US Trade Policy in the Trump Administration

• Published date: 01 July 2018
• DOI: http://doi.org/10.1111/aepr.12226
• Date: 01 July 2018
• Author: Marcus Noland

US Trade Policy in the Trump Administration

Marcus NOLAND†

Peterson Institute for International Economics and the East-West Center

President Donald Trump has emphasized three recurring themes regarding trade policy: the

importance of trade balances, including bilateral trade balances, currency manipulation to gain

unfair advantage in trade, and “disastrous”trade agreements. Asia figures prominently in these

concerns. Trump withdrew the United States from the Trans-Pacific Partnership, is increasing

contingent or process protection, demanding the renegotiation under duress of the North Amer-

ican Free Trade Agreement and the Korea-United States Free Trade Agreement. These policies

are modeled quantitatively and results generated for sectoral output and employment at the state

and metropolitan area level.

Key words: Donald Trump, international trade, trade policy, trade war, United States

JEL codes: F1, F13, C54

Accepted: 25 December 2017

Since the 1930s, when a global drive to raise trade barriers deepened the Great Depres-

sion, American specialists and the public at large have shared the belief that a liberal

American-led rule-based international trade regime is in the United States’national

interest. Trade policy has thus seldom, if ever, risen to a top-tier issue in electoral poli-

tics. In this regard, the 2016 United States presidential election, in which Republican

candidate Donald J. Trump was elected president on an explicitly protectionist plat-

form, marks a potential turning point where the United States could reverse course on

80 years of movement toward freer trade and enhanced multilateral cooperation.

1

Asia

figures prominently in these developments. How the policy terrain settles following this

tectonic shift is highly uncertain.

1. US Trade Policy under the Trump Administration

During the campaign, Donald Trump emphasized three recurring themes regarding trade

policy.

2

The first was the importance of trade balances, including bilateral trade balances.

In this view, a major challenge facing the United States is its $500 billion merchandise

trade deficit, around half of which is with China, with Japan, and Korea also contributing.

Trump and his advisors interpret the deficit as a net reduction in aggregate demand that

depresses output below capacity and constrains labor below its full employment level.

†Correspondence: Marcus, Noland. Peterson Institute for International Economics, 1750 Massa-

chusetts Avenue NW, Washington, DC 20036, USA. Email: mnoland@piie.com

262 © 2018 Japan Center for Economic Research

doi: 10.1111/aepr.12226 Asian Economic Policy Review (2018) 13, 262–278

From Trump’s perspective, the second and third themes of his campaign, currency

manipulation to gain unfair advantage in trade and “disastrous”trade agreements, pro-

vide both the explanation for the deficit problem and the starting points for a solution.

With respect to the former, much of his focus has been on China. On his campaign

website, Trump promised that “On day one of the Trump administration the

U.S. Treasury Department will designate China as a currency manipulator”and to

“begin a process that imposes appropriate countervailing duties on artificially cheap

Chinese products”(emphasis in the original).

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Trump advisors subsequently criticized

Germany as well for currency manipulation.

On trade policy, Trump lambasted the Trans-Pacific Partnership (TPP) and indeed

pulled the United States out of TPP negotiations shortly after assuming office. With

respect to existing agreements, he repeatedly called the North American Free Trade

Agreement (NAFTA) the “worst in history,”threatened to slap 35% tariffs on imports

from Mexico, and indicated that he was prepared to abrogate the pact if it were not

renegotiated to his satisfaction.

4

Trump repeatedly called the Korea-US Free Trade

Agreement (KORUS) a “job-killer,”asserting that the deal caused the destruction of

100,000 American jobs.

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Since coming into office, the administration has pursued an explicitly mercantilist

trade policy, though thankfully action has not yet risen to the bombastic rhetoric of

the campaign trail. It is unclear whether the relative lack of concrete action reflects the

distance between governing and the political theater of the campaign trail, the biding

of time for the optimal moment to act, the slowness of American governments with

their thousands of political appointments to get organized (and the Trump administra-

tion has been unusually slow to fill positions), or sheer disorganization. It would be a

mistake, however, to interpret the mixed record of fulfilling campaign pledges as sig-

naling a lack of intent. Although President Trump did not honor his pledge to declare

China a currency manipulator his first day in office and impose a tariff to offset the

advantage of currency undervaluation, he did withdraw United States support for TPP;

has issued the Executive Order Regarding the Omnibus Report on Significant Trade

Deficits (March 31, 2017), which could be interpreted as laying the intellectual and

policy groundwork for substantial new protection; issued Executive Order On Buy

American and Hire American, which expanded domestic preferences in public pro-

curement and tightened immigration rules; initiated the renegotiation of NAFTA with

a threat to abrogate the agreement if results of the renegotiation were not satisfactory

and indicated an interest in terminating or renegotiating KORUS; and has embarked

on intensified contingent or process protection.

1.1. New protection

New protection has taken the form of antidumping (AD) actions, countervailing duty

(CVD) cases, and rarely used global safeguard and threat to national security mea-

sures.

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AD cases are triggered by a two-part test: an affirmative finding that imports

have been dumped, and that the domestic industry has suffered material damage (“the

Marcus Noland US Trade Policy

© 2018 Japan Center for Economic Research 263