The return of protectionism: what will the trade policy trump

The change of US administration may cause inhibition of multilateral negotiations in the WTO and, subsequently, lower growth of the world economy

After winning Donald trump’s presidential elections raises many questions for its future trade policy. In his 100-day programme of action, published in late October, was allocated to seven goals in this area. The most radical of them:

1. The output of the TRANS-Pacific partnership (TPP) on the first day of joining trump for President;

2. Revision of the provisions of the North American free trade agreement (NAFTA) to provide more favorable terms to American manufacturers, or withdrawal from the agreement, in the event of failure of the parties to accept new conditions;

3. The adoption of measures against “unfair subsidies” and “illegal use of intellectual property of American companies” in China.

The TRANS-Pacific partnership

The Obama administration had high hopes for the last session of the outgoing Congress, when there was still a chance for progress against TTP. However, the leaders of both parties in Congress have spoken about the impossibility of ratification of the current version of the agreement. Democratic Senator Charles Schumer in a meeting with heads of trade unions, said that the transaction is not approved. And the leader of the Republican party Mitch McConnell gave a negative response to questions about dealing with the TTP at the latest in 2016 session of Congress.

At the same time, the Prime Minister, Shinzo Abe, who is the supporter of TTP, said that they would try to persuade the elected President to ratify the agreement. And the Minister of trade of New Zealand Todd mcclay’s last week urged Parliament to expedite work on the ratification of the Agreement on the TTP.

However, we cannot exclude the fact that trump would reconsider its position, as it happened with Barack Obama — prior to his accession to the presidency, he was opposed to signing the free trade agreement with South Korea, subsequently, the agreement was signed for several other conditions and has become one of the most advanced such agreements.

The agreement on the TPP was originally an initiative of the United States — a response to the increasing role of China in the Asia-Pacific region. And it will enter into force only if countries that have ratified the agreement will have at least 85% of the total GDP of all member countries. It is obvious that without the US, agreement is impossible. And as the share of TPP partners account for more than 44% of exports and 27% of services exports of the United States, it is unlikely that Washington would be willing to lose its positions in the region.

In the case of failure of this project, other countries will probably aim their efforts at the conclusion of negotiations on the VREP (regional Comprehensive economic partnership), which is an alternative to the TTP, proposed by China. In case of successful conclusion of the negotiations on the VREP US to maintain our position in the region likely will adhere to the development strategy of bilateral agreements with major trading partners (particularly Japan, which accounts for 5.2% of their turnover).

Unlike the TPP, the agreement VREP is less comprehensive. The negotiations have not included such issues as electronic Commerce, government procurement, labour and employment, measures of trade protection, human rights. Therefore, the failure of negotiations on the TPP may lead to a General decline in standards of international trade.

NAFTA

The need to revise the arrangements of the North American free trade agreement trump justifies the fact that, in his opinion, Mexico is manipulating VAT, making the tax in the export subsidy on exports to the US and import barrier to U.S. goods. In fact, it is not. Trade VAT has the same impact as sales tax. While trump’s advisers do not believe that the sales tax in the US is the obstacle to imports or the incentive for exports. Also, some Mexican products have more competitive advantages compared to us, even though trump and associates it only with fiscal policy.

Despite fears of Mexico and Canada to lose preferential access to the U.S. market, the Minister of economy of Mexico Ildefonso, Guajardo said that “we are not talking about the subsequent re-examination of NAFTA” and is considered only a “clarification of the strategic importance of this transaction”. Canada also agreed still only in discussion.

The revision of the agreements on NAFTA could undermine the confidence of other countries to the United States at the conclusion with them in the future trade agreements or joint participation in multilateral initiatives.

Trade with China

Trump wants to introduce measures against China’s alleged manipulation of the yuan — a deliberate currency devaluation to stimulate exports. However, it is not easy to prove, as from December 11, China officially can be declared a market economy. Under the Protocol on China’s accession to WTO, signed in December 2001, other member countries can treat China as a nonmarket economy until 2016.

A separate concern is the use by China of unfair subsidies. The Obama administration has already accused China of their use (especially in agriculture) and received responses that trump was criticized as “too soft”. However, Obama has pursued a more consistent strategy — one of its objectives was to increase US competitiveness in the Asia-Pacific market with the TPP, which excludes China. As trump against the TPP, which could be a mechanism for the containment of China, one of the proposals of his campaign was the introduction of a 45% tax on Chinese goods. In practice to conduct such a law would be extremely difficult, as the right to impose tariffs on foreign goods belongs to Congress.

According to the report of the us Commission on intellectual property “every year, Chinese companies illegally use the intellectual property of American companies totaling more than $200 billion.” Trump said he would use “all legal powers of the President” to address this problem, including “fees and taxes”. This statement could be both interpreted as an intention to declare China a “trade war”.

In his thesis, trump and making reference in particular to Section 301 of the trade Act of 1974, under which the US President has the authority “to take all necessary measures, including response measures to mitigate the consequences of any action, policy of a foreign government that violates an international trade agreement or is discriminatory or restricts trade of the United States”. In the past the WTO has criticized this rule, however, no action was taken.

Global implications

The result of the revision of the priorities of US trade policy may become a General stagnation created by mega-blocks, an even greater inhibition of multilateral trade negotiations in the WTO, the shift towards bilateral trade agreements and, as a consequence, the overall decline in economic growth.

At the same time, it can be assumed that, in the interests of the country’s economic development and to maintain a trustful trade relations with major partners USA trump will not take drastic action. In any trade agreement is as a winning and a losing industry, so in the case of TTP, for example, you simply need to find mechanisms to transfer benefits to American manufacturers.

The authors ‘ point of view, articles which are published in the section “Opinions” may not coincide with ideas of editorial.

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