Trump's “War on Trade” in the Americas

Will Trump’s mercantilist approach to trade threaten a more coercive economic regime, or will it follow traditional conservative trade policy?

May 25, 2017

President Donald Trump at the Conservative Political Action Conference (CPAC) in February of this year. (Michael Vadon/Flickr)

The first 100 days of the Trump administration were predictably chaotic, and no more so than in the area of trade. The man who campaigned as an ardent economic populist and who repeatedly targeted “bad” free trade deals appears to have softened his stance, though his ambiguity and opacity raise a number of questions about Washington’s foreign economic policy. While Trump savaged the North American Free Trade Agreement (NAFTA) on the campaign trail, his administration is now focused on modernizing the accord, backing away from threats of unilateral withdrawal. It is unclear just where Trump’s trade agenda will end up, but it is certain to have wide-ranging implications for the political economy of the Americas. Despite the growing presence of China in the region, the United States remains Latin America’s most influential external actor: the U.S. is the leading market for exports from Latin America as well as the region’s largest single source of imports and foreign investment.

A changing trade policy may shift the composition of U.S. hegemony in the Western hemisphere. For decades, free trade has underpinned the globalization of the region’s economy, consolidating U.S. pre-eminence under the “Washington Consensus.” The Clinton, Bush, and Obama administrations advanced six major neoliberal agreements in the region: NAFTA, the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), and bilateral accords with Chile, Peru, Panama, and Colombia. Largely resulting from Latin America’s regional turn to the left and broadening discontent about free trade’s impact on local economies, Washington was unable to secure the hemispheric-wide Free Trade Area of the Americas (FTAA), which broke down amidst opposition from Brazil, Argentina, and other South American governments in 2005. Obama’s efforts to construct the Trans-Pacific Partnership (TPP) beginning in 2009, which includes Mexico, Chile, and Peru, signalled an effort to revitalize a more expansive free trade push.

Trump, for his part, removed the U.S. from the TPP on his first day in office. Public opposition to free trade had intensified in the wake of the 2009 recession, allowing the Republican outsider to capitalize on long-simmering hostilities towards economic globalization. He wasn’t alone in criticizing the TPP; Bernie Sanders lambasted the accord, compelling Hillary Clinton, who was closely associated with the agreement during her tenure as Secretary of State, to shift tack. In this context, Trump’s zealous opposition won him considerable appeal among blue-collar voters. Trump stated the TPP would amount to the “rape” of the country. He called NAFTA “the worst trade deal” in history, and his pledge to renegotiate the accord dovetailed with his xenophobic attacks on Mexico and Mexican immigrants. Sanders’ opposition illustrates the political difficulties confronting the left in the Trump era. While progressives can take partial credit for the TPP’s defeat, the anti-liberalization message has been co-opted by the far right, which uses populism to mask an agenda that favors corporate power. It seems plausible that Trump’s approach would reproduce the worst aspects of previous agreements, namely on investor-state dispute settlement rules, which allow companies to effectively sue governments over unwanted regulations.

Trump’s personnel decisions initially suggested continuity with his nationalist campaign. He named Peter Navarro director of the newly created White House National Trade Council, tasking him with reversing trade deficits to “make American manufacturing great again.” The nomination of Wilbur Ross as Commerce Secretary reinforced the perception that Trump would keep his protectionist pledges. Although Ross, a billionaire investor, comes from the world of global finance, he has cultivated a reputation as a trade hardliner. In a jointly authored white paper that was more campaign propaganda than coherent economic analysis, Navarro and Ross diagnosed U.S. “economic malaise” as a “long-term structural problem inexorably linked not just to high taxation and over-regulation but also to the drag of trade deficits on real GDP growth.”

Although some progressive economists have pointed to the impact of trade deficits on job loss in the U.S. manufacturing sector, the purported connection between trade deficits and GDP growth is dubious. But, as with Trump’s “Buy American, Hire American” campaign, by paying lip service to slow economic growth and manufacturing employment Trump can cultivate a “pro-worker” image that hides his reactionary policies, including an assault on labor rights. Airing a host of grievances—from China’s currency manipulation to Mexico’s “shrewd” exploitation of its “backdoor” Value-Added Tax (VAT, a largely uncontroversial mechanism that functions much like sales tax)—Navarro and Ross wrote that, contrary to critics, the U.S. was already in a “trade war,” one in which the U.S. government had “surrendered before engaging.” This rather bizarre view ignores the history of Washington’s economic statecraft, which has consistently promoted agreements that enrich U.S. commercial and financial interests.

