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Donald Trump’s Foreign Economic Policy Acquires Aggressive Contours


© 06.03.2017, Sergei Dmitiev

photo by Photo by The Made in America Movement

In the name of preserving American leadership ("America first"), the Trump administration seems to be ready to give up the principles of "free" trade which for decades have been a priority for the United States1. According to the new president, “the era of cooperation” is over in international trade, although "isolationism is not an option for the US in the international arena". Minister of Trade Ross believes too that the current system of foreign economic relations does not meet the slogan formulated by Benjamin Franklin that "commerce among nations must be fair and equitable".

The presidential administration and the Office of the US Trade Representative (USTR) published documents stating that the American negotiators "did not actively enough demand that our trading partners play by common rules." The trade practices of too many countries do not correspond to the ideas of Americans about what "true market-based competition" is. State subsidies, violations of intellectual property rights, currency manipulation, anti-competitive behavior of state-owned enterprises, violations of labor laws, use of forced labor are tools that distort competition and are used to the detriment of the United States. On this basis, it is concluded that there is a need to pursue a more "aggressive" trade policy, which enhances the capabilities of the US, including the unilateral punishment of the guilty countries.

The fact that these conclusions may contradict the generally accepted legal norms, apparently, does not stop the American administration. The record deficit of the US trade balance, the size of which in 2016 exceeded $ 743 billion, is the main argument for justification of an offensive strategy. At the same time, the negative balance of manufacturing products has doubled compared to 2000 and amounted to 648 billion dollars.  

The administration of the White House announced the beginning of a "rebalancing" of the system of foreign economic relations. Trump believes that the time has come for a new trade policy that "protects America's sovereignty", enforces trade laws and uses American power to open markets abroad. To coordinate this work, the National Trade Council was created, which is directly subordinate to the US president. It is proposed to reduce by 20% the budgets of the State Department and the Agency for International Development, and to cut 37% over three years the funds intended to help foreign states and the aggregate costs of foreign policy activities. These actions are conducted under the pretext of saving government money.

The Ministry of Trade and the USTR prepared the first instructions to foreign economic agencies on the reform of trade policy, including the following:

  • To take measures to reduce the trade balance deficit;
  • To protect the national sovereignty of the United States in matters of trade policy;
  • To take a more assertive position in negotiations with trading partners and uphold the rights of US exporters and investors;
  • To use the levers of pressure on trading partners in order to force them to open their markets for American goods and services;
  • To impose import duties on imports from China and Mexico in the amount of 45% and 35% respectively;
  • To monitor violations that are allowed by foreign states in the framework of existing trade agreements, and to seek their elimination;
  • To deal with all cases of non-compliance with WTO rules by China and to take  all possible measures to resolve trade disputes with this country;
  • To initiate negotiations on new, more advanced trade transactions in key markets;
  • To protect the rights of American participants in foreign economic activities in the WTO and other international organizations;
  • To resume the practice of initiating by the Ministry of Trade anti-dumping investigations, which do not require the receipt of petitions from domestic industry;
  • To ensure adequate and effective protection of intellectual property rights.

According to Trump, membership in a number of multilateral trade agreements weakens the competitive position of the United States and leads to the erosion of its global leadership. The American president assured the Americans that "he will never again sacrifice the US economy on the altar of foreign policy, by entering into bad trade deals. As a world leader, the US is developing a trade policy that will seek to weaken the WTO, although the possibility of withdrawing from this organization is no longer being debated. Trump believes that the WTO does not have the necessary tools to counter China and other countries with non-market economies. The USTR report explains that consultations can be held with the US Congress in case of trade disagreements, if the WTO decision turns out to be "unfavorable" for the American side. US lawmakers will then have to make a verdict on whether it is appropriate to follow a WTO recommendation, or to ignore a decision unacceptable to Americans, citing threats to US sovereignty.

On the day of Trump's inauguration, an order was signed to withdraw the United States from the Trans-Pacific Partnership (TPP), which the US president called “a potential disaster for the USA.” However, Trump is not so determined about the Transatlantic Partnership with European countries, and has, for now, only "put on notice" the successful North American Free Trade Area (NAFTA).

It is also known that the US Secretary of Commerce proposed to regularly review the existing free trade agreements (FTA) in order to make sure that they work in the interests of the United States. It is noted, in particular, that South Korea's imports increased more than twice after the conclusion of the FTA with this country. “This is not the outcome the American people expected from that agreement”. However, Trump's opponents point out that Americans prefer to ignore the presence of a surplus in trade in services, which practically levels out their deficit in trade with this group of countries.

