The Washington PostDemocracy Dies in Darkness

Trump is reshaping U.S. trade policy, but not at the scale he long promised

President Trump speaks during a groundbreaking ceremony for the $10 billion Foxconn factory in  Wisconsin. The Taiwanese tech giant later scrapped plans to build the plant.
President Trump speaks during a groundbreaking ceremony for the $10 billion Foxconn factory in Wisconsin. The Taiwanese tech giant later scrapped plans to build the plant. (Scott Olson/Getty Images)
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President Trump on Tuesday celebrated a negotiating breakthrough that paved the way for congressional approval of a new North American trade deal, one of the main goals of his presidency.

The compromise with House Speaker Nancy Pelosi (D-Calif.) over labor rights in Mexico comes as the president and his chief negotiator Robert E. Lighthizer strive to complete a more limited accord with China, just five days before U.S. tariffs are scheduled to hit Chinese goods.

Reaching agreements to reshape almost half of the country’s $4 trillion-plus goods trade would be a big political win for the president as he confronts a House impeachment inquiry.

But the two “America First” trade deals will provide only limited overall gains for the economy, according to independent studies, economists and executives. In particular, there is little chance that large numbers of outsourced factory jobs will return to the United States, as the president promised.

House Democrats say they back Trump’s revised trade deal with Canada and Mexico, citing recent changes

“What we’ve learned from the Trump trade revolution is that it’s much easier to hurt Chinese manufacturing than it is to help American manufacturing,” said economist Brad Setser of the Council on Foreign Relations. “In terms of bringing jobs back, you’re not going to see much success.”

U.S. factory payrolls fell by almost 6 million following the 1994 North American Free Trade Agreement (NAFTA) and China’s 2001 entry into the World Trade Organization. The new U.S.-Mexico-Canada-Agreement, NAFTA’s successor, promises to replace only 50,000 of them, according to a study by the International Trade Commission.

No formal estimates of the China deal’s impact have been released, since negotiations are continuing. But given its focus on farm goods, financial services market access and intellectual property protection, it likely will not create even that many factory jobs, economists and trade analysts say.

“The China agenda is very much a Chamber of Commerce agenda . . . What really caused the devastation of American manufacturing was China’s production subsidies, their monetary policy and overcapacity by state-owned enterprises, which just keep producing no matter what,” said Scott Paul, president of the Alliance for American Manufacturing, a nonprofit backed by the United Steelworkers Union. “We’re no closer today than we were three years ago to making progress on things that would have an impact on American jobs.”

Analysis: Winners and losers in the final USMCA deal

Administration officials have disputed the anemic job forecast for USMCA and say the president’s trade policy already is helping drive the economy’s enviable performance. The expansion, now in its 11th year, has brought the unemployment rate to a 50-year low and the stock market to a record high.

“We are cooking up very close to two powerful trade deals,” National Economic Council Director Larry Kudlow told CNBC last week. “Not only are they well-crafted and will open the door for American exports because we’re the most competitive in the world, but it will add a lot to GDP.”

But for Trump — who in his inaugural address decried “rusted-out factories scattered like tombstones across the landscape” — the data suggest that his first big deals will fall short of his promise to recover lost jobs.

During the 2016 campaign, Trump blamed “disastrous trade deals supported by Bill and Hillary Clinton” for the loss of one-third of U.S. manufacturing jobs and promised to bring them back.

Six months into his presidency, at a July 2017 rally in Youngstown, Ohio, he told local residents not to sell their homes, saying factory jobs that had gone overseas would be returning to the region. “They’re all coming back,” he said. “They’re all coming back.”

The limited manufacturing jobs payoff from the two deals highlights the role that other powerful forces play in affecting merchandise trade. Though the president often emphasizes shortcomings in agreements like NAFTA, economists say the value of the U.S. dollar and Trump’s own spending policies have a greater impact.

“Trade policy doesn’t drive trade outcomes,” Setser said.

Washington’s trillion-dollar budget deficit fueled economic growth, which led to Americans buying more imported goods. Faster growth also kept U.S. interest rates higher than those in other advanced economies, leading to a stronger dollar which dented exports.

