by Vladimir Kljajić

Washington has guided the world’s economies toward freer trade and higher levels of development, but now Trump’s mercantilist trade policy could threaten the world economy. His main objective is fairer trade, but will the price be isolation? It remains to be seen who could potentially fill the void.

Free trade between countries has always been a subject of interest for important players in the global economy. Without a doubt, the modern world has gained more from it, rather than lost, however, there is still the concept of balance. Questions like how much, how far and how deep should free trade go, result in a wide array of responses from political parties, especially during times of crises; and we all know that populists love to claim that we are constantly in a crisis.

If there is one thing that can be said about the success of postwar American foreign policy, then it is definitely its trade policy. The stimulation of free trade agreements was intensified in the late 1980’s. The break-up of the Soviet Union led the European Community to form trade agreements with some Central and Eastern European nations, followed by bilateral trade agreements with Middle Eastern countries. On the other hand, the US pursued its own trade negotiations, firstly with Israel in 1985, as well as the trilateral North American Free Trade Agreement (NAFTA) with Mexico and Canada in 1994. There were also some significant regional agreements in South America, Asia, and Africa. One of the most important ones is the Uruguay Round Agreements that created the World Trade Organization, which succeeded the GATT as the global supervisor of world trade liberalization. It was followed by China’s 2001 Protocol of Accession to the WTO. The WTO currently has 164 members and 22 observer governments who are committed to regulating international trade.

Domestic politics usually shape international relations; therefore, trade is also under revision. As a result, it comes as no surprise that there are some shifts and consequences of the ‘’America first’’ policies that proved victorious in the USA Presidential elections in 2016. Throughout his campaign, President Trump put blame on free trade agreements for causing economic suffering and unemployment in America, a practice which has continued throughout his first year in office. During the 1990s, Professor Ethan B. Kapstein wrote that growing income inequality, job insecurity, and unemployment are widely seen as the flip side of globalization – a narrative that has accused foreign trade for the loss of jobs, pressure on the middle class, and the reduction of wages. According to its Trade Policy Agenda, the Trump Administration has stated that ‘’the status quo is unsustainable’’. One of the main arguments for re-negotiating and withdrawing from some agreements is the large trade deficit. The trade deficit in goods and services with China has soared from $81.9 billion in 2000 to almost $334 billion in 2015. When it comes to NAFTA, in 2016 alone, the US’ combined trade deficit in goods with Canada and Mexico were over $74 billion.

The President, by Section 301 of the US Trade Act of 1974, is authorized to take all ‘’appropriate action, including retaliation‘’, where US trade interests are damaged and this can easily affect world trade. Most recently, in November, the U.S. placed punitive tariffs on Canadian lumber amid an impasse. On the other hand, the US benefits from NAFTA, especially from Mexico, which is partially responsible for the success of the American car industry, as it provides cheaper parts. As a result, It is more likely that the US will not retreat from NAFTA but rather, re-negotiate it.

As the strongest economic power, the United States now sees national sovereignty as a greater priority than trade policies such as the Trans-Pacific Partnership and TTIP. In spite of the general skepticism towards free trade agreements, the TPP’s future signatories, the remaining 11 members, reached an agreement on the “core elements” of a deal to proceed without the US. Furthermore, according to the FT, officials say the plan is to sign a final agreement early next year, in a deal that would eliminate tariffs on 95 per cent of goods traded in a bloc covering some 500 million people and more than $10 trillion in economic output. It also leaves the door open to the US rejoining the agreement someday.

While China is excluded from the TPP, it plans to be a part of the Regional Comprehensive Economic Partnership (RCEP). The RCEP could potentially transform the region of Central-South Asia and Oceania into the world’s largest trading bloc, comprising of over 3.5 billion people and covering nearly one third of the global economy. If everything goes to plan, it should be launched early next year. Having in mind the historic and territorial disputes between some of the signatories, such as between China and Japan, as well as between China and India, its implementation remains uncertain.

When it comes to strengthening the US-European bond through the TTIP agreement, the situation remains silent. The largest bilateral trade initiative ever negotiated doesn’t have a large following in Washington. Having in mind that the EU has strongly emphasized safety and environmental standards and that the Trump Administrations isn’t a huge fan of it, it remains to be seen what the outcome will be.

The anti-trade rhetoric based primarily on the fear of losing manufacturing jobs will still be part of our public discourse and studies have shown that technology is the main reason for putting some people out of work. A lot of countries depend on free trade and certainly Donald Trump’s mercantilist trade policy will cause a lot of shocks. One of the questions that remain to be answered is whether other big players such as China, after being marginalized in the TTIP/TPP context, takes the chance and offers itself as a reliable economic partner.

17 December 2017
This text was published in Bullseye issue 70