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The president’s China and North American trade pacts reverse a trend of opening markets that was decades in the making.
WASHINGTON — For years, America’s trade agreements have tried to break down economic barriers between nations by removing tariffs and other impediments to cross-border commerce. President Trump’s trade deals have turned that approach on its head.
Mr. Trump’s new trade deal with China promises to lower some of the walls Beijing has erected for foreign companies — including opening its financial markets, streamlining imports of American agriculture and offering greater protection for intellectual property.
But it leaves in place tariffs on the bulk of Chinese imports — more than $360 billion worth of goods. And it requires voluminous Chinese purchases of American products — $200 billion of additional sales over the next two years, according to the Trump administration — a significant shift that experts say moves trade policy away from promoting free markets and back toward an earlier era of managed trade.
Mr. Trump’s newly revised North American trade deal similarly contains provisions that open up markets for dairy, digital services and other industries. But its most transformative changes are to tighten the rules for North American automotive manufacturing to try to spur more production within the continent, a move some Republican lawmakers say will weigh on trade.
The agreements are the product of Mr. Trump’s transactional trade approach, one that aims to wield America’s economic power to force other nations to buy more American products. His “America First” philosophy looks upon global supply chains and the free trade deals they were built on with suspicion, and seeks to force sprawling multinational companies to move operations to the United States, in an effort to bolster American growth and lower the trade deficit.
His administration also sees little use for the type of multilateral organizations that have tried to lift economic growth around the world by promoting free trade. Last week, the administration effectively crippled the World Trade Organization’s ability to resolve trade disputes after a sustained campaign against a critical part of the body.
Mr. Trump promoted his approach in a round table with governors at the White House on Monday, saying that past trade rules set by “globalists” had allowed factories and wealth to flow out of the United States.
“I would watch as they close plants, everybody gets fired. They move to Mexico or some other place, including China,” the president said. “And some people are happy. But no, not me.”
He praised his China deal for increasing sales of American products and said his revised North American trade deal had built strong barriers to keep companies from leaving the United States.
“It’s very hard to move,” the president said. “Economically, it makes it really prohibitive to get out. And it was very important to me.”
Doug Irwin, a trade historian at Dartmouth College, said the pacts were a substantial departure from those enacted under Mr. Trump’s recent predecessors — both Republicans and Democrats — who worked to lower global tariffs and build an international system that enshrined freer trade. “Most trade agreements that we’ve seen in history are agreements to liberalize markets, to get government out of trade in some sense,” he said.
But Mr. Trump and his advisers display little ideological commitment to free trade, which has animated the Republican Party for decades. They argue that political paeans to free trade have largely been cover for multinational companies — and their lobbyists — to outsource production, with devastating results for American workers.
In an interview with the Fox Business Network on Tuesday, Robert Lighthizer, Mr. Trump’s top trade negotiator, acknowledged that the agreements were not likely to please those who prioritized free markets.
“I understand the people that believe in just protecting investors and pure market efficiency,” Mr. Lighthizer said. “They’re not going to be happy because we are making it more expensive to operate in some other areas and less expensive in the United States.”
“The president’s objective is to help manufacturing workers in this country. It’s to help farmers in this country,” Mr. Lighthizer added. “Global efficiency is a nice objective, but he always says he got elected president of the United States, not president of the world.”
Mr. Trump’s aggressive approach to reworking the global trading system has been praised by some parts of industry as an attempt to fix a situation they say has been disastrous for American workers.
“Trump and team have what appears to be a strong deal,” Daniel DiMicco, a former steel industry executive who leads the Coalition for a Prosperous America, said of the China trade pact. “The cost of maintaining the status quo is infinitely greater.”
Yet many economists and trade experts fear the approach could backfire on the United States, by degrading the international trading system and raising the cost of manufacturing, resulting in lower productivity and economic growth.
In an analysis published Tuesday, Mary E. Lovely and Jeffrey J. Schott, two economists at the Peterson Institute for International Economics, projected that the provisions in the United States-Mexico-Canada Agreement would hurt American industry, by driving up the cost of making cars and weighing on growth.
Analysts at Fitch Ratings said Tuesday that the China deal had raised their estimates for global growth, but done less to lower trade barriers than anticipated. The trade truce leaves the effective American tariff rate on Chinese products at 16 percent, below the 25 percent level that Mr. Trump had threatened to raise it to, but up from roughly 3 percent before the trade war, they said.
The North American and China pacts, which together cover countries responsible for more than half of America’s trade, are the first translation of Mr. Trump’s trade ideals into policy.
But they also bear the imprint of Mr. Lighthizer, who has a long history of favoring a managed trade approach. As a trade negotiator for the Reagan administration in the early 1980s, Mr. Lighthizer made a mark negotiating agreements with Japan to limit the amount of products it exported to the United States. The World Trade Organization later banned agreements that seek to restrain a country’s exports.
Mr. Lighthizer left government in 1985, but the Reagan administration continued with a managed trade approach, pushing Japan and South Korea to agree to import a certain amount of products. The Clinton administration also considered the tactic, but faced criticism that it would encourage state interventionism as the United States was pushing Japan to adopt a freer market, said Mr. Irwin, the historian.
That history has direct parallels to China, where American officials have been urging the government for decades to reduce its role in the economy. Trump administration officials, including Mr. Lighthizer, have also criticized Beijing for using preferential policies, subsidies and central planning to give its businesses an advantage over American ones.
But the trade deal announced Friday appears to make little progress on those issues. Instead, its largest feature appears to be purchases that are likely to be beneficial for American businesses but may wind up further strengthening the hand of the Chinese state.
Some of the purchases, which Mr. Lighthizer has projected will roughly double American exports to China by 2021, are expected to happen naturally, as China lowers trade barriers to American goods. But others, including in agriculture, energy and aviation, would most likely be done by fiat, through China’s state-controlled entities.
Critics say this approach could end up giving the Chinese state even greater discretion over certain markets. Some agricultural producers have expressed concern that the trade deal’s firm targets could undercut their ability to negotiate with Chinese customers.
Nicholas R. Lardy, a China expert at the Peterson Institute for International Economics, said the purchasing agreement “could go against longer-term U.S. goals” to encourage China to adopt a market-oriented system, “but we have to see what the exact language is.”
“If it’s an ironclad commitment, then I think it’s a move in the wrong direction,” he said.
Mr. Lighthizer and some supporters say the targets are an effective way to deal with a country like China that does not play by market rules.
Clyde Prestowitz, the president of the Economic Strategy Institute and a former Reagan official, said purchasing commitments are “anathema to dyed-in-the-wool free traders and contrary to mathematical free trade models.” However, he said, they offer “a buffer between truly open, competitive free markets and markets that are wholly or partially government managed.”
When it comes to China, he said, “to imagine that foreign players can just move in and compete as they do in the U.S. or the E.U. is to be dreaming.”