Trump’s protectionist charade

At the Ford Motor Company's assembly plant in Cuautitlan Izcalli, Mexico, in October 2009. A third of all exports from Mexico to the U.S. are cars or automobile components.

WITH Donald Trump assuming office as United States President, the fear that he will turn U.S. trade policy in a protectionist direction appears to increase. Protection against import competition and an attack on global relocation and outsourcing by American firms, which are seen as destroying jobs in the U.S., and immigration, which is viewed as depriving the American working class of available livelihoods, were the central elements of the populist rhetoric that swung the white working class in Trump’s favour. Key items in Trump’s election promise list were policies to recapture American jobs by clamping down on the ostensibly “unfair” trade practices adopted by China; renegotiating the North American Free Trade Agreement (NAFTA), which was seen as transferring capacity catering to U.S. markets to Mexico and Canada, especially the former; and putting pressure on American firms producing abroad for American and even foreign markets to return to their home country and invest their profits there.

In his final election speech in Michigan in front of thousands from the Rust Belt, he declared: “After we win, I’m going to be coming back to Michigan a lot. I’m going to be coming back every time we open a new factory or a new automobile plant, and we’re going to be doing a lot of expansion. I know exactly what to do, folks,” Trump said. “We are going to bring back the automobile industry to Michigan, bigger and better and stronger than before.”

This rhetoric does not fit, however, with Trump’s image as a tax-avoiding, ruthless businessman with a record of profiteering that does not speak of concern for his employees and clients, let alone a commitment to good corporate governance. In addition, Trump had made clear that a cruder 21st century version of Reaganism, which gave business a free hand with minimal government intervention and substantially reduced taxation, was the way to make America great again. Speculation was rife that the populist rhetoric was for the voter, but if, in an extremely unlikely turn, Trump did win the presidency, actual policy would be for the ultra rich and big business.

However, the evidence from Trump’s preparations for the presidency is once again confounding at least some observers. As Trump unveils the economic team that will help him execute his manifesto, the choice seems to suggest that he will make good on his promises. His choice of Robert Lighthizer as his Trade Representative, Peter Navarro to lead a new National Trade Council in the White House, and Wilbur Ross to head the Commerce Department would place a group of purported protectionist hawks in charge of trade policy in his administration.

Lighthizer served as a Deputy U.S. Trade Representative under Ronald Reagan at a time the U.S. was weighing in on Japan against its trade surplus with the U.S. As U.S. Trade Representative, Lighthizer “will do an amazing job helping turn around the failed trade policies which have robbed so many Americans of prosperity”, Trump reportedly said while announcing his nomination. In response, Lighthizer declared that he was “fully committed to President-elect Trump’s mission to level the playing field for American workers and forge better trade policies which will benefit all Americans”.

Navarro too is a known protectionist. Death by China , a documentary film he produced, identified China as a predatory trading partner using “illegal export subsidies” and “currency manipulation” as “weapons of job destruction to launch a sustained and devastating attack on America’s factories and jobs”.

Ross is credited as having co-authored with Navarro the White Paper laying out the economic programme of the Trump presidency, which promises to slash America’s trade deficit with protection and policies to boost domestic production relative to imports and to combat “cheating” by U.S. trading partners such as China that has harmed U.S. workers. Trump himself has accused China of manipulating the yuan and threatened to impose tariffs as high as 45 per cent on imports from China. So the claim seems to be that “globalisation”, or the long-term trend of relocating production to low-cost centres and building global value chains, will be disrupted in order to help American workers with jobs and bring an end to real wage stagnation.

The populist push in favour of workers hurt by “globalisation” has also involved attacks on U.S. businesses that prefer to locate production facilities abroad to cater to U.S. markets. General Motors, Ford, Boeing, Apple and Carrier have already been at the receiving end of tweets that warn of action. Further, there are signals that the U.S. under Trump will depart from the commitment to free trade that the earlier push to initiate the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership reflected. Overall, at first glance Trump seems to be not just protectionist but anti-business.

All of this has generated fears of protectionism both in the U.S. and abroad. Chinese officials have already declared that China will retaliate if the Trump administration chooses to impose higher tariffs on imports from that country, threatening a trade war. But U.S. business is making some effort to show that it will accept the new discipline of the Trump administration. Ford Motors Company has already announced that it is dropping plans to make a $1.6-billion investment in an assembly plant in Mexico and instead will invest $700 million in the manufacture of electric cars in Michigan, which will create 700 new jobs.

Mexico is clearly worried and cannot take the aggressive posture China has adopted. Its automobile sector has benefited from NAFTA, with rising production and exports, 82 per cent of which went to the U.S. and Canada in 2015. In that year, 60 per cent of all the cars made in Mexico were reportedly sold in the U.S. market. It has also gained through exports of automobile parts. Around 40 per cent of all the components used in cars “produced” in the U.S. come from Mexico. This includes items such as seat belts, air bags and seat covers. The result has been that a third of all exports from Mexico to the U.S. are cars or automobile components.

A votary of profit

This pre-presidency rhetoric notwithstanding, there is reason to believe that Trump in power will remain what he has always been: a votary of business and profit, with a blind eye turned to worker and customer interests. This is because addressing America’s trade deficit requires far-reaching protection. While an end to NAFTA would hurt Mexico, it is unlikely to do much or enough for America. It would just increase the share of others in U.S. imports. Not just China but even Europe is a major supplier to the U.S. And China is merely the last stage of an Asian export platform, importing capital goods, components and raw materials from elsewhere to produce for export to the U.S. and other markets. Hurting China means hurting many more potential allies and driving them into China’s hands. It also involves hurting American business interests that have won major concessions in foreign financial and technology markets, by providing in return access to the American markets for goods and services.

A close look at who Trump is nominating for senior policy positions suggests that it is these sections that he will rely on in his leadership team, besides his family. These nominees are mostly billionaires who have made their money in business and have very little experience in government. The Financial Times columnist Gillian Tett quotes Ray Dalio of the hedge fund Bridgewater, who found that the top eight officials of the incoming administration had notched up a total of just 55 years of experience in government (mostly in the military) and have largely been confined to private sector activity. This compares with 117 years for Barack Obama’s top team (consisting of the President, Vice President, Chief of Staff, Attorney General and Secretaries of State, Commerce, Defence and Treasury) and 80 and 101 respectively in the case of George W. Bush and Bill Clinton. It is not just Trump who thinks that being a good businessman is more than enough to be a first-rate political leader and macroeconomic manager. The Federal Reserve, too, believes that it can now exit what is for it a regime of embarrassingly low interest rates and easy money and leave the task of stimulating growth to the President and his team.

In addition, Trump has made clear that he plans to make things better for business by cutting tax rates and investing in infrastructure that will increase demand for private production and ease the supply constraints private investors are facing. The preference for business leaders in government combined with promises of tax cuts for the rich and stepped-up infrastructural expenditures has in fact increased private sector optimism and triggered plans for investment and some buoyancy in markets.

So there is a contradiction in the Trump agenda, between doing what big business likes and wants and pretending that this section would be disciplined enough to protect workers. One of the two must be just plain rhetoric and the other the real agenda. Trump’s record suggests that his pro-worker stance backed by protectionist noises and anti-business sentiments is just propaganda of the kind that delivered him a shock victory. So nominating those who are adept at mouthing such rhetoric would help provide him the cover to go ahead with his pro-business populism.

In public, American business would make a show of accepting the new protectionist order, as illustrated by the Ford action relating to Mexico and Michigan. But that would have to be compared with what Ford and other business interests would get in other areas.