Presumptive President Donald Trump’s new trade policy should focus on these key elements, if it is to succeed at the overarching thematic of his presidency, namely, Making America Great Again.
Trump is a free trader by instinct, and as he has stated he has no plan to return to the failed Smoot-Hawley plan of the 1930s, rest assured.
The economic reality is that tariffs usually don’t work. Countries retaliate, and all parties lose in a trade war. So what realistically can be done by Trump on trade?
On the supply side, the U.S. must constantly get more competitive.
This includes more research & development, constant innovation, advanced technological manufacturing, improved access to capital, renewed skills training and benchmarking. A pro-growth environment, if earnestly followed by Trump, will lead to prosperity and rising standards of living and increased wages for all Americans.
On the demand side, first, Trump should cool off on all the Obama trade deals. Put them on hold or ice. The Trans-Pacific Parternship, struck with 11 Asian countries, is a bad deal. Has anyone read all 5,600 pages of it? The one with the EU is no better.
Next, confront China on its currency manipulation.
This is rarely discussed but is at the heart of our trade imbalance. The Treasury Department biannual report to Congress on exchange-rate practices of our trading partners confirms Trump’s analysis – that foreign countries are eating our lunch and that the U.S. government is doing little or nothing about it. Under current procedures, by the time we finish pleading with them to halt their unfair practices, there will be little or no industrial economy left in this country.
Under enhanced reporting criteria set forth by Congress in the Trade Enhancement and Trade Facilitation Act of 2015, Treasury names five countries – China, Japan, Korea, Taiwan, and Germany – whose trade policies pose a threat to the U.S. and global economies.
This is nothing more than a “name and shame” document since each of the countries only meets two of the three necessary criteria for (ineffective) action. Thus all Treasury does is put the countries on a new “monitoring” list. That means we watch them while they continue to steal factories and jobs from the United States. And, even if the countries did meet all three criteria, the weak potential penalties are rather toothless – and can be reversed by the president basically at will.
We need a concrete plan that fixes this with immediate action. Currency misdealing can no longer be tolerated. If need be, we can play the same game.
Make no mistake, China and other countries also routinely break the rules by dumping their products below cost in the U.S. market. Some also specialize in making counterfeit products, thereby costing the companies who make the authentic products over $20 billion a year.
Trump needs to tell China, and any other nation manufacturing fraudulent products, we will add up that bill and assess the tariffs accordingly. They need to police their own producers – on their end.
These same countries also use illegal trans-shipping by changing documentation to avoid duties. The penalties on such behavior should be raised a thousand fold. A few shamed examples that are severely penalized would work to end the practice.
It is true Trump will need congressional approval for imposition of any lasting and sizable tariffs on imports. This he can get with a Republican-controlled House and Senate. He does not need approval for short-term, sectoral retaliatory tariffs or negotiations. He can do it himself on Day 1.
Trump can also block U.S. companies from shifting production overseas by taxing them identically at home and abroad, abolishing the foreign tax credit, which avoids double taxation, and by jawboning them, as he has already done with Carrier Corporation, which is planning to move 1,500 jobs from Indiana to Mexico. That should set a precedent.
It will be imperative for Trump to work with the Congress as they have jurisdiction over many of these trade matters. With the right vice president, who knows the ins and outs of lawmaking, he will be able quickly to secure all the provisions provided by legislative authority. This should be a top priority.
Honestly, our elites – on both sides of the political spectrum – have been lying about the exaggerated benefits of globalism for decades. It, like free trade, is in reality a mixed bag. Like any equation, there are inevitably winners and losers. Unfortunately, the losers have been Americans, and particularly the middle class who work in manufacturing and reside in the Rustbelt.
Free trade, you see, nice as it appears in theory and in economics textbooks, does not benefit everyone.
The U.S. has lost one-third of its jobs over the last 15 years, over 6 million real workers – gone. And last year the U.S. ran a $365 billion merchandise trade deficit with China alone, which translates to 2.4 million jobs lost to Chinese imports over the same longer period.
Trump’s threat of a 45 percent tariff should be used as what it is – a threat. The point is we want reciprocity. Play by the rules, which were set up by the World Trade Organization, or we will react.
This will keep more jobs at home. Open up, or we will close down. That means Japanese car markets, Chinese financial services and access to every other market must change within six months, or we reciprocate and impose on them exactly what they impose on us. We have been stupid for far too long, so now, under Trump, we will get smart.
Global trade is not a zero-sum game. Trump must have a comprehensive plan to uphold his promise to the American voters.
This will involve tough negotiations by professionals who know what they are doing and coordination between USTR and Commerce, Defense, Energy and Treasury, as well as all other government agencies.
Trump should name a Trade Czar now, who will work for him alone – not for any special interests – and who can produce immediate and measurable results.
A new index called the Trump Prosperity Index should capture how we are doing, measuring all new jobs created, all jobs returned, economic expansion, the employment participation rate and all trade balances moving in our direction. This one combined number will prove Trump’s economic benefits in a telling way.
Trump can produce results and move the needle in the direction it needs to go; the entire country is counting on it, and the result will be a more inclusive capitalism.