The Growing Incoherence of Trump’s Trade Policy – The Right Engle

By
John Engle
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trade

Donald Trump is a man of many contradictions. Variously a Democrat, a Republican, and a Reform Party member; at times for gun control and at others adamantly against it; pro-abortion for years before switching to a pro-life stance during the 2016 race. The contradictions and morphing policy positions could fill a book (and no doubt eventually will).

Without doubt, the 45th President of the United States is the most ideologically protean in recent memory, and perhaps in history.

But that is not to say that Trump believes in nothing, or that he has never been consistent on any issues. Indeed, there is one issue about which he has beaten the drum loudly and consistently for decades: the balance of trade and a belief that America makes bad deals.

Stealing Our Jobs

Trump has spent most of his time in the public eye vociferously opposed to free trade and claiming that the United States has been getting a raw deal from every other country in the world. In Trump’s telling, American trade negotiators are a gaggle of morons, consistently outmaneuvered by crafty foreign manipulators.

Multilateral trade deals have killed American jobs, in Trump’s telling. In his presidential campaign, he promised to bring all the manufacturing jobs back to America that were “lost” due to unjust trade deals, and to both scupper new deals and tear up old ones.

Once in power, Trump has made good on many of those promises, elevating free-trade skeptics to the top of his trade team, putting an end to America’s involvement in negotiating the Trans-Pacific Partnership (TPP) and forcing a renegotiation of the North American Free Trade Agreement (NAFTA).

While the simple economic reality is that those heavy industry jobs that disappeared over the last several decades are never coming back. Even with punitive tariffs and other heavy-handed measures to try and force more favorable trade treatment, most repatriated manufacturing work would be automated. But economic reality and Donald Trump have only ever had a passing acquaintance.

All Enemies Foreign

For Trump, the players have changed on occasion, but never the tune. In the 1980s it was Japan that supposedly killing us, stealing jobs from our auto industry and our high-tech manufacturers. During his first brief flirtation with presidential politics, in 1987, Trump gave a speech blasting American trade policy, saying:

“We’re being ripped off and decimated by many foreign nations who are supposedly our allies. Why can’t we have a share of their money? I don’t mean you demand it. But I tell you what, folks, we can ask in such a way that they’re going to give it to us—if the right person’s asking… The Japanese, when they negotiate with us, they have long faces. But when the negotiations are over, it is my belief — I’ve never seen this — they laugh like hell.”

Even though the Japanese economy began to sputter in the 1990s and the old fears of being supplanted economically died away, Trump couldn’t help himself from hitting those old notes, attacking Japanese trade policy numerous times during the 2016 election.

But Japan has fallen from its old status as Trump’s Public Trade Enemy No. 1, fading into the background of the Trumpian rogues’ gallery of sneaky foreign opponents. China now stands at the fore, with Mexico in a supporting role.

While Trump saw Japan mangle American manufacturing, he now sees China finishing the job. To forestall that fate, and presumably to reverse time itself, Trump has committed to a more confrontational stance with China over its economic policy.

While there are many huge problems with the way China engages in foreign trade, such as strictly controlling foreign investment in Chinese markets and engaging in intellectual property theft on a grand scale, the answer isn’t to try and reverse time or cling to economic unrealities. Engaging through mechanisms like the World Trade Organization (WTO) is a more effective way of achieving constructive talk, and action, on trade. Unfortunately, Trump seems to hold such organizations in contempt. So we can look forward to confrontation that will only hurt the American working class he purports to represent.

Cracks Forming

Despite Trump’s big statements about how he can just shake his fist and fix the balance of trade, reality has started to creep in.

In the case of NAFTA, Trump seems to have finally started to realize that some of the key states that won him the White House have a lot of farmers, farmers who have benefited enormously from lowered barriers with Mexico and Canada. Renegotiating the treaty threatens to put a lot of those workers in jeopardy. Now, if only Trump could generalize that observation…

For friends of the free market, any softening of Trump’s stance on trade should be welcomed. Yet at the same time, it is somewhat worrying that the one, single policy on which Trump has never wavered is now on the table. With such a mercurial disposition, there’s no saying where Trump will go next.

The Strange Case of the Export-Import Bank

One of the things that always struck me as odd about Trump’s rhetoric around trade policy was that he frequently coupled his claims about the government failing to support American trading interests with attacks on one of the very institutions that would be crucial to enacting his vision: The Export-Import Bank.

Unsurprisingly, the Export-Import Bank is not popular among free-traders because it intervenes in the market, supporting various American businesses through guarantees to foreign buyers. It is a textbook case of government picking and choosing favorites, supporting incumbent industries and using taxpayer money to fund the actions of a few big companies.

What is surprising is that Trump doesn’t like the Export-Import Bank, or, at least speaks and acts like he doesn’t.

A true believer would hardly appoint Scott Garrett to lead the institution, considering that Garrett sought to dismantle the bank while a congressman. Here’s the thing, though: Trump should believe in the Export-Import Bank if he actually believes other countries do a better job of supporting their domestic businesses in the international market.

Many countries do have equivalent institutions, some much more willing to go to bat for their domestic corporations than is the Export-Import Bank and others less so. So it’s not a terribly controversial idea.

What’s Wrong with this Picture

The Export-Import Bank is a great illustration of the Trump administration’s incoherence and of Trump’s own lack of understanding when it comes to the reality of trade mechanisms. It’s easy to point at a balance sheet and say, “We buy more from them than we sell and that’s bad.” What’s hard is actually shaping a coherent policy to address that supposed ill.

Perhaps we should simply be happy that Trump’s personal inadequacy, helped by his choice to give advisors with very different views on free trade competing portfolios in his administration, has led to a White House that cannot take the bold anti-free trade moves it once had planned. Then again, the war for supremacy in the administration is ongoing and the anti-trade factions might yet win over a president who has always been sympathetic to their cause.

But as long as Trump can’t get his head straight on something as simple as the Export-Import Bank, American trade policy should muddle along all right.

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John Engle

John Engle is a merchant banker and author living in the Chicago area. His company, Almington Capital, invests in both early-stage venture capital and in public equities. His writing has been featured in a number of academic journals, as well as the blogs of the Heartland Institute, Grassroot Institute, and Tenth Amendment Center. A graduate of Trinity College Dublin, Ireland and the University of Oxford, John’s first book, Trinity Student Pranks: A History of Mischief and Mayhem, was published in September 2013.

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