Meanwhile, US exporters worry that the United States puts itself at a disadvantage in the Asian markets as it exits from the TTP. Moreover, China has an unprecedented opportunity to become the sole leader in the Comprehensive Regional Economic Partnership in Asia, which is being designed as an alternative to the TTP.

So, in the near future, China will remain a key problem for the United States, as its export to US is four times bigger than its imports from it. According to Trump, this is due to the fact that China manipulates the exchange rate with the dollar, does not respect the intellectual property rights of Americans, routinely steals technologies and fails to enforce patent laws. In connection with this, it is planned to tighten the requirements for licensing the export of high-tech goods to China. It is also possible that US investors will have to prove that any planned deal is in the interests of national security, if it is somehow connected with Chinese state enterprises.

Trump's opponents disagree with these allegations. And given the fact that the American market depends on the supply of a wide range of goods from China, the unleashing of a trade war with this country can push the Chinese to retaliate. China may suffer more, but its response may be very devastating. As for NAFTA, the revision of the terms of this agreement will not affect substantially relations with Canada, but it may lead to a reduction in demand for US gas in Mexico and an increase in the costs of American refiners associated with imports of Mexican oil.

Trump proposes to shift the main emphasis on bilateral relations. “America is going to find new friends and create new partnerships where interests coincide,” says Trump, in his speech to the Congress. In his opinion, the opportunity to "negotiate one on one" will allow the Americans to more successfully "compete and win." However, even now there are hidden rocks on this way. The EU warned the UK that this country has no right to negotiate a separate trade agreement with the Americans in the coming years due to the conditions of its membership in the EU. More promising prospects are seen with Japan, whose prime minister suggested to sign an "American-Japanese initiative for economic growth and employment."

Vectors of interaction with most of the world's countries have not been defined yet. The provisions of the National Export Strategy remain in force in respect of a number of countries. This strategy was approved by Obama for the sole purpose of maximally hampering Trump's freedom of action in the first phase of his rule. This is also true for Russia, which is mentioned in the USTR report only that this country "unfortunately continues to discriminate against imports" from the US and pursues a protectionist policy incompatible with the requirements of the WTO.

Because of the implementation of budget saving policy, the fate of the most important institutions to support US exports and stimulate foreign investment - Eximbank and OPIC - remains unclear. Published on the website of the White House, America's First Energy Plan only declares the need to boost oil and gas exports and restore the coal industry. The intention was also announced to reduce funds allocated to organizations that develop environmental restrictions for the fuel and energy sector. At the same time, the US President intends to ask Congress to approve bills investing one trillion dollars in infrastructure. The future of the country's foreign economic relations largely depends on the state of the infrastructure. Trump has already signed orders for the resumption of the construction of two large pipelines, Dakota Access and Keystone XL, which were frozen mainly for environmental reasons by the Obama administration.

According to some experts, Trump's actions can bring political risks into commercial decisions. Some government initiatives can be sabotaged by Congress and entrepreneurs. In particular, it has already been announced that Keystone XL would be exempt from the Trump's requirement to use only US rolled steel in cross-country pipeline projects.

To date, the US foreign economic strategy has not yet been completed. At the moment, Trump managed to block some projects of the Obama administration and to develop a concept of a new trade policy. This policy reflects his conviction that the US, as a world leader, has the right to rewrite the rules of international trade in its favor.  Against this background, the leader of China, calling for a fight against trade protectionism in Davos, looks more convincing. Some documents on the regulation of foreign economic activity contain little specifics and are often perceived as declarative. Attitudes toward documents are cautious, even in the US. This indicates a polarization of views on the future of foreign economic relations in Congress and in the administration of the White House. Trump's statements are perceived negatively by the main US trading partners, as the United States had for decades been a world leader in promoting the values of trade liberalization. The search for an external enemy can cause a chain reaction in the world. At the same time, it should be recognized that the latest explanations issued by the Trump administration show signs of a reduction in aggression. Congress has already stated that after the vacancy of the head of the USTR is filled, more pragmatic solutions are expected from Trump.

Remark

1 Trump’s initiatives generally reflect the Republican sentiment, as in 2009-2016 the percentage of Republicans approving the free trade principles fell from 59% to 39%.


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