“Trade and investment deals are the problem, not the solution,” said economist Robert Scott of the Economic Policy Institute. “The single largest cause of job losses and trade imbalances lies in the currency area. Realigning the dollar is the best thing we could do.”

Trump’s criticism of the bipartisan “free trade” consensus was a centerpiece of his campaign. “Horrible and unfair trade deals” had enriched the Washington elite at the expense of middle America, he said.

In a 2016 campaign speech laying out his trade agenda, he vowed to get a better deal for workers. “I don’t mean just a little bit better,” he said of renegotiating NAFTA. “I mean a lot better.”

He also vowed to close the yawning trade deficit, saying it represented a direct annual loss to the U.S. economy of hundreds of billions of dollars.

Once in office, the president delivered on many of his specific promises. He pulled the United States from a 12-nation Pacific trade deal, began renegotiating existing deals and slapped tariffs on solar panels, washing machines, industrial metals and $360 billion in Chinese goods.

But a multifront trade war launched to save American manufacturing hit numerous factories with the economic equivalent of “friendly fire.” U.S. tariffs disrupted their supply chains while foreign retaliation cost them sales.

“Even if you believe, as I do, that trade is part of the problem, renegotiating trade agreements isn’t really going to fix it,” said Edward Alden, author of “Failure to Adjust: How Americans Got Left Behind in the Global Economy” and a professor at Western Washington University. “He vastly over-promised in terms of the benefits the tougher stance on trade could bring. These tactics have not come close to delivering the results he promised.”

The USMCA includes requirements for more North American content in each vehicle, including a requirement that 40 percent be produced by workers making at last $16 per hour.

But an International Monetary Fund study concluded that the provisions “would not achieve their desired outcomes.” And though Trump vowed to stop companies from moving abroad, in practice he has been unable to compete with fundamental economic forces.

Despite the prospect of these new rules for North American trade, Ford Motor said this month it would make its new electric Mustang sport utility vehicle in Mexico rather than in the United States.

Over the past three years, U.S. companies have announced plans to bring back 205,645 jobs, according to the Reshoring Initiative, a nonprofit. That represented an increase from 121,422 jobs during the last three years of the Obama administration.

But the figure was a fraction of the 6 million positions that have disappeared since 2000 and fewer than the economy created in November.

“They get credit for shaking up the trade status quo and for taking some actions that were much needed,” said Lori Wallach, head of Public Citizen’s Global Trade Watch. “But candidate Trump made such grandiose promises . . . His promises by definition were impossible to deliver on.”

Indeed, despite Trump’s trade offensive, Americans continued to buy much more from abroad than they sold there. Through the first 10 months of 2019, the goods and services deficit rose more than 1 percent to more than $520 billion. The goods-only gap was down less than 1 percent, though it remained well above 2017 levels.

Now a pair of Trump trade deals is in play less than a year before voters will decide whether he deserves a second term.

The administration is eager to secure a House vote on USMCA before the end of this year to avoid it becoming stalled by 2020 politics. Officials likewise expect little additional progress with China next year.

Trump’s team says he already has a strong trade record to take to voters. He has shifted the consensus on dealing with China in a much more confrontational direction while revising a trade deal with South Korea, which locked in protections for the lucrative U.S. pickup truck market, and secured a new deal with Japan.

Steep 25 percent tariffs on a range of Chinese-made machine tools and high-tech products such as photosensitive semiconductors and lithium batteries are designed to safeguard the next generation of job-creating U.S. industries, according to administration officials.

“The president is defending both America’s technological crown jewels and American workers with his tariffs on China,” said Peter Navarro, one of Trump’s closest trade advisers. “Every industrial sector in America, which has the protection of these tariffs, is benefiting greatly and the biggest beneficiaries are our high-tech companies, which are the direct target of Chinese economic aggression.”

Yet the China deal pales alongside the president’s original ambition. Trump initially insisted that he wanted a comprehensive agreement to address all of the Chinese trade practices identified in a March 2018 report that accused China of stealing American trade secrets and forcing U.S. companies to surrender their advanced technologies before gaining access to China’s market. But as negotiations dragged, the president agreed to accept a more limited deal, deferring haggling over China’s massive government subsidies to subsequent talks.