Contradicting Washington’s longstanding commitment to a more globalized capitalism, such an explicitly mercantilist approach would mark a major departure for U.S. trade policy. At the same time, this wouldn’t necessarily mean the U.S. would back out of free trade agreements so much as tailor them to a narrower understanding of U.S. objectives. In the vision outlined by Navarro and Ross, Washington would use the size of the U.S. economy to force new rules that more directly benefit certain factions of U.S. capital, including heavy industry. Along with Trump’s disdain for multilateralism and international institutions, U.S. hegemony would, in this scenario, come to rest more on the unilateral application of coercive power, using both economic and military might as leverage. Indeed, in this vein, the White House budget director defended Trump’s “America First” budget as a “hard power” blueprint, saying it would “send a message to our allies and to our potential adversaries that this is a strong-power administration.”

Recent signs from the White House suggest the populist protectionism of the campaign was more red meat than policy prelude. Trump’s inner circle is divided by a “civil war” on trade, a contest wrapped up in the wider struggle between nationalist insurgents (i.e. the Steve Bannon wing) and more conventional Wall Street Republicans (the cohort represented by Jared Kushner). Gary Cohn, a former Goldman Sachs executive who heads up the National Economic Council, and Andrew Quinn, a negotiator who helped formulate Obama’s TPP plans, have become more influential. And while the Trade Policy Agenda released by the Office of the U.S. Trade Representative in March touts an aggressive approach based largely on bilateral negotiations, it doesn’t mention the punitive tariffs that Trump threatened on the campaign trail. Moreover, Trump’s initial executive orders on trade were remarkably tepid; one merely called for a report on trade deficits, while the other enhanced the enforcement of existing laws on antidumping and countervailing duties (meant to protect U.S. firms from “unfair” foreign government subsidies and tax breaks).

Renegotiating NAFTA

As a candidate, Trump threatened repeatedly to pull out of NAFTA. He called for penalties on Mexican imports to boost U.S. production. This could be pursued either through tariffs or obscure changes to the tax code. Leaders in Canada and Mexico are apparently open to the possibility of updating NAFTA. Talks may focus on rules of origin (which determine the composition of finished goods that qualify for duty free treatment under NAFTA rules) as well as digital commerce, telecommunications, and elements of the energy sector left out of the initial agreement. With the potential privatization of Mexico’s hydrocarbon and electricity sectors on the table, a renegotiated deal could be even more problematic than the current agreement. According to one Canadian analyst, “corporate interests in all three countries could find common ground in their desire to open continental fossil fuel reserves (especially in Mexico) to private investment.”

Mexico’s presidential election, scheduled for July 2018, could change this. The current frontrunner is leftwing candidate Andrés Manuel López Obrador, who would likely strike a more nationalist posture than previous Mexican governments. Multilateral trade negotiations tend to involve complex trade-offs as parties seek the best outcomes for their various domestic “stakeholders.” Officials from all sides may find it difficult to make concessions in a period of political uncertainty, especially if the changes require eventual legislative ratification. Trump’s anti-Mexico bombast has certainly challenged Mexican officials who want to negotiate with the new U.S. administration, which would appear unfavorable to their own voters. Moreover, Trump’s “fast track” trade promotion authority, which allows the executive to negotiate agreements without Congressional amendment or filibuster, granted to Obama by Congress in 2015, is set to expire next year. This looming expiration may further compress the timeframe to reach a tripartite agreement.

"NAFTA kills jobs across borders\" a 2012 protest sign reads (Billie Greenwood/ Flickr)

Clearly, a NAFTA overhaul faces numerous obstacles. Although the administration has the authority to apply tariffs to specific goods, deeper reforms would involve Congress, where Trump faces newly resilient Democrats and a Republican majority that has traditionally favored liberalization. Regional trade is immense, having more than tripled from $290 billion in 1993 to over $1 trillion in 2016, easily surpassing U.S. trade with China. North American integration has been deepened through the solidification of cross-border supply chains, best encapsulated by the dramatic changes in the North American auto sector since the agreement went into force in 1994. Trying to undo these linkages would be incredibly difficult in practical terms. Trump, it would seem, is running headlong into this reality. Notwithstanding his flip-flopping ideological commitments, NAFTA continues to serve powerful economic interests across the continent. Although threats of unilateral withdrawal on the part of the administration may force the issue, renegotiation would be a complex and protracted process.

