Trade policy has been on top of the agenda even in mainstream media recently, and discussions accelerated when it became clear that Donald Trump won the US election. If you have been working with trade policy for a long time, of course it is nice that trade policy is a hot topic. But the current debate needs some moderation. For example, former trade Commissioner Karel De Gucht, declared TTIP dead. I think that is premature. The European debate on Trump’s trade policy needs to cool down a bit. Truth is we do not know. It is far from certain what will happen with American trade policy under Donald Trump’s presidency. And even though I myself have been working with trade policy for more than a decade it is honestly not trade policy that is my big concern now. TTIP is important, but there are actually other aspects in transatlatic relations that are far more important. What worries me right now is the European security order, what happens with Nato, how that affects the Baltic states and European security.
When it comes to trade policy, I am actually equally worried about the state of European trade policy right now. We have a trade war with China breathing down our neck och the EU has shown inability to ratify even the simplest trade deal with Canada, despite the fact that Canada basically is an extension of Europe on the other side of the Atlantic. European trade policy is not in good shape these days. It is a fact that EU trade policy is at best protectionist, at worst paralyzed. American trade policy under Trump we know nothing of yet. What we do know is his heated campaign trail rhetorics. But that does not have to translate into real policy.
Traditionally the president has not been the problem in American trade policy, but rather Congress. And that holds true regardless of which party is wielding power. The current Congress has refused to ratify the Trans-Pacific Partnership TPP. Now we face a situation where the Republican party, that traditionally has been the party of free traders, hold the majority in both chambers. We do not know how the new Congress will act, but it could well be that the new Congress will not be as big a problem as it has been in the past.
It is possible that Donald Trump is a new type of president, and that wisdoms of the past no longer hold true. On the campaign trail, Trump claimed he would renegotiate or scrap Nafta, pull out of TPP, impose high tariffs on China and pull out of the WTO in case they strike down on his trade policy agenda. But bear in mind that it is far from sure that he will go through with any of that. There is one reality before election day, and another one after the election. And if he was serious with his talk about lifting the middle class, being “the greatest jobs president” that would “make America great again” he will face a wall of problems if he pulls through with his protectionist trade policy. Raising tariffs the way he implied during the campaign would more or less mean imposing a regressive tax on the poor, as many jobs depend on trade and a lot of consumer goods would be considerably more expensive with that policy. And besides that, in case he would run for reelection, creating havoc is not exactly good positioning for the next election campaign.
And one should remember that Barack Obama during the campaign 2008 said that Nafta was “a big mistake” that should be scrapped. But as president he did not raise a finger to realize that. Instead he initiated trade talks with Asia and Europe. And even if the pace in trade policy has not been as high as under George W Bush, nobody can seriously claim that the Obama presidency was protectionist.
It will be tough to keep the pace up on trade in the coming years. Best case scenario, we have a new trade representative late this spring. But it could well take more time. But that would have been the case regardless who won the presidency and we have known that for a long time. The general impression is that there will be a pause until the Americans are ready to negotiate again. But one could just as well claim that it is Europe that needs to get ready to negotiate. In the spring, France is holding elections and in the fall we have the German elections. That will not make European trade policy simpler. And in just a couple of years, we have the next election to the European Parliament, and a new trade commissioner. It is not as if we can just sit and wait out the Americans. We have got homework to do ourselves.
It is not Donald Trump’s fault that the negotiations on TTIP now has to be paused. If anyone, Cecilia Malmström and Michael Froman should be held responsible for that. But honestly the timeline was too tight in the first place. We have to remember that it took seven years to negotiate with Canada. If you think that we can negotiate a similar deal with the US in half that time, you simply do not have realistic expectations. Both of us are used to tell the other party to sign the dotted line, and we are not really used to compromise. But in TTIP, we have to compromise.
And the pace in trade policy has been low in the beginning of most presidencies. That holds true for both Obama and Bush. TTIP is not likely to be on top of the new administration’s agenda, and I do not think we will see much enthusiasm at first. But that would have been the Case with Hillary Clinton as well, and that does not mean TTIP is dead.
What worries me more than Trump’s campaign trail rhetorics is that Dan DiMicco, the old protectionist and steel executive, will lead the USTR transition team, and may well end up as the new trade representative. DiMicco was Trump’s chief adviser on trade during the campaign, but neither Trump himself nor DiMicco could match the heated arguments with much substance.
When DiMicco was held against the wall by Simon Lester from Cato on how a Trump trade deal would differ from existing trade deals, the answer was “all deals must increase our GDP growth and decrease our trade deficit”. The point of all trade deals is to increase GDP growth. And even if Trump had a pretty mercantilist approach during the campaign, that is an underlying trait in all trade negotiations. I can promise you that even Sweden or the UK to some extent has that approach to our own negotiations, even though we all know unilateral free trade would benefit the economy in the long run.
DiMicco also got the question what Trump wanted to change in Nafta. But he could not give a single example. No free trade agreement is perfect. There is plenty I would like to change in every trade deal that the EU ever signed. And when Trump’s top adviser on trade cannot give one single example of what he want to change in Nafta, that could well indicate that the heated rhetorics during the campaign is not at all carefully crafted policy.
We simply have to wait and see what happens with Trump’s trade policy. It will take some time before we pick up the negotiations with the US again. But worrying about what will happen with TTIP, Nafta or TPP at this stage is premature. And last but not least, do not forget the American constitution. With its checks and balances, separation of powers and limited government it is made to neutralise madness.