All eyes are turning to see whether Trump will fulfill his promise to overhaul U.S. trade policy. The president-elect has vowed to rewrite global trade agreements to better protect American jobs and businesses, but has yet to provide much detail on what steps he will take.
Yet it’s clear that Trump’s presidency will usher in a new era of trade dealings, one that could churn up new tensions with major trading partners like China, Mexico and Japan.
Here are five trade policies to watch in the Trump administration.
Withdrawal from the Trans-Pacific Partnership
Trump is withdrawing the United States from a sweeping Asia-Pacific trade agreement as his first order of business in the White House. Trump has called the TPP “a potential disaster for our country” and has said he prefers bilateral trade deals. To remove the United States from the deal, Trump would only have to send a letter to New Zealand, which acts as the deal’s administrator. The move will probably be denounced by business groups, which have aggressively pushed for passage of the TPP even as they’ve praised Trump for his Cabinet nominations. TPP was President Obama’s signature trade deal and the one he had hoped to push through Congress before leaving office. Withdrawing from it would unravel years of work and inject fresh uncertainty into global relations. Many trade advocates argue that abandoning TPP hands China the economic and strategic reins in the rapidly growing Pacific. The 11 other nations that are party to the deal say U.S. involvement was critical to creating a more equitable trading zone across the Pacific Rim.
Renegotiating the North American Free Trade Agreement
Soon after he takes office, Trump is expected to start the process of reworking the 22-year-old NAFTA trade agreement. Trump and his team are gunning for sweeping changes to the deal with Mexico and Canada; both countries have said they are willing to discuss modernizing NAFTA. Wilbur Ross, Trump’s pick for Commerce secretary, is a vocal critic of NAFTA who has made a renegotiation of the deal a top trade priority. Ross and Peter Navarro, a University of California at Irvine economics professor who has been tapped to lead the newly created White House National Trade Council, co-authored a paper in September criticizing the use of “backdoor tariffs” they argue give Mexico a competitive advantage. “It is thus not surprising that U.S. corporations want to move their factories offshore and then export their products back to the U.S.,” the paper said. Any shake up of the trio of North American countries could upset a complex supply chain system because many products cross borders several times before they are ready for customers. If Trump is not satisfied with the results of any future talks, he could still potentially pull the United States out of NAFTA, setting up the possibility for bilateral trade agreements with the northern and southern neighbors.
Realigning trade power
Trump has said he would consolidate trade policy decisions in the hands of a few select members of his administration, mostly Ross and Navarro. Trump also recently named his longtime attorney Jason Greenblatt to the position of special representative for international negotiations, where he could assist with global trade agreements. The core of trade power appears to be shifting away from the Office of the U.S. Trade Representative, an agency that has led negotiations on a series of complex trade deals, including the TPP and a deal between the United States and the European Union.
Ross is expected to lead the charge on trade policy going forward, with Navarro serving as a liaison to Trump, who is expected to play a more personal role in negotiating trade policies with countries like China. There is still plenty of uncertainty around whether Greenblatt would work with USTR or supersede that agency’s role. Trump has yet to choose anyone to head up the USTR. He has criticized the trade agency in the past, saying it negotiates bad agreements. Navarro, an outspoken China trade critic who has said past trade deals have hurt the nation, will helm the new trade council aimed at advising Trump on trade talks. He’s written two books critical of Chinese foreign and economic policy. He backs Trump’s idea of levying a 45 percent tax on Chinese goods.
Tariffs on countries and companies
Trump has repeatedly called for double-digit tariffs on imports from Mexico and China to reduce the trade deficit, which he and several of his nominees have linked to the nation’s shedding of manufacturing jobs. He is employing the threat of high tariffs to prevent companies from moving jobs and production out of the United States. Punishing companies for sending jobs overseas would represent a major shift in U.S. trade policy, and one that would have unpredictable effects on economic growth. Trump has floated a tariff of 35 percent for off-shoring jobs, but it’s unclear whether he could move to punish individual companies without action from Congress. He also has vowed to slap a 45 percent tariff on Chinese imports if Beijing doesn’t change its trade practices.
Congress has given presidents the ability to levy tariffs in an emergency, but even those could eventually be challenged at the World Trade Organization. Under existing laws, Trump could impose tariffs on certain industries but not on individual companies or countries like Mexico and China.
Trump says the United States is “being hurt very badly by China with devaluation” of its currency, the yuan. To that end, he may call for the Treasury Department to label Beijing a currency manipulator early in his presidency, a move that would rile Chinese leaders.
Republicans in Congress could also take action. Republican Sen. Lindsey Graham (S.C.) said recently that next year he would revive currency legislation aimed at levying harsher penalties on China for deliberately lowering the value of their currency to gain an advantage in international trade. While Congress has expressed support for cracking down on China’s currency, the Treasury Department determined in an October report that no world economy, including Beijing, met the three-stage criteria to be labeled a currency manipulator. China has actually been selling dollars to keep the yuan’s value steady.
Still, Trump has continued hammering China as manipulating its currency.
In a recent speech he said that “China and others, they just knock the hell out of the value of their currency, and we have to go back and back. And it just doesn’t work, folks.”