Opinion: Trump’s trade tremors; Washington’s newest parlor game

The very techniques Trump is likely using to soften up our trading partners—scaring, bluffing and/or threatening them—also scares the heck out of the people who voted for him.

February 16, 2017

7 Min Read
Opinion: Trump’s trade tremors; Washington’s newest parlor game
WASHINGTON, DC - FEBRUARY 13: U.S. President Donald Trump (R) and Canadian Prime Minister Justin Trudeau participate in a joint news conference in the East Room of the White House on February 13, 2017 in Washington, DC. The two leaders participated in a roundtable discussion on the advancement of women entrepreneurs and business leaders.By Alex Wong, Getty Images

Just about any business that either exports or imports—which takes in a large slice of the economy—has people sifting through Trump pronouncements like archeologists sifting through patches of dirt looking for pieces or clues.

What did Trump say to Canadian Prime Minister Justin Trudeau about NAFTA? Japanese Prime Minister Abe spent an entire long weekend with Trump in Florida. Did they discuss trade?

We get hints. Trump pointedly said he wants to merely "tweak" the NAFTA agreement with Canada but that much more needs repair on the Mexican side of the agreement. Trudeau referred to Canada as an "essential partner" to the U.S. and reminded Trump that millions of jobs on both sides of the border depend on NAFTA trade.

While Trump praised the trade relationship between America and Canada, he said the U.S. was going to work with Mexico and make sure the deal is fair for both countries.

Unlike issues in the past, cattlemen have lots of allies fighting to get President Trump's attention over the importance of trade. Obviously, the auto industry has been in his sights from the very beginning. Few companies have as much invested capital at stake than companies like Ford, Fiat-Chrysler and GM.

Big equipment manufacturers like Deere and Caterpillar sell equipment all over the world. Foreign automakers have factories all over the U.S., source parts from here and many other countries and ship cars many places.

Recently, the president brought in major CEOs, including Target, J.C. Penney, AutoZone and Walgreen Boots Alliance, to talk tax reform, regulations and a portion of the proposed tax called the border adjustment tax. Not Trump's idea, but a proposal from the Republicans, the border adjustment tax is just a euphemism for tariff. The retailers among the group stressed that the border tax would increase prices for consumers. A Target statement was explicit, "...we believe that anything that raises prices for families is not a good idea for America." Score one for Target.

Trump has also had CEOs of manufacturing and pharmaceutical companies in to the White House for listening sessions. Presumably, their message on trade was similar.

Trump hasn't committed himself on the border tax. But Rep. Kevin Brady (R-Texas), someone who has publicly pushed tax rate cuts for all businesses and individuals—along with tax simplification, immediate expensing, capital gains tax cuts, eliminating the death tax and a 10% repatriation tax—defends his border adjustment tax. It certainly doesn't fit with the rest of the Republican tax proposals.

Brady said the adjustment tax is necessary so as not to give foreign companies an advantage. However, the whole point of free trade is giving our consumers any break that foreign competition can provide. Fix the business climate so all American companies can have a fair shot at making a profit, instead of just picking certain companies or goods you like and slapping a tariff/tax on incoming competing products.

What industries will the government protect? Tax reform is creating a level playing field for our companies and removing the special loopholes and favorable provisions that have been woven into the tax code like burrs in a dog’s coat.

Of course, complicating all this is that the very techniques Trump is likely using to soften up his trading partners—scaring, bluffing and/or threatening them—also scares the heck out of the U.S., the people who voted for Trump. He can't turn around to us and wink, as if to say, “watch this,” and then buffalo a country into a better deal.

So we’re left wondering and worrying. Of course, as difficult as it seems to believe, we haven’t even been hanging here for a month yet. That degree of breathlessness is a measure of our fear and interest and Trump’s ability to rivet attention and keep folks guessing.

Digging down to the details

As for Abe, very little has been revealed so far. Evidently, no one bugged the golf cart. But Trump did detail Vice President Pence to begin talks on trade with Japanese Deputy Prime Minister and Finance Minister Tara Aso, concentrating on monetary policy, cooperative projects and trade.

Pence, as a former governor, should have a much more open attitude about boosting trade. At least one Japanese Finance Ministry official indicated the Pence-Aso talks could lead to a bilateral trade agreement.

