By Greg Ip
Perhaps the biggest question hanging over Donald Trump's
economic policy is whether, on trade, his actions as president
match the bellicose rhetoric of his candidacy.
His inaugural address Friday suggested so. Mr. Trump echoed the
same nationalist themes that carried him to victory in November.
"For many decades, we've enriched foreign industry at the expense
of American industry," he declared. "From this day forward, a new
vision will govern our land. Every decision on trade, on taxes, on
immigration, on foreign affairs, will be made to benefit American
workers and American families."
However, in other forums last week he and his advisers emanated
a subtler message that could be described as peace through
strength: if the U.S. demonstrates it has the tools and will to
punish unfair trade, it might deter the bad behavior of competitors
without escalating into an all-out trade war.
If Mr. Trump succeeds in wringing concessions from other
countries and showing working-class voters they are no longer
roadkill for globalization, he may actually end up putting free
trade on sounder footing. One of his advisers, Anthony Scaramucci,
told a skeptical global elite gathered in Davos that Mr. Trump is
in fact "one of the last great hopes for globalism."
Much depends on how Mr. Trump bargains. If he pushes the rest of
the world too far or penalizes as unfair trade that clearly is not,
the result will be a trade war.
The most illuminating comments on the new president's tactics
came from Wilbur Ross, the bankruptcy-turnaround investor that Mr.
Trump has nominated as secretary of commerce.
During his confirmation hearing Wednesday, Mr. Ross said he
preferred to focus on boosting exports and using carrots to keep
factory jobs in the U.S.
"Get the Toyotas and other companies like that to build their
factories here...And I think with the right tax policies,
regulatory policies, and other policies we can accomplish that," he
said.
What about sticks? Mr. Trump threatens to hit trading partners
with tariffs of 35% to 45%. Mr. Ross suggested he would pursue
tariffs on a case-by-case basis, rather than the across-the-board
approach used in the 1930 Smoot-Hawley Act, which many historians
believe worsened the Great Depression.
"Tariffs do have a useful role...correcting inappropriate
practices [and] as a negotiating tool," Mr. Ross told Congress.
"I'm keenly aware of Smoot-Hawley...That kind of approach didn't
work very well then, and it very likely wouldn't work very well
now."
Mr. Ross's department is responsible for bringing cases against
imports that are subsidized or dumped, meaning sold below cost or
below home-country prices. Mr. Ross promised to "self-initiate"
anti-dumping cases rather than wait for the affected industry to do
so. He also wants to give alleged dumpers less time to respond and
to do a better job collecting duties owed.
The U.S. would demand tougher concessions in current and future
trade agreements and might move quickly to reopen the North
American Free Trade Agreement. Canada's Globe and Mail reports Mr.
Ross wants tighter rules of origin, which is how much non-North
American content an import can have and still enter duty-free. Mr.
Ross suggested Mexico could be asked to raise its minimum wage.
There were other hints last week of a less adversarial stance on
trade than some expect. Mr. Trump told The Wall Street Journal he
wouldn't, as originally promised, label China a currency
manipulator on the first day of his presidency: "I'd talk to them
first," he said.
He said a House Republican plan to tax all imports as part of
corporate tax reform was too complicated. This doesn't mean he is
against taxing imports. He may prefer to do it on a case-by-case
basis.
"For certain companies that move jobs...there may be
repercussions," Steven Mnuchin said at his Senate confirmation
hearing for treasury secretary. "He has not suggested in any way an
across-the-board 35% border tax."
Mr. Mnuchin played down Mr. Trump's earlier complaint about the
negative competitive effects of dollar appreciation. He called a
strong dollar a sign of an attractive investment environment.
Mr. Trump and Mr. Ross expect selective punishment to have broad
benefits. Trade remedies work through an "actual curative effect,
its preventive effect and the psychological effect on the
cheaters," Mr. Ross said.
Mr. Trump told the Journal that telling just a few car companies
not to outsource will make others pay attention. "I'm not going to
even talk to the rest of the car companies. I don't have to."
Messaging can work, as long as the companies and countries in
question believe there will be consequences if they don't comply.
That means at some point Mr. Trump will have to back threats with
actual tariffs or taxes. This will be more complicated than a
tweet.
Actions against imports are covered by statutes administered
through the Commerce Department and the International Trade
Commission. Their decisions can be appealed to the World Trade
Organization.
The president retains considerable discretion over whether to
seek remedies in the first place. Robert Lighthizer, who will serve
as U.S. Trade Representative, noted in 2010 that the terms under
which China joined the WTO allowed the U.S. to impose safeguard
tariffs against surges of imports.
President George W. Bush didn't use that discretion. "Companies
stopped even applying," Mr. Lighthizer wrote.
Mr. Obama used it once, against Chinese tires. While that
provision has expired, the administration can almost certainly
bring more cases on the basis of current law.
It may only need a few to achieve the desired effect. If Mr.
Trump overplays his hand, or U.S. trade partners punch back, the
risk of a real trade war will grow.
Write to Greg Ip at greg.ip@wsj.com
(END) Dow Jones Newswires
January 22, 2017 07:14 ET (12:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.