Trump and trade – how far will he go?
On 21 Nov, President-elect Donald Trump announced his intention to sign an executive order withdrawing the US from the Trans-Pacific Partnership (TPP) on his first day in office. November has already seen Japan and New Zealand taking the first steps towards ratification of the TPP and the APEC forum issuing a statement affirming their commitment to free trade (with or without the US). So what does the future hold for US trade relations under a Trump presidency and what impact will this have on trade regulations?
Trump’s trade pledges v reality
Domestically, Mr Trump has promised to free business from the yoke of regulation, but this desire for free markets does not extend beyond the USA’s borders. Under the guise of fighting for “free” trade, Trump has pledged to:
1. Withdraw from the TPP;
2. Renegotiate the terms of the North American Free Trade Agreement (NAFTA);
3. Label China a currency manipulator;
4. Bring trade cases against China, both in the US and at the WTO; and
5. Use every lawful presidential power to remedy trade disputes if China does not stop its illegal activities, including the application of tariffs, including a 45% tariff on Chinese imports.
Trump’s rhetoric indicates a dramatic shift in trade regulation that, if implemented, would cause significant disruption to businesses trading to and from the USA. However, given the USA’s binding international commitments (not least via their membership of the World Trade Organisation (WTO)), a Trump administration will not have unfettered power to make such sweeping changes without exposing the USA to retaliatory trade defence measures from the countries concerned. It is likely President Trump will also face some opposition from his own party, with top Republicans already speaking out against closing the door to the large export markets in Asia.
USA v China
President Obama famously oversaw a US pivot to Asia, culminating in the signing of the TPP in February 2016. President-elect Trump, on the other hand, has promised to move manufacturing back to the US. If the President-elect keeps to his promise, this could see the US imposing more tariffs on goods manufactured in China and other developing nations.
One of the most contentious areas between China and the US in recent years has been the trade in steel products. The current front runner for US Trade Representative is Dan DiMicco, a former CEO of a steel production company and an unsurprising critic of China’s trading practices. If his appointment is confirmed, we can expect a significant rise in trade defence measures against Chinese steel imports, including even the promised rise in tariffs. This would echo the recent approach of the EU which announced at the beginning of November 2016 a proposal to amend the EU’s anti-dumping and anti-subsidy legislation to ensure EU laws “remain effective in dealing with significant market distortions in certain countries that can lead to industrial overcapacity, and that encourage exporters to dump their products on the EU market”.
Leader to follower?
The USA had traditionally positioned itself as a leader in setting the agenda of global trade regulation. The current USA Trade Representative promotes TPP as “writing the rules for global trade”. In contrast, throughout his campaign Donald Trump has maintained an isolationist position in which the USA would look to withdraw from multilateral agreements, preferring bilateral negotiations instead.
With the ratification of the TPP by the US looking increasingly unlikely, Chinese-sponsored multilateral trade agreements (such as the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP)) will now likely gather momentum. This in turn will give China the lead role in regulation-setting that could lead to a less stringent set of obligations in areas such as environmental and labour standards. Whilst on the face of it this would be good news for those seeking to navigate through the noodle-bowl of trade regulations, in the long-term a relaxation of these types of safety mechanisms in one region of the world could lead to a race to the bottom or a two-tier trading system.
Apart from China, a Trump administration may lead to a change in the current sanctions regime with Trump promising to review the partial lifting of Iranian sanctions and to consider removing the sanctions imposed against Russia.
The US’ withdrawal from a globalised trading system where a minimum set of trading standards are imposed via the WTO agreements would, in the short term, lead to a significant amount of uncertainty. A rise in the number and value of tariffs, a revision of the complex web of sanctions and the possibility of US goods facing retaliatory trade defence measures would adversely affect trade to and from the US. Added to that is the prospect of a new set of trade regulations being set by China to further its new world order. It, therefore, seems that no matter how far President-elect Trump goes with his protectionist agenda, it is likely to be a disruptive few years for traders and compliance officers alike.