What a second Trump term might mean for US trade policy
In an ongoing series, the NZZ is speculating on the potential consequences of a second Donald Trump presidency. This week: How would a Trump win impact U.S. trade policy?André MüllerMay 21, 2024 8 min
What will Donald Trump do next? That question remains difficult to answer.
Mark Peterson / Pool / EPA«You screw us and we're gonna screw you back»: This is how Donald Trump has crudely described his future trade policy during his election campaign.
Such statements seem to confirm the worst fears of those hoping for a revival of rules-based free trade in the United States. A second Trump administration could mean more of what the first one already brought: higher tariffs, more isolationism and new trade wars. During the election campaign, Trump has already announced his intention to implement a tariff of 60% on all Chinese goods, and 10% on all other imports.
Nobody knows whether a President Trump would do what candidate Trump is promising. In any case, free trade in the spirit of David Ricardo is currently feeling the pinch from both the Democratic and Republican sides. Many Americans feel that the current world trade system is «unfair.»
Even under the Democrats, the U.S. will no longer be the champion of free trade that it once was. This was demonstrated by President Joe Biden on Tuesday, May 14, when he announced significant new tariffs on Chinese electric cars, lithium batteries, port cranes, computer chips and solar cells. In doing so, Biden went even beyond Trump's threats to Beijing as far as trade with China is concerned.
It all started with washing machines
By taking this radical step, Biden is ultimately admitting that Trump's trade wars were well received by the public. In Trump's first term of office, starting in 2017, the Republican pursued a transactional trade policy, favoring bilateral deals over multilateral agreements. He halted negotiations with the EU on the proposed Transatlantic Trade and Investment Partnership free-trade agreement, for instance.Trump and his key advisers on trade issues saw America’s large foreign trade deficits as compared to the rest of the world as a sign of weakness, and as proof that the country was being treated unfairly under the World Trade Organization's regulatory system. Although this deficit theory is supported by very few economists, it has become increasingly influential.
It is also one of the reasons why the Trump administration launched its trade war with China. In January 2018, the United States introduced higher tariffs for washing machines and solar panels. However, the list of goods eventually grew longer and longer. China countered with retaliatory tariffs and WTO complaints. In parallel, the two great powers negotiated and even reached a temporary «deal» at the beginning of 2020. But Trump's tariffs against China are still in force today.
However, Trump was also able to achieve some successes in terms of free trade. For example, he succeeded in replacing the old North American Free Trade Agreement with neighboring Mexico and Canada with a modern free-trade agreement.
More important than individual agreements was Trump's influence on the mindset of Republicans. In contrast to some Democrats, they used to be staunch free traders. In 2001, during George W. Bush's term of office, China joined the WTO – the high point of that era. The hope was that China would open up further as a result. Attorney Robert Lighthizer, who later became U.S. trade representative under Trump, had been criticizing these policies in print for a long time, but he remained a marginal figure in Washington.
It was Trump who eventually shattered this former Republican consensus. Instead, he cast a rhetorical spotlight on American workers who were losing their secure factory jobs because of what he called unfair competition from abroad.
A group of economists led by David Autor has demonstrated that Trump's trade wars did not benefit these workers much, as the jobs did not come back. Instead, the policies drove prices up. Nevertheless, the trade wars went down well with many voters. The impression that Trump was standing up for them helped Republicans at the ballot box.
What does that mean for 2025?
The patient WTO
Trump's former political associates have described the policies that might emerge during a second term in office. In «Project 2025,» a guide to action for the next Republican administration released by the conservative Heritage Foundation, Peter Navarro was deeply critical of the «Ricardian orthodoxy,» China's «economic aggression» and WTO rules. For his part, Lighthizer set out his views in a 2023 book that is part retrospective justification and part collection of ideas – and aims in a similar direction.According to the Wall Street Journal, some Trump advisers even want to weaken the dollar and undo the independence of the Federal Reserve, the U.S. central bank. As with Trump's campaign speeches, these radical proposals are unlikely to be implemented in full. Nevertheless, it is worth taking a look at two of the trade warriors' main targets: the World Trade Organization and China.
The WTO has been under pressure from the U.S. long before Trump. Barack Obama's administration began the practice of ceasing to providing staff to its appellate body, thus throwing the dispute- resolution process off track.
U.S. critics are primarily targeting the WTO's «most-favored nation» clause, which states that a country must grant all WTO member states the same tariff conditions that it has granted to any member county. Critics say this rule is unfair to the U.S. because the country has generally set lower customs barriers than other nations. They believe that the clause should be abolished, and that perhaps the WTO itself is no longer needed.
The U.S. is unlikely to gain much from an exit, as it already ignores WTO rules on important issues. In this respect, a new Trump administration would hardly herald a turning point in America's dealings with the WTO – but would certainly not lead to a renaissance either.
The question is how the U.S. would negotiate with its allies under Trump. Since World War II, the U.S. has been using trade policy to bind such nations more closely to itself. The country has opened up its huge domestic market to its partners, and even overlooked the fact that they have not always granted reciprocal rights. This applies both to Europe and to East Asian allies such as Japan, South Korea and Taiwan.
Is this policy at risk? Navarro argues that these countries are also taking advantage of the U.S. by setting higher trade barriers, and notes that American workers cannot buy anything with geopolitical considerations. But other conservatives remain aware of the geostrategic importance of trade – especially when it comes to forming coalitions against China's geopolitical ambitions.
