When Trump Puts 'America First,' Other Countries Put Us Last
Two events at the APEC Asia Pacific Economic Cooperation (APEC) summit provide a clear lesson: One of the problems with an America First trade policy is that it prompts the rest of the world to put America last.
That message could not have been any clearer. Trump opened the APEC CEO summit with a hard-edged speech in which he described his America First theme, warning that U.S. trade deficits would not be tolerated. The next day, 11 Pacific Rim countries reached a deal Saturday to proceed with the free-trade Trans-Pacific Partnership – without the United States.
Under its new name, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership would be the largest trade agreement in history, even without the United States. It would account for roughly one-sixth of world trade, and include major U.S. trading partners like Japan, Canada and Mexico. Some details, including phase-in dates for sections of the agreement, are still to be worked out, but a final deal could be announced as early as next year.
Trump ignited the process of bringing the 11 Trans-Pacific countries together himself, when he walked out of the TPP agreement within days of taking office. His move underscored his warning that he would walk away from multilateral trade deals. The agreement to go ahead with a comprehensive agreement was, in effect, the response by U.S. trading partners: The ship of trade is moving forward, regardless of whether you are on it or standing at the dock.
Trump’s decision to nix the TPP is especially ironic because many of its provisions were demanded by the U.S. business community, including new measures to protect investments, speed courier deliveries, and open up trade in biologics, telecommunications and medical devices – all of which are areas of U.S. competitive strength. These measures have been suspended from the revised agreement, along with about 15 others. The fact that they have not been entirely scrapped indicates that the door is still very much open for U.S. involvement. But will the Trump Administration walk in?
All indications are that it will not. Quite simply, the U.S administration sees trade very differently from all of its predecessors since World War II, Democratic and Republican, as well as from most leaders around the world. The current president seems to see trade agreements in much the same way one would view a real estate deal, in which the parties trade hard assets. Rather than opening the U.S. market, Trump and his trade negotiator, Robert Lighthizer, seem to think that the way to create wealth is by restricting it. Rather than freeing trade, they are trying to manage it. But that is like trying to create a more open market by increasing state control.
The current NAFTA negotiations illustrate this mercantilist approach. Rather than opening its market to greater opportunities for both exporters and importers, U.S. negotiators are trying to guarantee results that should be based on competition. Lighthizer has demanded restrictions on government procurement contracts and new rules of origin requiring minimum national content in autos. Rather than encouraging a sense of security among potential investors, Lighthizer is demanding that secure access be undermined through a diluted dispute settlement process and a five-year sunset provision that would only discourage long-term investment.
Rather than building bridges with potential trade partners to open U.S borders for both importers and exporters, the Trump administration is trying to set up a toll-booth, resting tribute from all who would enter.
The Administration clearly fails to understand the value of free trade. By eliminating barriers to access, cross-border trade encourages competition, widens the division of labor, allows businesses and individuals to pursue areas of comparative advantage, and encourages the dissemination of knowledge and technologies. A trade agreement grows the economy by eliminating trade barriers, not by adding to them.
Returning home from APEC, Trump told reporters that other countries “will be treating us differently than they have in the past.” Too true. For at least 70 years, most of the world has seen the United States as a vital partner. Increasingly, they now view it as an outlier. Given the size of the U.S. economy, the entire world will suffer. But the biggest loser will be the United States. The fact that the 11 other Trans-Pacific nations are acting on their own makes it clear: The U.S. won’t get ahead of the world by threatening to tear up agreements. It will only get left behind.