Free-trade deals have always had their detractors, and major multinational summits organized by the World Trade Organization and the like commonly attract protesters. Still, the mainstream opinion within both major political parties in modern times has been almost unanimously in favor of free trade. It’s the sort of issue that has united George W. Bush and Barack Obama, Bill Clinton and Bill Kristol. The mere fact that free trade was a major issue in this election cycle represented a break from the norm.
As of Monday, the Office of the United States Trade Representative was still arguing on its website that the Trans-Pacific Partnership (TPP) would benefit American workers—which wasn’t up to date with the feelings of its new boss. As one of his first official acts on his first full weekday in office, Donald Trump issued a presidential memorandum withdrawing the U.S. from the partnership.
NAFTA may be next on the agenda. According to a CBS report, Trump’s press secretary, Sean Spicer, “said he … expects more [executive orders] throughout the week, especially on trade.”
Why doesn’t Trump like the TPP?
During his campaign, Trump consistently lambasted the TPP, a pact the Obama administration spent both of its terms negotiating with 11 Pacific countries whose economies account for roughly 40 percent of the entire world’s economic output. Obama got close to seeing it enacted, but never did quite get it through a hostile Congress. On the campaign trail, Trump said the agreement would cause the American economy to lose jobs, and that it would lead to “a rape of our country” by China, although Beijing was not one of the signatories of the pact. Hillary Clinton had helped to create the agreement during her tenure as secretary of state, but she also came out against it publicly when challenged during a heated primary contest by Senator Bernie Sanders, whose own views on international trade align more closely with Trump’s than with those of the past several presidents.
Under the American Constitution’s Commerce Clause, presidents have the power to negotiate trade deals, but to become law they must also pass through Congress. Trump’s executive order alone pulls the U.S. out of negotiations and essentially kills the TPP.
What are the differences between the TPP and NAFTA?
Renegotiating or even scrapping the North American Free Trade Agreement (NAFTA), another frequent target of Trump’sian abuse, is also one of the new administration’s early agenda items. Trump has called the agreement between the U.S., Canada, and Mexico “the worst trade deal in history,” arguing among other points that open economic relations with Mexico have allowed companies to move abroad jobs that rightfully belong to Americans. Unlike the TPP, NAFTA passed both Congress and President Bill Clinton’s desk to become law in 1994. So another big difference from the TPP is that instead of simply withdrawing from NAFTA, Trump has pledged to renegotiate it, sometimes indicating he could replace it with two independent, bilateral deals with each Mexico and Canada.
NAFTA and the TPP are hugely complex, but at the most basic level what they do is legally bar countries from setting up trade barriers, like tariffs, on sales of goods and services that cross between their borders. And, they obligate member countries to respect one another’s copyright and intellectual-property protections (so a well-enforced U.S.-China free-trade deal could, theoretically, eliminate the huge Chinese market in knockoff iPhones).
There are some key differences between the two deals other than the obvious ones of size and legal status. Even defenders of free trade acknowledge that NAFTA could have been written with better terms—they cite its lack of enforceable worker protections and environmental standards as shortcomings. The Obama administration itself argued that the TPP’s terms represent a vast improvement over NAFTA’s, touting TPP features not found in NAFTA, such as the requirement for a minimum wage and rules against child labor in participant countries, as well anti-corruption measures and more.
What are the consequences of scrapping the TPP and renegotiating NAFTA?
While most experts agree these and other free trade deals are a net benefit to the U.S., it’s not quite a consensus. Advocates of the TPP predicted it would lead to huge growth in trade and employment for all parties involved as well as lower prices for consumer goods. As for NAFTA, Trump says it costs the U.S. billions of dollars and massive numbers of jobs, which aligns him with Ralph Nader and some other typically third-party or fringe contingents in American politics. Others say, quite the opposite—it provides those billions and those job. Defenders of free trade say that putting up barriers will increase prices of consumer goods at home by forcing companies’ personnel costs up, effectively rendering the many poorer in an effort to boost employment for the few.
And NAFTA’s fate is at the moment unclear. If it is replaced by free-trade deals with both Canada and Mexico, its disappearance may not make any difference at all. However, Trump has been shaming companies that invest in manufacturing in Mexico, and the most concrete proposal he’s laid out is a threatened 35 percent import tax on either cars or all consumer goods (his statements are ambiguous) coming into the U.S. over the southern border. He has not indicated one way or another whether the same would apply to Canadian imports, though he has not chosen to call out any investments in Canada, despite there being examples as salient as his Mexican targets.
What’s next for the U.S.’s trade deals?
Since the TPP never got to Congress, it was dead the moment Trump put pen to paper. If and when the promised NAFTA renegotiations begin, which could happen as early as this week, Mexico and Canada will likely devote their full attentions to securing optimal terms. Seventy-three percent of Mexico’s exports go to the United States and 51 percent of its imports come from the U.S., according to data from MIT’s Observatory of Economic Complexity. Canada’s numbers are similar: Trade with the U.S. accounts for 55 percent of imports and 74 percent of exports. Trump’s team has not clarified its wishes for the deals that may replace NAFTA, but it seems likely from the scarce details that Canada doesn’t stand to see its trade change as much as Mexico’s.
Meanwhile, possibly cutting against its own arguments that free trade and open borders are bad for the American economy, the Trump administration has signaled that it might be willing to strike a deal with a post-Brexit UK that will reduce or eliminate tariffs between the two countries and make it easier to obtain permission for transatlantic work and immigration.
It’s not clear yet how this will turn out, and there’s really only one group that’s sure to win out from this radical departure from past policy: Curious economists eager (and probably a little nervous) to see their theories tested on a massive scale and in real-world conditions