By Jacob M. Schlesinger
President Trump claimed a multi-front victory last week in his bid to reshape U.S. trade policy under his "America First" philosophy, extracting fresh commercial concessions from Mexico and China -- while stripping the World Trade Organization of its powers to restrain the tactics he used to secure them.
Combined, the efforts show an approach toward U.S. trading partners and multinationals that is focused more on forcing corporations to produce domestically and sell American-made goods abroad than on helping them expand their global manufacturing footprint.
On Tuesday, the White House announced the rewrite of the country's largest trade deal, the 1994 North American Free Trade Agreement, winning approval not only from the compact's Mexican and Canadian partners but from longtime Nafta opponents among congressional Democrats and organized labor. On Friday, the administration brokered a limited truce with Beijing following a year-and-a-half-long trade war, putting further tariffs on hold and securing an unusual Chinese pledge to boost imports of U.S. goods by a specified dollar amount while trade talks between the two sides continue.
In between those two announcements, the U.S. on Wednesday effectively crippled the Geneva-based WTO trade court that was launched in 1995 to prevent the kinds of trade wars Mr. Trump has deployed to coerce America's trading partners to the bargaining table. Over the past two years, the administration has blocked the appointment of judges to the court, and because its remaining members' terms are expiring, the panel as of last week no longer had enough members to issue decisions and enforce WTO rules.
Many economists, business leaders and members of Congress from both parties say Mr. Trump's efforts have done little to boost economic activity -- other than by defusing the uncertainty he himself stoked with his disruptive acts. But many agree that "this was the week where the first three years of Trump administration trade policy all came together," said Clete Willems, who worked as a White House trade adviser until April.
Mr. Trump's administration will now turn to negotiating the next phase of a deal with China -- though election-year politics and stiff Chinese resistance might make such an agreement difficult -- and to reaching new or expanded pacts with other trading partners, including Japan and the European Union. A new agreement with the U.K. is also a priority after last week's sweeping election victory of Prime Minister Boris Johnson's Conservative Party makes a British departure from the EU almost certain.
Mr. Trump took office in January 2017 with a clear vision for how he wanted to upend the longstanding American approach to trade. His predecessors, he has said repeatedly, negotiated bad agreements, and he vowed to rip them up. He wanted to focus more on concrete outcomes -- cutting the trade deficit, boosting U.S. manufacturing -- rather than bolstering transparent, market-opening rules. He believed previous presidents had been too responsive to multinational companies, too deferential to multilateral rules and too timid about wielding American power unilaterally.
The public details of the "phase-one" China deal were vague, with many disputed issues left to later negotiations, but one provision the U.S. announced was what it characterized as a promise by Beijing to boost imports of U.S. goods and services over the next two years by at least $200 billion over 2017 levels -- roughly a doubling within four years that many analysts consider unlikely.
Beyond the top-line number, "we have a list that will go: manufacturing, agriculture, services energy...There'll be a total for each one of those, " Robert Lighthizer, Mr. Trump's chief trade negotiator, told CBS's "Face the Nation" Sunday. Those specific targets echo various import and export quotas that Washington imposed on Japan in the 1980s, a managed-trade approach that U.S. governments came to shun over the past 30 years.
The new Nafta -- rebranded the U.S.-Mexico-Canada Agreement, or USMCA -- followed 2 1/2 years of negotiations, after which Mexico agreed to provisions designed to strengthen its workers' labor protections. Those included measures allowing Americans to monitor conditions there in ways some Mexicans feel intrude on their sovereignty. The goal is to raise the cost of manufacturing in Mexico and shift production that had moved there under the original Nafta back to the U.S.
While that contrasts with the earlier pact's objectives of expanding trade and raising the manufacturing efficiency of a unified continental bloc, it encapsulates "Trump trade policy," Mr. Lighthizer said Sunday. "He doesn't want American manufacturing workers to have to compete with people who are operating in very difficult working conditions."
Another last-minute change in USMCA was the removal of a provision for U.S. drugmakers forcing other countries to extend their patent protections, something the pharmaceutical industry had succeeded in making standard in new trade deals. The USMCA also drops protections for American multinationals investing in other countries, another hallmark of recent U.S. trade agreements. Both changes show how Mr. Trump sees trade deals as less about helping multinationals do business abroad than encouraging them to focus production at home.
"This is the first trade agreement the U.S. has ever done that raises trade barriers and degrades investor protections," said Daniel Price, a top trade official in the George W. Bush administration.
Skeptics saw in last week's frenzied activity the limits of unilateral American might in bending the global trading system to its will. The Friday agreement with Beijing, in particular, was less the sweeping market-opening than a cease-fire.
"Trump was right to call China out on their violations of rules and norms," said Fred Bergsten, a trade expert at the Peterson Institute for International Economics. "But he has been going at them for three years, unleashed a lot of firepower, and has gotten essentially nowhere on the big issues." He added that Mr. Trump's disdain for multilateralism undercut his goals: "China can stand up to us one on one, but it cannot stand up to us if we maintain our alliance structure."
Farmers fret that the gains Mr. Trump touts might not even sufficiently offset their losses to date from his actions. The American Farm Bureau Federation noted Friday that "China went from the second-largest market for U.S. agricultural products to the fifth-largest since the trade war began."
Yet to Trump supporters, "the latest deals show that the United States has a great deal of leverage, when that leverage is used effectively," said Stephen Vaughn, who worked until April as an administration trade negotiator shaping each of its initiatives. "This U.S. is actively making its own trade policy right now, and that's going very well."
Mr. Trump's tactics in pursuing the USMCA and China deals marked a sharp break from his recent predecessors. He imposed tariffs unilaterally to force concessions. Mexico and Canada agreed to rewrite Nafta in part to get Mr. Trump to remove steel and aluminum tariffs he had placed on them, and to respond to Mr. Trump's threats to add new levies on cars. The China import pledge was given in part to get Mr. Trump to drop new tariffs on $156 billion in Chinese goods scheduled to take effect Sunday.
Since the WTO's creation a quarter-century ago, American presidents have avoided using those unilateral powers, instead taking their complaints to the WTO and letting the judges there determine whether the U.S. had a legitimate grievance and, if so, the proper response. Mr. Trump has regularly said the Geneva trade court treats the U.S. unfairly, arguing American interests were better served by undermining the institution. After last week's neutering of the trade court, other countries will have a harder time using the WTO to challenge American actions.
The president's critics cite studies showing modest gains at best for the economy -- and argue that positive market response to the recent announcements reflect more relief that the administration appeared to cease disrupting the system than any celebration of substantive progress made.
"If your metric is that we've stopped bleeding ourselves, then these have been a plus," said Robert Zoellick, a former chief trade negotiator in the Bush administration from 2001 to 2005. "If your metric is whether we're expanding trade, opening markets and setting higher standards, then these have been a total waste of time."
Despite warnings that the president's tactics would tank markets and the economy, both have remained strong throughout his term.
"This might have been Trump's best week in the White House," said Stephen Moore, a fellow at the conservative Heritage Foundation and an informal adviser to the president. He noted that, in addition to the trade deals, "you had a monster jobs report" Dec. 6, when the unemployment rate matched a half-century low of 3.5% and then, by some benchmarks, "the stock market hit an all-time high."
Write to Jacob M. Schlesinger at email@example.com
(END) Dow Jones Newswires
December 15, 2019 14:09 ET (19:09 GMT)
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