Meanwhile, recent executive orders designed to protect the domestic steel and lumber industries and enhance “Buy American” provisions in federal procurement laws show the White House’s mercantilist faction is alive and kicking. Given the centrality of Mexico to Trump’s racist and xenophobic campaign, his administration seems primed to push forward on NAFTA in some capacity. It is telling that, when asked during confirmation hearings what renegotiation would look like, Treasury Secretary Stephen Mnuchin replied that the “starting point” for such a process would be the Obama-era TPP rules. Ironically, the trans-Pacific pact may have a life after death, even if its provisions are repackaged in a new guise.

A Future for the TPP?

The TPP was, according to the Obama administration’s slogan for the agreement, “made in America.” It was shaped and supported by U.S. corporations with the aim of addressing emerging features of the global economy (such as e-commerce) as well as certain areas previously closed to liberalization (such as state-owned enterprises). That it received such strong backing from the business lobby suggests that elements of the regime could be brought into future agreements, as Mnuchin alluded. One possibility for this is the proposed Trade in Services Agreement (TiSA), which would expand the World Trade Organization’s General Agreement on Trade in Services (GATS). As noted by Deborah James of the Center for Economic Policy and Research (CEPR), TiSA “is about locking in further deregulation and privatization, and Trump loves deregulation and privatization.” According to leaked documents, TiSA would greatly expand the category of “services” to cover things previously outside of this classification. In addition to the U.S., EU, and Japan, TiSA talks include more than 20 other countries, among them Canada, Chile, Colombia, Costa Rica, Mexico, Panama, and Peru. Trump’s decision to pull out of the TPP played well with his base, but it may prove to be more of a political bargaining chip than a fundamental shift in U.S. trade policy. His administration could bring elements of the TPP into TiSA without provoking dissent from his core supporters.

With the U.S. out of the TPP, the 12-member trade pact seems destined to collapse. The U.S. accounted for more than 60 percent of the bloc’s total economic output. Following Trump’s victory, Shinzo Abe, Japan’s Prime Minister, said the TPP without the U.S. would be “meaningless.” In April, however, the Japanese government changed its position, saying it wanted to revive the TPP. The reversal followed a meeting of TPP signatories in Chile in March, convened explicitly to find a way forward after the U.S. withdrawal. Notably, the talks also included representatives from China and South Korea, both non-TPP countries, an indication that Washington’s withdrawal may create space for other actors to influence trans-Pacific trade governance. This could facilitate Chinese involvement in the political economy of the Americas. Chile and Peru, for instance, have expressed interest in joining the Regional Comprehensive Economic Partnership (RCEP), China’s rival agreement to the TPP. It may also lead to renewed focus on Latin American integration schemes like the Pacific Alliance, comprised of Chile, Colombia, Mexico, and Peru.

Whether or not China brings the RCEP into the Western hemisphere, the TPP’s unravelling represents as setback for Washington’s long-established policy objectives in Latin America. Although it was designed primarily to entrench U.S. hegemony in East Asia, its extension to the Americas was more than a strategic afterthought. The present impasse raises questions about the direction of U.S. power in the region. Crucially, Trump has never claimed to be against “free trade” as such. Rather, he used the unpopularity of NAFTA and the TPP cast himself as a cunning strongman who could secure (vaguely) “better” deals. Mercantilist in tone, the outcome may end up a more conventional variant of conservative policy. His administration will undoubtedly use the structural leverage of the U.S. economy to open foreign markets to U.S. capital. The extent to which this conforms to older patterns of neoliberalization, however, remains to be seen. For those on the left, the challenge is to forge a critique of the administration’s position on trade that doesn’t merely fall back on a defense of the status quo, but which addresses Trump’s peculiar blend of nationalist chauvinism, “pro-worker” rhetoric, and pro-corporate policies head-on.

Rubrick Biegon is an associate lecturer in the School of Politics and International Relations at the University of Kent. He is the author of US Power in Latin America: Renewing Hegemony (Routledge, 2017).

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