I use the word “threaten,” because we don’t yet know whether President Trump will carry out some of his most sweeping proposals – scrapping the North American Free Trade Agreement (NAFTA) with Canada and Mexico, for example. As trade analyst Geoffrey Gertz of the Brookings Institution argues, there’s a huge gap between Trump’s trade rhetoric and the underlying reality.
“The simplest and perhaps most convincing explanation (for the gap) is that this is just Trump being Trump,” he wrote in a recent analysis. “He does not see any difference between campaign rally rhetoric and official presidential announcements, is not particularly concerned with the truthfulness of his claims, and is never willing to admit a mistake.”
Still, the stakes are significant. In addition to NAFTA, these include economic relations with China, tariffs on steel and aluminum imports and the broader possibility that Trump’s protectionism will trigger a spiral of retaliation – an all-out trade war. Remember, Trump has already withdrawn the United States from the Trans-Pacific Partnership, a trade agreement with 11 other countries.
Most economists believe that more protectionism would act as a drag on the world economy. Domestic prices would increase, hampering consumer spending. Greater uncertainty for businesses might impede new corporate investment. Although some jobs might be created, high unemployment is not now a major problem. In April, the jobless rate fell to 3.9 percent, the lowest since 2000.
On average, trade raises U.S. living standards by providing cheaper goods, stimulating new technologies and intensifying competition. One study by economists Arnaud Costinot of the Massachusetts Institute of Technology and Andres Rodriguez-Clare of the University of California at Berkeley estimated the gains from trade as between 2 percent of gross domestic product – the economy – and 8 percent of GDP. With GDP at about $20 trillion, the gains would translate into annual benefits worth between $400 billion and $1.6 trillion. The study was recently published in The Journal of Economic Perspectives.
A 2017 study by the Peterson Institute for International Economics found even larger gains, totaling about $2.1 trillion, based on the cumulative effects of trade liberalization since the end of World War II. That was equal to about $7,014 in average income for each American, Peterson has estimated. However, the Peterson study also estimated that trade, imports and exports, eliminated an average of 156,250 jobs annually from 2001 to 2016.
Although most studies of trade focus on economics, what’s often overlooked is that trade is basically a political act. What a country trades and with whom heavily defines its foreign relations. That is why Trump’s trade proposals have been so controversial. He doesn’t simply object to trade in certain industries – say, steel or autos. These sorts of conflicts have existed since the early 1970s and have often been defused by pragmatic political bargains. By contrast, Trump calls into question the basic political alliances between the United States and its major trading partners.
Since World War II, the assumption of the United States and its historical allies has been that trade, properly governed by international rules, is mutually beneficial. Believing that, the United States, Japan, and European nations compartmentalized their trade conflicts, limiting the damage to their overall relations. They were still allies. By contrast, Trump often treats America’s allies as adversaries. He seems to see trade as a zero-sum game: “I win, you lose.” Thinking that, he is indifferent – even hostile – to their fate. He professes to be eager to engage in a trade war, even when the supposed targets are our friends.
It is this distinction that invests the current reappraisal of trade relations with so much significance. True, China is a massive exception. It is neither ally or adversary, but something for which we have yet to invent a label. Otherwise, Trump is running a huge risk if he turns trade conflicts into a trade war.
Samuelson’s columns, including those not published in the Journal, can be read at abqjournal.com/opinion – look for the syndicated columnist link. Copyright, The Washington Post Writers Group.