Although fans of the rule of law should welcome that change, the trade policy wonk in me is saddened by the way in which the election played out. Based on what happened, it is highly likely that trade protectionism will increase over the next two years.
To understand why I say this, it is worth remembering what Trump has done on trade, and what seems to be on the horizon. Douglas Irwin has an excellent primer on this in Foreign Affairs. The bullet-point version:
1) Trump pulled out of the Trans-Pacific Partnership. As Irwin notes, “That decision may well go down as the Trump administration’s original sin, one for which a future administration will have to atone.”
2) Trump renegotiated NAFTA to a much worse acronym, USMCA, and did something similar with KORUS. Irwin judges these as “not a major change from the status quo." I am a bit more bearish than him on this point but largely in agreement
3) Trump imposed a lot of tariffs using highly dubious national security exemptions. Contrary to the Trump team’s expectations, this has triggered a lot of retaliation and almost no trade concessions.
4) His administration is engaged in a slow-motion weakening of the WTO’s dispute settlement mechanism, which is truly odd, given how much the United States benefits from that system.
5) It has taken a very hard line toward China across the board. On this, let me quote Irwin in full:
Pundits asked what the economic end game might be. But it is becoming evident that the administration had none in mind. Negotiations with China were half-hearted at best. Although there was some discussion of managed trade—potential Chinese limits on exports and support for imports from the United States—Washington was really gunning for something larger: a revolution in China’s economic system. Reducing the U.S. trade deficit with China would have been difficult enough; uprooting China’s system of state capitalism would be next to impossible. The administration may implicitly recognize this fact and may be aiming simply to disengage the U.S. economy from China’s by cutting off Chinese exports to the United States, thereby ripping up supply chains, limiting Chinese access to U.S. technology, and reducing Chinese investment in American high-tech firms. The U.S.-Chinese economic relationship has thus taken a back seat to the geopolitical rivalry between the two countries.
Irwin is bearish on the future of trade policy in the next two years of the Trump administration:
Previous U.S. presidents usually took protectionist steps only when they caved to domestic political pressure. Trump, by contrast, is acting out of conviction rather than political calculation. He truly believes that higher tariffs are good things, either producing “better” trade deals or just protecting domestic industries. The timing of Trump’s actions also breaks with history; in the past, presidents have responded to demands for help from domestic producers during tough economic times. Trump has gone protectionist when the economy is in rude health and even when the relevant domestic industries haven’t asked him to act.Whatever happens in [the 2018 midterms], the administration is likely to continue to pursue an active and disruptive trade agenda. Republicans—even those from the Midwest, where foreign retaliation against agricultural exports has taken a toll—have been loath to check the president. Democrats, meanwhile, are likely to support many of his moves to protect domestic manufacturing. In any event, Trump has invoked specific laws that allow him to impose tariffs without Congress’ say-so, although he will need legislative approval for new trade agreements, such as the revamped NAFTA.
And now we arrive at my pessimism about the next two years. Although pre-election punditry was hopeful about Democratic gains in Florida, Georgia and the Sun Belt, the Democrats made their greatest gains in the region where Trump surprised the most in 2016: the Rust Belt. And after two straight elections in which Florida has pulled the football from the Democrats just as they ran up to kick it, they will focus far more on recapturing the Rust Belt states in the 2020 election.
Rust Belt Democrats and Republicans will have one thing in common, and that is comfort with higher levels of trade protectionism. Consider Sen. Sherrod Brown (D-Ohio), who romped to reelection despite the state trending Republican in the past few cycles. As the Hill’s Alexander Bolton notes, this will raise Brown’s profile for the next few years: “Brown’s strength in Ohio and his appeal to Rust Belt voters could make him a tempting vice presidential pick in 2020. He has been an outspoken critic of steel dumping in the United States and has pushed hard to protect pension plans for retired coal miners.”
It was not all bad news for free traders. The GOP did not do well at all in House races in Iowa, and one has to think that the trade wars had a negative effect on their fortunes there. Still, the industrial Midwest remains rich with contestable electoral college votes, which means both parties are likely to cater to the region’s most protectionist sentiments.
The priority focus for the Democrats for the next two years will be preventing Trump’s reelection. They will be willing to make any policy compromises to achieve that. Support for trade protectionism is likely to be one of those compromises.
This is certainly what the president seems to think:
The irony, of course, is that protectionism has become less popular in the past two years. I would wager, however, that the geographic distribution of those votes matters greatly. And in the states that will be pivotal in 2020, I doubt there will be many fans of trade liberalization.