President Trump on Friday spelled out a historic shift in the way America crafts trade deals — one that could leverage Trump’s deal-making abilities but also complicate life for companies that do business around the world and end up weighing on global growth.
Speaking to the Conservative Political Action Conference, Trump celebrated his administration’s decision to withdraw from a 12-nation trade deal called the Trans-Pacific Partnership and lauded a new era in which the United States would instead negotiate trade deals with countries one-by-one.
“We’re going to make trade deals, but we’re going to do one-on-one, one-on-one, and if they misbehave, we terminate the deal. And then they’ll come back and we’ll make a better deal," Trump said. "None of these big quagmire deals that are a disaster.”
Economists say the decision to shift from multilateral trade deals, which involve more than two countries, to bilateral deals, which involve just the United States and one other nation, is a historic one that could have big consequences for American consumers and companies.
While the change could allow the United States to hammer out more favorable terms at the negotiating table, as Trump and others in his administration have argued, it’s also likely to greatly complicate the process of crafting deals and thus slow the advance of global trade, a change that could ultimately make the world poorer, economists said.
Politicians on both sides of the political spectrum have turned against the mantra of free trade in recent years, arguing that America has lost many good-paying jobs, especially in the manufacturing sector, to competitors such as China and Mexico.
But economists maintain the same view on the benefits and risks of trade that they have essentially held since the Victorian era. Because trade allows countries to specialize in making products that they are good at and consumers to buy the best products at the lowest prices, it makes the world as a whole better off.
But trade also tends to redistribute wealth from some groups of people to others, as some industries boom and others fold. The process can be painful and disruptive for some groups — like Trump’s supporters in the Rust Belt — even as the country’s wealth, on the whole, increases.
In the past, Trump and his advisers have criticized multilateral deals for being overly complicated and reducing America's negotiating power. In his confirmation hearing, Commerce Secretary Wilbur Ross described the process of negotiating with 12 countries, in which the concessions demanded by each in turn take “a little nick” out of the United States.
“Keep doing that 12 times. You get a lot of nicks,” Ross said, adding that the greater complexity of negotiating with many countries leads to a less “sensible result.”
The Trump administration has a similar view on the North American Free Trade Agreement, which lowers taxes and trade barriers among the United States, Canada and Mexico. Economists have suggested that Trump may be aiming to negotiate bilateral deals with Canada and Mexico instead.
In his comments Friday, Trump called NAFTA “one of the worst deals ever made by any country having to do with economic development. It’s economic undevelopment, as far as our country is concerned.”
Yet some economists argue that the administration’s preference for bilateral deals has a major downside. While an individual bilateral deal can be simpler to negotiate, doing a slew of one-on-one deals instead of one larger multilateral deal can ultimately be a more complex process.
The numerous bilateral deals in existence around the globe already create a confusing patchwork of taxes, trade barriers and regulations that companies must navigate as they manufacture and sell products. This has created a massive industry, in which accountants and number-crunchers at consulting and accounting firms advise companies on how best to organize global operations.
"A bilateral perspective is difficult in a world of production networks where it can be difficult to figure out who added what to a product. I am afraid that their approach is out-of-date and ignores the network effects which are critical to U.S. firms," said Barry Bosworth, a senior fellow at the Brookings Institution.
"It is a big step backward to a simpler time, and it will require a decade to accomplish anything," he said. "It will prove to be very disruptive if pursued with any vigor."
Chad Bown, a senior fellow at the Peterson Institute for International Economics, agreed that the shift to bilateral deals could greatly slow the pace of global deal-making. The benefit of multilateral or regional deals like the TPP is that they cover a lot of trading partners with one set of mostly U.S.-imposed rules, and there is just one congressional vote, said Bown.
“Covering the same number of countries through individual, bilateral deals would both be much more difficult to negotiate in the first place and many more contentious votes to get through Congress. That makes such an approach much less likely to be successful,” he said.
In the wake of the TPP, for example, many have suggested that the United States forge a one-on-one free trade deal with Japan. The prospect of lucrative access to the Japanese market was the reason that many American industries threw their support behind the TPP in the first place.
Both the United States and Japan have hinted that this is an option — yet even if both sides are willing, renegotiating a bilateral free trade deal with Japan could take years.
“Now we need to go back to square one in negotiating a bilateral deal with Japan that will not be much if any improvement on the market access we would have gained through TPP,” said Daniel Griswold, senior research fellow at the Mercatus Center.
“Closing the door to regional and multilateral trade agreements would be a big mistake,” he added.
The shift toward bilateral deals by the United States, the world’s largest economy, could end up weighing on the pace of global trade — at a time when trade is already expanding at its slowest rate since the financial crisis.
“The dramatic slowing of trade growth is serious and should serve as a wake-up call,” Roberto Azevêdo, director general of the World Trade Organization, said in September. “We need to make sure that this does not translate into misguided policies that could make the situation much worse.”
Since the end of World War II, the United States has worked to build an international trade system centered around the World Trade Organization, in which the United States is the most powerful member.
It remains unclear how much Trump will use or oppose this system in the future. On the campaign trail, he threatened to pull the United States out of the WTO if it attempted to stop the administration from leveling harsh penalties on countries that did not agree to negotiate with the United States.
The new strategy on trade dovetails with Trump’s overall vision of an America that is stronger and less extended in its obligations around the world — a strategy that Trump has dubbed “America First.”
“The core conviction of our movement is that we are a nation that put and will put its own citizens first,” Trump said on Friday.
To repeated chants of “U.S.A.,” Trump described efforts to rebuild America’s military while withdrawing from participation in conflicts in the Middle East. He promised to bring jobs back to the United States and build pipelines such as the Keystone and Dakota XL only with American-made products.
“There is no such thing as a global anthem, a global currency, or a global flag,” he said. “This is the United States of America that I’m representing. I’m not representing the globe.”