Early action on NAFTA is possible. Trump’s Commerce Secretary, Wilbur Ross, in his confirmation testimony, indicated changes to NAFTA would be the “first thing” he would like to work on. Borders should be open to countries that “play by the rules” but scofflaws “should be punished—severely.”

We also have another “ally.” The lead editorial in a recent Wall Street Journal edition was entirely devoted to the importance of farm exports to farmers and ranchers who were a key linchpin of Trump support in the election. Beef producers are elated to be running at 10-15% of our production as exports. Other farm crops are stunningly higher: cotton-77%; tree nuts-72%; rice and wheat at roughly 50%; soybeans-46% and even pork at 22%. (“Trade Punishment for Trump Voters,” 2/10/2017).

The Journal even mentioned the tariff reductions beef would have gotten from Japan in the TPP deal. The editorial reminded everyone that incoming tariffs to the U.S. are among the lowest on earth—5% on average for agriculture. That means nearly any new trade deal will benefit U.S. agriculture. It admonished President Trump to consider such factors before ”betraying” farmers hoping for “growth and opportunity.”

Washington publication The Hill noted that Trump complained about high Japanese tariffs on beef on the campaign trail. It also mentioned the bilateral Australian deal with Japan that is already putting U.S. beef at another disadvantage. But The Hill’s writer made the point that Trump seems not to be so much against trade as he feels the deals could have been better and he is the guy to do it.

We’re not sure the President understands the complexity of today’s trade deals and the time required to hammer them out. But we probably can rely on his ego to try to add new sections that could benefit agriculture.

And there’s more

Meanwhile, to add a little pressure and a measure of tweaking of another type, a landmark trade agreement between Canada and the EU has cleared another major hurdle, seven years in the making. It has additional steps yet to go but looks likely to succeed. And they purposely referenced “building bridges,” not building “walls” in their comments regarding the vote.

Trump's early presidential executive orders also provided illustration. Trump quickly approved construction of both pipelines. But he inserted language on Keystone requiring some U.S. steel. He has considered what percentage of auto parts should be sourced from within NAFTA countries, echoing late negotiations with Japan in TPP negotiations.

By the way, just because Trump has officially pulled the U.S. out of TPP doesn’t mean it is dead. The other countries involved consider the deal much less appealing without the U.S. in it. They are likely to continue discussing and ratifying it. If the U.S. would want to reopen negotiations to add some “Trump chapters,” you can bet they will welcome us back.

Trump’s nomination of Robert Lighthizer as U.S. trade representative, normally in charge of negotiating agreements, is harder to pin down. My information seems to indicate Lighthizer’s portfolio may be more about enforcement than negotiating new deals. Lighthizer was not known as a consensus builder in the past.

It is hard to tell to what degree Trump’s tariff pronouncements are serious and how much are negotiating techniques, designed to soften up the other side before sitting down to the table. Ross acknowledged as much during his confirmation hearing.

“When you start out with the adverse party understanding that he or she is going to have to make concessions, that’s a pretty good background to begin” negotiations, he said. (“Commerce Nominee Ross Says Top Priority is Renegotiating NAFTA,” Washington Post, 01/1/2017).

That gives a pretty good hint at his and Trump’s negotiating style.

Ross explained that he looks at tariffs as both a negotiating tool and a punishment tool for lawbreakers, rather than permanent protection, claiming that he is pro-trade.

As we've noted here before, Trump's Agriculture Secretary nominee, Sonny Perdue, not only understands how important trade is to agriculture, he has been actively engaged in it. His recent private companies have been businesses that export ag products, among other things. As governor of Georgia, he pushed for economic growth and trade, especially utilizing the port of Savannah.

Trump has expressed a preference for bilateral trade deals. But he is used to putting deals together a lot faster than the five to 10-year drags of multilateral trade deals. A peek at the complexities of those deals, plus pressure from cabinet officials, industries, unions and Congress, might make adding some chapters and tweaks from “Trump Overhauls” of NAFTA and TPP look more appealing than starting from scratch and abandoning a lot of work.

Steve Dittmer is a longtime beef industry commentator and executive vice president of the Agribusiness Freedom Foundation.

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