Trump’s World
By Jock O’Connell
Nearly all economic forecasts are extensions of the existing narrative, unless forecasters have reason to believe that circumstances warrant a change in course. Expectations, such as those authored by the World Trade Organization, that volumes of world trade will rise by 1.7% in 2017 are based on standard economic models. Since that forecast was issued, much has changed in the context of global trade.
Specifically, the past month has seen a regime change in Washington, not just a change in administrations. Starting with the Bretton Woods conference in 1944 at which 44 nations met to establish a postwar framework for international trade and finance, American policymakers have maintained a broad consensus that was favorably disposed to trade liberalization and to constructive engagement (rather than confrontation) in dealing with our trading partners.
That consensus has been shattered. We have entered a period of unprecedented uncertainty about the future of the global trading system and the rules that govern how business is to be done among nations. With Donald Trump in the White House, all international trade forecasts should now prudently default to the worst-case until administration policies are clarified.
We have long known that the benefits of trade are broadly, almost imperceptibly felt, while the costs tend to be localized. Trump’s campaign tapped into the frustrations of those who felt themselves victims of free trade agreements and the larger phenomenon of globalization. The President now seems bent on completely reversing the distribution of gains and losses. Henceforth, the winners are to be those fortunate to find work in manufacturing plants that will be increasingly populated by robotic machinery. The losers could be just about everybody else.
Upon taking office on January 20, President Trump promptly squashed any remaining hope that the Trans-Pacific Partnership (TPP) might be approved. While he has indicated a preference for bilateral accords, implementation of TPP would have yielded near-term benefits for a wide range of U.S. industries from farms to pharma as well as more business for U.S. West Coast ports. Dickering over the details of bilateral deals is apt to be a time-consuming exercise that will only delay outcomes without any assurance of more advantageous results. In effect, Trump risks turning a silk purse into a necklace of sows’ ears.
His belligerent demeanor in dealing with other world leaders is unlikely to be productive. Still, in recent days, there have been signs that presidential bravado may be giving way to more measured deliberations as the new administration gradually discovers the real-world constraints on policymaking. With respect to NAFTA, both the U.S. and Mexico now seem prepared to reappraise an agreement that was drafted nearly a quarter century ago when negotiators could not have comprehended the changes that have since occurred in supply chains, industrial processes, and product lines.
On the other hand, relations with China remain fraught with risk not only of a trade war but an actual military conflict in the South China Sea. Trump’s appointment of Peter Navarro to head a new National Trade Council and his nomination of Robert Lighthizer as U.S. Trade Representative put two virulently anti-China hardliners in positions of great influence. At the same time, the new Secretary of State, Rex Tillerson, has overtly challenged China’s territorial claims to artificial islands in the South China Sea. That language, coupled with Trump’s telephone conversation with Taiwan’s President Tsai and the subsequent doubts raised about whether the U.S. would continue to observe the One-China Policy, hardly represented a promising prelude for whatever Sino-American trade talks eventually take place. Fortunately, Trump was evidently persuaded to wind back at least that rhetorical excess in a belated telephone conversation with President Xi.
U.S. West Coast seaports handled two-thirds of America’s containerized China trade. Anything that would diminish the flow of trade through those ports would have a serious economic impact not just on the ports themselves and importers and exporters they serve but also on the legions of blue-collar workers involved in processing the goods transiting those ports. So far, though, the Trump White House has had little of substance to say about trade with China. With some trepidation, we wait for the first shoe to fall.
The commentary, views, and opinions expressed by Jock O’Connell are his own and do not reflect the views or positions of the Pacific Merchant Shipping Association. PMSA does not endorse, support, or make any representations regarding the content provided by any third party commentator.