Sound and Fury Signifying Nothing? The President’s Trade Policies So Far

By ·April 4, 2017
LaFollette School of Public Affairs, University of Wisconsin - Madison

The Issue:

A central campaign theme of Candidate Trump was the promise to shrink America’s trade deficit. The promised policies to achieve this goal included quitting free trade agreements, unilaterally imposing tariffs, and putting in place other protectionist measures, such as declaring China a currency manipulator on “day one” of his administration. More recently, the administration published a trade agenda on March 1 which states: “It is time for a more aggressive approach. The Trump Administration will use all possible leverage to encourage other countries to give U.S. producers fair, reciprocal access to their markets.” And President Trump signed two executive orders on Friday, March 31 related to trade. But China has not been declared a currency manipulator and the measures announced so far have been limited relative to the promises made. On the other hand, in late March, Treasury Secretary Mnuchin refused to join the G-20 commitment to resist trade protectionism. This suggests more protectionist measures may be introduced in the future.

The President has yet to implement measures that importantly affect bilateral trade balances. Even if measures are implemented, impact on the overall trade deficit is unlikely to be large.

The Facts:

  • One of the Executive Orders signed on March 31 calls for a government study of the origins of the trade deficit, but these studies already exist. The proposed study will focus on countries with which the U.S. runs substantial trade deficits, including China, Japan, Germany, Ireland, Vietnam, Italy, South Korea, Malaysia, India, Thailand, France, Switzerland, Taiwan, Indonesia, and Canada. But this study will be redundant. There is already a wealth of analyses regarding the causes of trade deficits, including growth differentials; the value of currencies; the savings and investment behavior of households and firms; government spending and tax policies; as well as trade, health, and labor standards policies. For example, the U.S. Treasury Department publishes its Semi-annual Report on Foreign Exchange Policies of Major Trading Partners of the United States, which provides information relevant to declarations of currency manipulation. Also, the Office of the United States Trade Representative just released its 2017 National Trade Estimate Report on Foreign Trade Barriers which, at over 490 pages, provides detailed information on impediments to trade.
  • The other Executive Order signed on March 31 calls for enhanced collection of tariff duties, but this applies only to a small portion of trade. The Executive Order relates to anti-dumping duties (AD) and countervailing (CV) duties. Dumping is selling products in the United States at a price lower than that in the exporter’s market, and anti-dumping duties are intended to offset this. Countervailing duties offset foreign government subsidies. National Trade Council director Peter Navarro stated that uncollected duties amounted to $2.8 billion over the 2001-2016 period. But to put this in context, in a single year, fiscal year 2016, the U.S. collected $34.8 billion in customs duties and fees. In addition, the Executive Order appears duplicative of provisions in existing legislation. Nonetheless, the focus on anti-dumping and countervailing cases suggests that the Administration may rely on such measures to implement protection.
  • Anti-Dumping measures may become an important protectionist tool of the Administration, especially with respect to trade with China. President Trump promised a unilateral imposition of high and broad tariffs but this move would invite retaliation under World Trade Organization rules. Aggressive use of Anti-Dumping measures would be less likely to spur retaliation. In this context, the continuation of China’s designation as a non-market economy (NME) becomes important. Anti-Dumping duties are easier to apply to a NME since the calculation of the extent of dumping is based on prices from surrogate economies rather than industry prices in a NME because the latter are considered unreliable indicators of the extent of government support. This typically results in levying substantially higher anti-dumping rates than is the case for firms in market economies. Under the terms of China’s accession to the World Trade Organization (WTO), the country was to be granted “market economy status” at the end of 2016.  According to several accounts, the Administration is planning to maintain China’s status as a non-market economy. This is an important issue, as anti-dumping and countervailing duty cases levied by the US against China have risen in frequency since 2010.

What this Means:

The President has yet to implement measures that importantly affect bilateral trade balances. The most important decisions – how to modify or exit from NAFTA, whether to declare China a currency manipulator – have yet to be made. Even when those decisions are made, the impact on the overall trade deficit is unlikely to be large. Trade restrictions placed on specific products from a specific country, such as tariffs, can alter the price of those products relative to American products, affecting imports from a given country and perhaps impacting bilateral trade flows in a limited way. But these actions are unlikely to have much of an effect on the overall American trade deficit since that deficit reflects macroeconomic conditions, the country’s overall spending in excess of its income, rather than the relative prices of particular goods.


Written by The EconoFact Network. To contact with any questions or comments, please email [email protected].
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