is unclear where this transition will ultimately lead. But whether or not Trump sparks a trade war, the next US President is likely to seek some sort of reset in the US-China economic relationship.
A Transatlantic Trade Alliance?
The future of the US-China economic relationship will also be shaped by the evolving US-EU relationship. Both the US and the EU, after all, have largely similar complaints and worries about China’s economic policies and future trajectory. In principle, the two could coordinate their strategy, and negotiate from a position of strength.
Yet there are also several trade conflicts between the US and EU, both short term and long term, that might hinder greater cooperation in addressing China. Trump’s aggressive trade rhetoric has often focused on Europe, particularly Germany. And after withdrawing from the Iran deal, the US is now poised to begin sanctioning European companies doing business in the country, setting up a showdown with European governments.
Beyond these Trump-induced pressures, there are some deeper strains in the US-EU economic relationship. There is increasing competition between the two most important regulatory powers in the world, most notably when it comes to data protection rules and internet governance. Given the importance of the free flow of information across borders to both the American and EU economy, this is likely to be a contentious issue for years to come. Meanwhile, negotiating Brexit is likely to pre-occupy the EU in the near term, and in the medium-to-long term taking the UK out of the EU will likely push EU preferences further away from those of the US.
The international trade system is shifting. It is becoming less multilateral and more fragmented, with more of the important action happening among smaller groups of countries outside of the WTO. It is becoming less legalized and orderly, with more emphasis on power politics, informal diplomatic bargaining and ad hoc arrangements. And with intensifying great power rivalry, trade policy is becoming an important arena of geostrategic competition, and increasingly intersecting with national security concerns.
American trade policy is both driving and responding to these shifts. And though these trends pre-date the current administration, the Trump presidency will likely help accelerate them.