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A public policy blog from AEI
A self-congratulatory presidential tweet this morning: “After my tour of Asia, all Countries dealing with us on TRADE know that the rules have changed. The United States has to be treated fairly and in a reciprocal fashion. The massive TRADE deficits must go down quickly!”
Of course, Asia already knew the rules had changed when President Trump withdrew the US from the Pacific trade deal back in January. But that didn’t stop the remaining 11 countries from agreeing to a modestly revised version of the Trans-Pacific Partnership over the weekend.
Still, rather than reversing course, Trump apparently intends to keep pushing his idea of “rewriting the US trade relationship with countries in Asia via bilateral trade deals,” the Financial Times explains. This is not a good idea. It will be difficult and time-consuming for the administration to recreate TPP’s potential economic benefits by trying to strike deals with each nation individually. The current precarious state of NAFTA (which has been to America’s benefit) renegotiations does not inspire confidence here. Also note that Trump’s claim of $250 billion worth of deals with China from his visit there are “mostly non-binding memorandums of understanding and could take years to materialize,” according to Bloomberg.
Frankly it’s anachronistic to be focusing on bilateral deals in an age of global supply chains. Indeed, bilateralism could slowly undermine the entire global trading system. From Brookings: “Over the long term, the risk is that the rules, norms, and laws that govern trade relations will erode . . . [creating] a less legalized, more power-based mercantilist trading system.”
But maybe that’s the point. Trump has long displayed mercantilist, zero-sum thinking in which trade deals are all about grabbing market share rather than economic efficiency. Winning! This helps explain his extraordinarily wrong-headed focus on trade deficits as being caused by bad trade deals as opposed to macroeconomic factors, specifically America’s level of savings and investment. It’s also odd to focus on trade deficits as the cause of American economic problems when if anything there is a correlation between good economic times and wider trade deficits, such as right now. A more open and globalized trading system has been overall beneficial for the US both economically and geopolitically. Trump’s trade policy is a stunning example of economic self harm.
And what about the losers from trade? Please check out this interview I did earlier this year with economist Gordon Hanson, co-author with David Autor and David Dorn of “The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade.” This is the paper that showed some US communities were badly hurt by trade with China in the 2000s and never really bounced back. Yet Hanson remains very much a free trader.
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