International Trade Policy: Post-Election Update 2016
The 2016 elections featured the most focus on U.S. international trade policy since 1992. President-elect Donald Trump placed harsh criticisms of the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP) and China and made international trade the center of his economic agenda.
With Trump’s victory it is safe to say that the political environment on trade issues is more volatile than it has been in decades. As the international trade community prepares for President-elect Trump and the new Congress a few issues are front and center:
The Future of NAFTA
Trade between NAFTA countries has increased consistently since NAFTA was adopted in 1994—more than $1 trillion in goods and services are traded between NAFTA countries. NAFTA continues to have strong support in the business community. Even in the manufacturing community, where opposition to trade with China can be fierce, many manufacturing leaders support NAFTA and have built their business models based on free trade with Canada and Mexico.
NAFTA generated little controversy over the past two decades until Donald Trump spent much of the past 18 months making the case that it is a bad deal for the U.S. and should be renegotiated. Trump’s success in the election, particularly in the “Rust Belt,” was built in no small part on his critique of NAFTA. Accordingly, it will likely be difficult for Trump to back away from his firm commitment to renegotiate NAFTA. However, what this means in detail is uncertain. The terms of NAFTA do allow any one of the member countries to withdraw six months after providing written notice, but outside of threatening to withdrawal unless a 'better' deal can be cut, it is not clear what terms a President Trump will demand.
What we do know is that negotiating trade agreements is a long and difficult process, and if the U.S. withdraws from NAFTA, or breaches NAFTA by imposing tariffs outside of the treaty’s terms, U.S. manufacturers and businesses could face a new wave of business challenges. Higher domestic tariffs will increase costs for domestic importers of raw materials or components, and history has shown that tariffs on imports allow domestic producers to increase their prices because of the protection they are afforded from international competition. Confronting these challenges and educating policymakers and the public about the complexities of international trade will be both necessary and difficult.
The TPP, if adopted by all parties, would establish a new free trade zone between the U.S. and 11 Pacific Rim countries—a trade zone that would include countries accounting for nearly 40% of global GDP. After years of negotiations, President Obama and supporters in Congress expected to be able to get “fast track” approval of the TPP by Congress during the fall of 2016. However, given Trump’s victory and the central role that trade played in his strategy, it is very likely that the TPP, at least as currently negotiated, will not become law in the U.S.
Other Trade Issues
Those who want to restrict trade often focus on US antidumping and countervailing duty laws, an area of trade law that does not get a great deal of attention outside of Washington, but that can cut-off trade on specific imported products for years or even decades. Congress already passed and the President signed two bills (the “Trade Remedies Bill” and the Trade Facilitation and Trade Enforcement Act of 2015) earlier this year that: make it easier for U.S. companies to bring anti-dumping and countervailing duty cases against their foreign competitors; provide more discretion to the U.S. Department of Commerce in trade investigations; and makes it easier for U.S. Customs and Border Protection to investigate companies suspected of evading antidumping and countervailing duty orders.
Should Congress want to further restrict trade, it could once again take up the issue of currency manipulation. China is often accused of manipulating its currency so that its exports are cheap, and Trump often used this argument during his campaign. The U.S. steel industry and steel unions have for years attempted to include currency manipulation in trade cases by including it as a countervailing subsidy that would allow for higher duties. Such a provision was dropped from the final Trade Facilitation and Trade Enforcement Act of 2015 because of opposition from the Obama administration, but look for the Congressional Steel Caucus to make another attempt in 2017.