US trade during the Trump administration

The United States has the most influence on multilateral trading systems of any country in the world. Therefore, all eyes were on President Donald Trump when he assumed office at the White House.

As the latest US President, trade experts and professionals were eager to see his administration’s trade policies given their potential impact on the rest of the trading world. As it turns out, he had unique approaches to trading that were not only brave and bold, but could potentially undermine the existing international trade laws.

Take a closer look into President Trump’s trade policies and what it means for the rest of the world, as well as the US economy.

America First Trade Policy

“Make America Great Again” is the primary campaign for the Trump administration, which is something that he vowed even during his electoral run. Therefore, it comes as no shock to many that he imposed the “America First” trade policy. This was a crucial move given that there is probably no other country in the world with such a tremendous impact on the multilateral trading system. This new policy from the Trump administration has created a wave of economic impact on the global trade landscape, even for the trading partners of the US.

With this new policy in place, Donald Trump has clearly deviated from the liberal trade policies imposed by his predecessors. First and foremost, he ordered the withdrawal of the United States from the Trans-Pacific Partnership or TPP. He also initiated a renegotiation of trade agreements between Mexico and Canada, along with South Korea. Moreover, he also blocked the appointment of the members of the World Trade Organization’s Appellate Body. Later on, you will also learn more in-depth about the changes on tariffs that were implemented as part of this new policy by the Trump government.

Experts believe that the implementation of these new policies suggest that President Trump is looking at trade as a zero-sum game. The President and his team of trade experts view a negative bilateral trade balance as an indicator that the trading partner does not abide by the rules of the trade. In particular, China has been constantly singled out by President Trump for its trade activities. However, China is not the only receiving end of Trump’s trade tirades because the European Union and even Japan were also targeted.

US trade data show that Trump’s new policies are zoned in on quid-pro-quo solutions instead of engaging in multilateral cooperation. He looks at every trade activity as transactional rather than enforcing the existing international trade laws. He has even started implementing the use of tariffs as part of its campaign to put America on top of the global trading system.

Key Pillars of Trump’s Trade Policies

In order to fully understand how the Trump government is putting “America First” in its trade policies, it is important to look closely at the key pillars of this trade policy. These key pillars were discussed in more detail in the Trade Policy Agenda that were issued in 2018 and 2019. As you can see, these policies are far more aggressive than any other trade policies that had been implemented by former US Presidents.

  • National trade policy is tied to national security strategy. The trade policy of the US government under the Trump administration puts emphasis on national interests. Therefore, Trump pursues the investigation of global imports and products to ensure the American national security.
  • Taking a fresh look at existing trade agreements that might be “outdated” or “imbalanced”. Another key feature of the US trade policy under Trump’s governance is its commitment to a fair trade deal. The ultimate goal is to create more jobs in the US and to promote prosperity. In doing so, they insist on balanced trade agreements through negotiation.
  • The US trade law is actively enforced. If there is one thing that Trump made clear about his trade policy, it’s that it will not tolerate unfair trade practices. Therefore, he insists on the application of US trade laws such as the Trade Act of 1974. An example of it is the implementation of tariffs as retaliatory measures toward trade partners that do not abide by this. US President Trump has taken more countermeasures involving its trade partners than any other Presidents before him.
  • Promote and defend national interests within the World Trade Organization (WTO). US President Donald Trump is critical of many things, in particular the World Trade Organization. He stated that the WTO needed reform as it has been unable to keep up with the modern trade challenges. He calls for a shift and threatens the function of the organization by blocking its ability to appoint members by not participating in reform discussions.

Economic Impact of US Tariffs

One of the key changes to the US trade policy with Trump’s administration is the imposition of tariffs. Because of this key trade move, many of the trade partners for the US took on retaliatory actions that have resulted in loss of employment, income, and economic output. Since Trump first announced this decision, many countries and trade partners have already expressed concerns and many have responded with their own trade measures. Tax experts agree that tariffs can cause damage to any country’s economic health, even the US. As such, it has resulted in a net loss in production as well as the loss of jobs for many. One of the worst economic impacts of this trade move is that this added more burden to the lower-income consumers.

According to analysis conducted by the Tax Foundation, the decision to impose tariffs by the Trump government could result in a decline in GDP by as much as 0.23% or equivalent to $58 Billion. It is also estimated to reduce wages by up to 0.15%. Considering these existing threats, the Trump administration is even threatening to levy additional tariffs, which experts predict could cause the GDP to go down by up to 0.24%. More people could also lose their jobs or see their wages go down.

Free trade encourages economic activity; and when there is a lot of economic activity, it produces income. On the flip side, when there are trade barriers put in place, it slows down economic output and income. This is a historical fact and evidence that the US government had to contend with when the Trump administration decided to impose tariffs. As a result, it caused an increase in prices of US goods and services (both for consumers and businesses alike). It created a domino effect in lowering income, economic output and employment rate within the US.

As mentioned above, this trade barrier can put more burden on the consumers because businesses that engage in trade activity could increase prices on products or goods. Tariffs make the acquisition of materials and other products expensive. Any economist knows that when the cost of raw materials goes up, so does the price of the products in the market.

Since its decision to impose tariffs, the implementation has come in several rounds. Experts estimate that the tariffs would increase the tax by up to $80 Billion. As of this writing, the Trump administration has only reversed the tariffs on imported steel and aluminum from Mexico and Canada. This was signed by Trump in March 2018, which specified a reduction in tariff of up to 25% on steel and up to 10% on aluminum. However, it was re-imposed in August 2020, although the tariffs are only applicable to imported aluminum from Canada only, only to be reversed in September 2020.

In addition, the US government currently imposes a 25% tariff on all imported goods from China. The reason for imposing such high tariffs was that the United States Trade Representative conducted an investigation in 2017 regarding China’s trade practices. By March 2018, they were able to conclude that China participated in unfair trade practices, resulting in the Trump administration imposing tariffs on Chinese goods. The tariff rates on imported goods from China vary in terms of the products in question.

In addition to Canada, Mexico, and China, the US policy on tariffs also involved the European Union. There has been a 15-year long dispute between the US and the European Union in the World Trade Organization. The US finally won this dispute last October 2019 so the government is given the authorization to impose up to 100% tariffs on EU goods. These goods range from aircraft supplies, agricultural products, and more.

As mentioned above, the countries and trade partners of the US have taken their own measures to respond to the steep tariffs imposed by the US. China, in particular, proposed tariffs of their own on US goods in China.

While the Trump administration remains steadfast in its imposition of tariffs for all trade activities involving the US and the specified countries, economic and trade experts are afraid that this could cause more harm to the US economy than good. Historical evidence and data do not lie and the numbers can be used as a basis for implementing similar policies, experts suggest.

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