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Trump’s Incoherent Trade Policy Is Crony Capitalism

The trade path being pursued by Trump has not substantially challenged the upward redistribution of wealth.

Donald Trump listens to the opening prayer during Air Force Technical Sergeant John Chapman's Medal of Honor ceremony at the White House on August 22, 2018, in Washington, DC.

A year and a half into Donald Trump’s presidential term, it is clear that the criticisms of US trade policy that Trump made on the campaign trail are not going to translate into actions that challenge the pro-corporate structures governing global trade.

Trade policy has been an important factor in the upward redistribution of wealth over the prior four decades. It has been structured to reduce the wages of ordinary workers to the benefit of corporations and higher income professionals who were protected from international competition. This is a path definitely worth changing.

The trade path being pursued by Trump, however, has not substantially challenged the upward redistribution of wealth.

He did kill the Trans-Pacific Partnership, which had little to do with trade (we already have trade pacts with six of the eleven other countries) and more about locking in a corporate-friendly regulatory structure.

Trump has also taken aim at the Investor-State Dispute Settlement (ISDS) mechanisms that are in NAFTA and subsequent trade deals. ISDS mechanisms are extrajudicial tribunals set up exclusively to benefit foreign investors. They provide a forum for foreign investors (which can be a foreign subsidiary of a US corporation) to challenge any law or regulation that threatens their profits at any level of government. They have been used to challenge everything from minimum wage laws to restrictions on the use of a gasoline additive linked to cancer.

There is little justification for ISDS tribunals in a country like the United States with a well-developed legal system. The Trump administration’s determination to take them out of a renegotiated NAFTA is definitely a positive step.

But beyond that, it is hard to find much cause for hope. Trump seems to have no understanding of the issues involved in trade. Trump’s focus has little to do with trade practices of other countries that are harmful to our economy.

First and foremost, Trump is obsessed with the idea that countries that have a trade surplus with the United States are somehow ripping us off. While countries may have trade surpluses because they keep down the value of their currency against the dollar, making their goods more competitive, or they may block imports from the United States, they can also run trade surpluses simply from normal trade patterns.

Saudi Arabia has a trade surplus with the United States that is likely to be over $6 billion in 2018. The reason for the surplus is that we buy oil from Saudi Arabia. Has Saudi Arabia ripped off the United States by selling us oil?

In Trump’s view of trade, this would seem to be the case. His tirades against Canada seem to stem primarily from the fact that it has a trade surplus with the United States (yes, Canada does have a trade surplus when properly measured), not from any specific trade practices. He has put Canada’s protection of its dairy industry, which is similar to our protection of our dairy industry, at the center of our trade conflict, but even with a smashing Trump victory, increased dairy exports would have little impact on our trade deficit or even our dairy farmers.

During his campaign Trump constantly complained about currency “manipulation,” a criticism mostly often directed against China, but also occasionally directed against other countries as well. Since China and other countries do actually manage their currencies, often to keep them lower against the dollar, this was a reasonable issue to raise.

Incredibly, now that he is president and actually in a position to do something about trade policy, currency seems to have disappeared from his agenda. In fact, in most areas of trade policy, he seems to be pursuing the same pro-corporate trade policy as his predecessors.

For example, in his renegotiation of NAFTA, he is pushing for longer copyrights and stronger patent-related protections in Mexico. It doesn’t benefit US workers if Disney gets more money for its Mickey Mouse memorabilia or if Pfizer can make Canada’s patients pay more for drugs. He is also pushing Amazon and Facebook’s agenda on Internet commerce so that other countries will have more difficulty reining in abusive practices by these companies.

There is one notable difference between Trump trade and the agenda of his predecessors. While both may be pursuing a pro-corporate agenda, Trump’s policy is more ad hoc. He has explicitly argued against rules-based policy. Trump wants to be able to use trade policies like tariffs to help his friends and hurt his enemies.

In short, Trump wants full crony capitalism with trade playing a central role. As recent revelations in the news have made even clearer, there is no coherent strategy in Trump’s actions. They are about helping family and friends and punishing his political opponents. Unfortunately, that is where we sit with trade policy in the Trump administration.

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