Blog: Trump and the future of world trade
Tough trade negotiations, huge tariffs and independence from the OPEC cartel – Donald promises a new, global trade landscape, but will it be to the benefit of shipping?
The votes have been counted and the results are in. People all around the world are waking up to the news that Donald Trump has been elected President of the US over former Secretary of State Hillary Clinton, bringing perhaps the country’s most controversial elections to a close.
For Mr Trump, however, the story doesn’t end there; he’s only just getting started. What convinced voters might not necessarily convince lawmakers, and Mr Trump is going to need lawmakers to push his agendas forward and his presidential proposals will also require legislative actions.
It will likely be some time before the US and indeed the rest of the world begin to feel the impact of Donald Trump’s presidency. Will he really build a wall on the Mexican border? Will he “release and replace” Barack Obama’s signature Obamacare reforms as he promised? And, importantly for the shipping industry, what changes will he make to US trade policies?
Certainly, American trade policies took a bilateral beating by both candidates in this year’s election, which reflected voters’ scepticism over the benefits of open trade with China and other countries at a time of sluggish economic growth.
For a long time, the US has championed free trade as a way to stimulate global peace and prosperity. It has persuaded China and many other countries to join the World Trade Organization, among other institutions, and to sign trade agreements that bind them to a code of conduct in the global marketplace.
Mr Trump’s proposed trade policy, however, deviates from decades of consensus. In a move that could jeopardise a mainstay of US policy, he has vowed to renegotiate the North American Free Trade Agreement (NAFTA). Further, he plans to appoint tough trade negotiators to fight on behalf of American workers, and impose huge tariffs on imports of up to 35%.
Chilly towards China
Reflecting a sharp rise of protectionism, Mr Trump has said that US trade policy needs to be rebuilt in a way that creates American jobs, increases American wages and reduces America’s trade deficit. As well as renegotiating tougher trade deals and introducing new tariffs, Mr Trump has promised to withdraw from the Trans-Pacific Partnership (TPP) – a landmark free trade agreement that aims to slash tariffs and promote economic growth among 12 nations in the Pacific Rim.
Mr Trump has continuously denounced TPP. During the first presidential debate, for instance, he said that the TPP was the “worst trade deal signed anywhere after NAFTA”, which came into effect in 1994. He has also said that the TPP creates a new international commission that makes decisions that American people can’t veto, making it easier for the US’ trading competitors to ship cheap subsidised goods into US markets, while allowing foreign countries to continue putting barriers in front of US exports.
Also, Mr Trump believes that the TPP pits American workers against lower-paid Vietnamese workers, and has criticised the deal for its failure to address currency manipulation.
Having promised to do more to preserve American jobs, China, with its vast trade and rising influence and authority, appears to be a particularly big target for Mr Trump. And, he seems to be taking direct aim at the two countries’ trade gap by promising to instruct the Treasury Secretary to label China a currency manipulator, and demanding that the US Trade Representative bring trade cases against China, both in this country and at the WTO. Further, Mr Trump says that he intends to use “every lawful presidential power” to remedy disputes if China does not stop its “illegal activities”, including its “theft of American trade secrets”.
However, there lies the uncertainty for China and much of Asia – will he sing the same trade tune now that he is in office? Mr Trump’s confrontational approach would seem to suggest some follow-through, but it’s impossible to tell yet.
Further trade with China could strengthen its economy, and help Beijing afford even more ambitious territorial and military policies. Discouraging trade and investment there, however, could cause lower economic growth that might slow China’s military rise but also might bolster anti-Western sentiment and encourage public demands for more assertive foreign policy.
If Mr Trump’s ideas become policy, it has been speculated that China would likely retaliate in one way or another. The New York Times suggested that American exports could be a potential focus, although smaller than those China sends in the other direction.
It also speculated that cancelling the trade pact altogether could then cause more problems than it would solve, by pushing American allies in the region into China’s arms and preventing American companies from developing in emerging Asian markets.
Energy and infrastructure
On the subject of energy, Mr Trump has promised to unleash an energy revolution that will bring vast new wealth to the US during his presidency. As per his proposals, he will do this by making America energy independent – protecting clean air and water, and conserving its natural habitats, reserves and resources.
Further, Mr Trump has announced plans to unleash America’s $50tr in untapped shale, oil and natural gas reserves, plus hundreds of years in clean coal reserves. He also hopes to become, and stay, fully independent of any need to import energy from the OPEC cartel “or any nations hostile to US’ interests”.
Added to this, Mr Trump has said that he will open onshore and offshore leasing on federal lands, eliminate a moratorium on coal leasing and open shale energy depositions. He has also said that he will encourage the use of natural gas and other American energy resources that will reduce both emissions and the price of energy, as well as increase the US’ economic output.
Meanwhile, Mr Trump has sworn to transform America’s infrastructure into a golden opportunity for accelerated economic growth and more rapid productivity gains with a deficit-neutral plan targeting substantial new infrastructure investments.
At the same time, he aims to create thousands of jobs in construction, steel and manufacturing, among other sectors to build the transportation, water, telecommunications and energy infrastructure needed to drive economic growth in the US.
Mr Trump hopes to approve more private sector energy infrastructure projects too, such as pipelines and coal export facilities, to better connect American coal and shale energy production with markets and consumers.
Interestingly for US shipping, he has also vowed to incorporate new technologies and innovation into the US’ national transportation system, including state-of-the-art pipelines and advancements in maritime commerce.
Open for business
Despite his ideas, Mr Trump insists that he remains favourable towards free trade. He only says that it needs to be fair trade at the same time. This will mean undertaking tougher negotiations on trade so that other countries are as open to US imports and the US is to theirs.
Mr Trump’s trade adviser Dan DiMicco has previously said that the UK is a “friend” of America, and will be at the front of the queue for an arrangement on trade. Whether this rings true, however, remains to be seen. Russia has also already come forward to announce its desire to work closely with the US on a trade deal.
Mr Trump certainly has his hands full. Should his promises of tougher trade deals, huge tariffs and energy independence become policy, however, the world could be looking at a very different global trade landscape by the end of his first term.
Photo credit: Gage Skidmore