FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 23 January 2017

Trumping World Trade

Written by , Difference Group

After the inauguration, President Trump has begun to reset the White House trade policies. But the consequences of “America First" stance in world trade are wrought with threats.

Recently, President Xi Jinping gave a strong speech about the need for more inclusive globalization at Davos. World trade is a case in point. In 2015, world export volumes reached a plateau. World trade is no longer growing. Any major protectionist initiative has potential to make a bad situation a lot worse.


Trump’s trade appointments and tariff plans

In the early 2010s, the Obama administration touted the Trans-Pacific Partnership (TPP), which excluded China. On his inauguration day, Trump announced US withdrawal from the TPP and promised to renegotiate NAFTA; if Mexico and Canada would refuse a negotiation, he would have US withdraw also from NAFTA.

Trump has promised to renegotiate or reject other US international commitments. And he has threatened to use 35-45% import tariffs, while his team has floated 10% tariffs. The goal is to force some countries, particularly Mexico and China, to change their trade practices, which he has vowed to challenge with “cease and desist" letters and greater pressure for intellectual property rights (IPRs).

Trump's appointments suggest potential for serious trade friction. He selected Peter Navarro, the author of sensationalist China-bashing books (The Coming China Wars, 2005; Death by China, 2011; and What China’s Militarism Means for the World, 2015), to head the new National Trade Council (NTC), which will oversee industrial policy in the White House.

Navarro's anti-China buddy Dan DiMicco, former CEO of largest US steel company Nucor and vocal free trade critic, became Trump's trade advisor and former Reagan administration trade hawk Robert Lighthizer, his US Trade Representative.

The three will work with Secretary of Commerce, billionaire Wilbur Ross, who made a fortune by offshoring American jobs and as bankruptcy expert. He calls China "the world's most protectionist country".

Targeting US deficit

Targeting the US deficit Trump has also named Japan as one of the deficit contributors, which Japan’s Finance Minister Taro Aso has considered inappropriate. In terms of trade imbalances, “China is No 1," Aso says.

In protectionist initiatives, the blame is in the eye of the beholder because one country's deficit is another's surplus. Trump’s trade warriors will begin by singling out nations that have large trade surplus with the US. That makes big trading economies obvious targets. In 2015, the list was topped by China ($367 billion), Japan ($69) and Mexico ($61 billion), and Germany ($60 billion).

However, they are likely to ignore the size of these surpluses on a per capita basis. If we take into account the population size, Germany ($720) is the deficit leader followed by Japan ($543), Mexico ($488), but China ($262) is far behind.

Now, if the Trump administration really is serious about targeting deficit leaders, it should probably consider a trade war with Ireland. After all, US has a deficit of $30 billion with Ireland, which translates to $6,380 in per capita terms - that's 9 times the German and 24 times the Chinese figure, respectively.

In reality, trade deficits are likely to serve as pretexts for protectionism - even if such policies penalize the rest of the world.

Regional trade deficits, nationalist tariffs

Trump's goals may well be dictated by realpolitik. Deficit criticism serves largely as an effort to undermine European unity (hence his anti-Merkel tirade), the rise of China and Mexico, and Japanese reforms. In such a win-lose world, "America First" is not possible through cooperation or even competition, but only by winning and harming perceived adversaries.

And yet, historically, US trade deficits did not start with China, or any other single country. Rather, they are regional and have prevailed for more than 41 years with Asia - first with Japan, then with newly-industrialized Asian tigers and recently with China and emerging Asia.

A single-minded focus on trade deficits ignores the fact that global economic cooperation is not just about trade in goods, but about trade in services and hightechnology. It also includes investment, which Trump would like to attract from the very same countries that he risks alienating with his trade policy.

And it includes migration flows, which Trump would like to restrict dramatically, which would hurt US long-term growth, reduce remittances to poorer nations and boost anti-US resentment particularly in the Middle East.

Smoot-Hawley Tariff Act Déjà vu

Trump’s stated protectionism does have a historical precedent. In 1930, the US Congress passed the notorious Smoot-Hawley Tariff Act, which sharply raised the cost of foreign imports.

While the Tariff Act seemed to work initially, it soon caused other nations to retaliate. As rounds of tit-for-tat retaliation contributed to the Great Depression, the way was soon paved for another world war. Trumping world trade is a bad idea, but its timing is even worse.

An earlier version of this article was released by China Daily 23 January 2017.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Opinion


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Democratic Development Lowers the Cost of Credit
Is Growing Household Debt An Economic Counter-Dynamic?
News Blog
Most Read Articles Last Week Ending 25 February
How British Businesses Helped The Confederacy Fight The American Civil War
Where You Can Surf A Lot For A Little In The EU
'I Can Live With Either One': Palestine, Israel And The Two-state Solution
Where Snapchat's Users Come From
What We Read Today 26 February 2017
INAUGURATION DAY: A Bad Lip Reading Of Donald Trump's Inauguration
Did The Dodd-Frank Act Make The Financial System Safer?
A Close Look At The Decline Of Homeownership - Part Five Of Five
Do Institutional Investors Chase Returns?
Infographic Of The Day: How To Survive A Deadly Snake Bite
Early Headlines: Global Mfg 1970-2010, No Refugee Spike, GOP Health Proposal Leak, GOP Town Halls, Trump's Debt Decrease, Macron Gains, China's $9 Trn Moral Hazard, Americans Oppose Wall And More
Premium Seats At Premium Events Equal Premium Prices
Investing Blog
The Week Ahead: Reality And Stock Prices
Snapchat Still Has Some Growing Up To Do
Opinion Blog
What Do You Call A Lie Constructed From Other Lies?
Why Winning The French Presidential Election Could Be A Poisoned Chalice
Precious Metals Blog
Deflation And Gold: A Contrarian View
Live Markets
24Feb2017 Market Close: Wall Street Rose From Session Lows To Close In The Green Near The Unchanged Line, Short-Term Indicators And Analysts Questioning Continuing Bull Run
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved