Protectionism by the Trump Administration
There is much debate about the scope of the new protectionism on foreign trade by president Donald Trump. During the presidential campaign, he promised to renegotiate NAFTA with Canada and Mexico, to pull out the USA from the Trans Pacific Partnership and to deal with commercial partners bilaterally from now on. In the background, this policy reflects the fears felt by many voters of the effects of globalization during the last two decades, since many manufacturing jobs have been moved abroad, particularly to China and Mexico due to cheap labor costs and strong competition at home.
Notwithstanding, due to this process of globalization, consumers can access to products that, otherwise, would be more expensive to buy. As many economists argue, trade has loosers and winners, being the former those more socially visible and with more capacity to lobby, while the benefits are spread out across the overall population.
Mr. Trump has promised to support job creation and better-paying jobs and eventually, this political commitment can shed light on his true intentions towards trade: to use the strong bargaining power of the US through bilateral negotiations that creates those jobs at home.
So, what are the measures taken by the president so far to limit foreign trade?
On May 18, the President sent a notice to the Congress informing on the beginning of a renegotiation of the trade agreement with Canada and Mexico. No specific details were included in the notice, so a new deal could include new tariffs when imports threaten local industries, new requirements on rules of origin, intellectual property rights, state-owned enterprises and labor and environmental issues, and new arrangements for the settlement of disputes.
However, Canada and Mexico are also willing to renegotiate the agreement to modernize it and to bring to the table new topics such as digital trade. The main risk is to harm the status quo of the already established supply chains, which would have to accommodate to the new environment.
- Trans Pacific Partnership, TPP. The very first day President Trump took office at the White House, he signed an executive order removing the US from the TPP, which took years to negotiate. Many economists agree that, from an economic point of view, the deal is not good for the US due to potential job loss and a possible appreciation of the dollar, making american exports less competitive.
The TPP is not only a free trade agreement to reduce tariffs, it also contains a number of provisions on governance, state-owned enterprises, labor and environmental and intellectual property rights, but its real purpose goes well beyond its nature, being the TPP a tool to contain the expansion of China in the region.
- Tariffs on lumber imported from Canada have already been imposed as high as to 24%. Canadian dairy products are also on the agenda, as well as steel.
- Though not a federal measure, some states are including “Buy American” measures in their budgets in order to support local industries.
Canada is particularly affected by these measures so some provinces, such Ontario and Quebec, are lobbying in a one-on-one fashion to push for an open-trade policy at a state level.
Although so far protectionism has not been fully implemented, it could be the case that measures will have a very narrow scope in order to achieve particular outcomes or to concede to some industries with high lobbying capacity, such as solar panels and car manufactures. However, protectionism can be problematic for those industries that relies heavily in foreign supply chain, as it is the case of Boeing, whose successful model 787 gets 35% of its components from Japan before being imported to the US for final assembly. An indiscriminate increase in tariffs would make aircrafts less competitive in international markets.
Emilio Laguillo, Business Partner, How2Go US
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