Bad effects of Trump trade ideas to endure

City talk | Eve Szeftel 21 Oct 2020

After four years in office Donald Trump has failed to achieve his promise to eliminate the US trade deficit and dealt a lasting blow to the multilateral economic system that global trade is based upon.

But even if Democrat Joe Biden wins the presidential election as most opinion polls now show, US trade policy is likely to continue to see a protectionist streak and a confrontational approach to China.

One of Trump's main 2016 campaign themes was that the United States had been taken advantage of by trade partners, and he pledged to shake up global arrangements and eliminate the nation's trade deficit.

Trump has indeed shaken up global trading, but the US trade deficit has grown under his presidency.

"Trump's trade policies have delivered few tangible benefits to the US economy while undercutting the multilateral trading system, disrupting long-standing alliances with US trading partners and fomenting uncertainty," says Cornell University professor Eswar Prasad.

The import tariff increases that Washington imposed on many products have protected American manufacturers, according to Gianluca Orefice, an economics professor at the University of Paris-Dauphine. But the tariffs also raised production costs for the American industry and demonstrated the extent of the reliance on Chinese suppliers.

Global economics are now in a deep state of flux.

"Obviously, his policy has been deeply damaging with respect to Europe, to the World Trade Organization, which will be hard to repair," says Edward Alden, a journalist and author who specializes in US trade policy and is a fellow at the Council on Foreign Relations think tank.

Trump's refusal to appoint new judges has paralyzed the World Trade Organization's dispute resolution system, hobbling the arbitrator of the world's multilateral trading system.

"Trump has shown he is capable of breaking but incapable of building," says Sebastien Jean, director of CEPII, the main French institute for research into international economics.

Meanwhile, "the Trump administration's erratic statements and policy decisions have resulted in the United States being perceived as an unreliable and untrustworthy partner," says Prasad. This has led some countries to go around Washington and conclude bilateral or multilateral trade pacts.

Trump vaunted his supposed deal-making prowess as a businessman before his election, but he has shown little taste for multilateral trade negotiations.

Trump's four years in office have resulted in "the weakening of the rules-based multilateral trading system, embodied by the WTO, that the United States was instrumental in setting up," Prasad notes. That could make it more difficult to achieve much in the way of cooperation to support and sustain global recovery from the coronavirus crisis.

Alden does credit Trump with successfully renegotiating the North American Free Trade Agreement with Canada and Mexico - an effort supported by Democrats and Republicans.

Jean also credits Trump with changing the dynamic concerning China, which helped the European Union change its policy on Beijing.

European think tank Bruegel believes a Biden win would mean a return to more courteous US diplomacy. But the content may not change that much.

"The differences between Trump and Biden on trade are smaller than on many other issues," says Alden.

The positions of both Democrats and Republicans have hardened in recent years on China, which is now viewed as a rival that needs to be contained as it has not evolved into a liberal market economy.

"Under either candidate, the trade war is likely to spread," says Vicky Redwood at Capital Economics. "The trade war was basically inevitable given China's economic rise and persistence with high levels of state intervention rather than adoption of market forces."


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