Free Trade Under Trump: What Future Holds for Global Trade System

Written by | Wednesday, November 29th, 2017

The United States under Donald Trump is not going to take a lead on shaping the global trade system. The new US administration is vocal about its unwillingness to press for new free-trade deals and multilateral trade rules. However, the global trade system had been in trouble long before Donald Trump was elected the US President. Americans are more and more skeptical of free trade deals although they generally see free trade positively.

Much of Donald Trump’s success in capitalizing on the sentiments of some voters who felt that they had been losing due to free trade was based on misperceptions such as an overstated impact on wages and jobs or on a discourse that was placing a lot of focus on the US merchandise trade deficit while largely ignoring the surplus in services. However, Donald Trump also pointed to valid problematic points about international trade such as inadequate adjustment mechanisms for those adversely affected by trade and unfair practices by some economies.

Although his rhetoric hinted a major shift in trade policy, his administration has not made major changes yet. Despite significant presidential powers on trade, there are major constraints such as the role of the Congress, infighting between major Republican factions, voter preferences or the involvement of the cabinet. Nevertheless, in his first months in office, President Trump was swift to withdraw the United States from the Trans-Pacific Partnership (TPP) and since then he also initiated the renegotiation of the North American Free Trade Agreement (NAFTA). He has not acted yet on his campaign promise to designate China a currency manipulator on ‘day one’ of his administration; nor has he taken any action to impose across-the-board tariffs on imports from China and Mexico.

Reducing the US trade deficit and tackling perceived unfair practices will be important pillars of Donald Trump’s policy. Coupled with his preference for bilateral deals, the outlook for current negotiations with the EU is unclear. While an outright “trade war” is unlikely, even moderate restrictive measures can have a negative economic impact on the US and globally. The new US trade policy will also have geostrategic implications, from the adverse effect of a withdrawal from ‘mega-regional’ trade deals on relations with key partners to a greater friction in international organizations such as the World Trade Organization or G20.

Without the US as a champion of free international trade, the system is at risk of faltering. Yet, while a constructive dialogue on trade will be a challenge for the US’ foreign partners, there is still an ample space for policies that could have a moderating effect on Donald Trump’s intended protectionism. Moreover, there is an opportunity to shift the discourse on trade forward and boost global trade by addressing some valid shortcomings within the current system.

‘Trade Policy Under President Trump: Implications for the US and the World’ –Research Paper by Marianne Schneider-Petsinger – Chatham House / Royal Institute of International Affairs.
(The Research Paper can be downloaded here)

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