The Threat of Trump’s Trade Agenda

Democrats get credit for backing USMCA. Now they need to thwart the president’s protectionist impulses.

Democrats should be pleased with the successful negotiations over the USMCA and the deal’s passage in the Senate. While the trade agreement’s scope is clearly quite limited—and more work remains to be done on the environmental impact of continental trade—the pact achieves some much-needed tariff reduction, modernizes some aspects of digital trade, and helps to improve labor standards in Mexico. Importantly, House Democrats were able to negotiate stronger labor rights for workers on both sides of the U.S.-Mexico border, with more effective enforcement provisions for those rights, which helped give the deal more teeth. These are all positive steps that will help American workers and businesses.

All that said, Democrats cannot wash their hands of trade policy now that the USMCA has been completed. Quite simply, the deal is only a minor piece of the president’s overall trade strategy. His larger trade agenda is undoubtedly malignant. He has attempted to tear down the global trading system by illegally circumventing the legislative branch­—moves that must be challenged strongly by Congressional Democrats. Otherwise, their win on the USMCA will be significantly undermined by a broader trade policy that has created major losses for incomes, jobs, and the rule of law.

Perhaps the most dangerous element of Trump’s trade strategy is how it has been implemented through powers not legally granted to the president. For Trump to pass a new trade agreement or implement tariffs on a foreign country, he must go to Congress and win their stamp of approval, as he has done with the USMCA. But he knew full well that Congress would never support the other elements of his trade agenda —tariffs on Canada, Mexico, the EU, and Japan, among others. That’s why Trump unilaterally introduced them.

First, he has implemented steel and aluminum tariffs against the aforementioned key US allies and trading partners using Section 232 of the Trade Expansion Act, which allows the president to bypass Congress in order to place tariffs on imports that are a threat to American national security. Of course, the notion that these tariffs meet a legitimate national security obligation is ludicrous. Even so, former Defense Secretary Jim Mattis stated that current levels of domestic steel and aluminum manufacturing are enough to meet the military’s needs. Furthermore, the raw material needed to produce aluminum in the first place—bauxite—is not even manufactured in the U.S., so if all of our allies somehow decided to embargo the United States, it wouldn’t matter if aluminum production was located in the country or not; they could simply embargo bauxite instead. More alarmingly, Trump himself constantly justifies these “national security tariffs” on other grounds. In June 2018, he tweeted that the tariffs on Canada were meant as a response to Canadian tariffs on U.S. dairy exports; earlier this month, he said that new tariffs on Argentine and Brazilian steel were meant to retaliate against their currency manipulation.

Second, Trump threatened to place tariffs on all Mexican imports in May unless Mexico agreed to an immigration deal with the administration, using tariff authority in the International Emergency Economic Powers Act. But the IEEPA doesn’t give the president that authority. It doesn’t even mention tariff policy in the first place. Instead, the legislation gives the president the power to impose economic sanctions when there is an “unusual and extraordinary” threat to the country. That rationale has only been used to sanction enemies of the U.S. such as Iran, Iraq, Libya, and Sudan. In this case, Trump is using certain laws to grant himself extraordinary powers that the law doesn’t grant him. The threat to the rule of law here is significant: Trump has clearly taken for himself the governing powers granted to Congress. Just as Democrats are challenging the president’s abuse of power in the Ukraine scandal through an impeachment inquiry, they must also stand up to  his brazen disregard for the rule of law on trade.

Challenging this abuse is especially urgent because its consequences are so large: the president’s abuse of his authority is inflicting significant economic harm on American workers and businesses.

The most alarming recent trade action by the administration has been its forced closure of the World Trade Organization. Last February, the US took China to the WTO over illegal grain subsidies that were being provided to Chinese producers at the expense of American farmers and won, with the WTO ruling that the Chinese subsidies violated WTO rules. Then, last month, this dispute resolution system—the Appellate Body—was shut down by the Trump administration when it vetoed the appointment of new judges. There is no other binding mechanism for countries to appeal protectionist measures taken by another nation. Therefore, if China were to introduce new subsidies to its grain producers, as it did last year, the U.S. would have no recourse.

Trump’s actions to end this dispute resolution system will be a devastating blow to the rules-based system that has largely governed global trade since 1945. It will likely lead to the increased use of tariffs and other barriers to trade against the United States. It will prevent the U.S. from taking foreign countries to court when they harm American exports and workers. In fact, of the 15 rulings by the WTO’s Appellate Body in U.S.-China disputes since 2002, the body has ruled in favor of the US 11 times and in favor of China just 4 times. Why would the American president want to get rid of it?

A more protectionist world, with more tariffs imposed by the U.S. and foreign countries alike, will have significant costs to our economy, resulting in the loss of jobs and incomes. Billed as a way to rebuild U.S. manufacturing, Trump’s trade policies have actually led to a major decline in manufacturing activity: In December, American manufacturing was at its weakest level since June 2009, according to the Institute for Supply Management.

What’s more, the drying up of foreign markets has led to an annualized 0.4% decline in U.S. exports since March 2018, compared to a 9.2% increase from March 2017 to March 2018. Overall, the president’s trade agenda has destroyed more than 300,000 jobs, reduced growth by at least 0.6%, and caused an income loss of over $1,000 to the average American household.

While Democratic support for the USMCA should be applauded, it can only be the first part of a comprehensive strategy to challenge the president’s protectionist trade agenda. If Democrats allow the president to continue on this path without opposition, they will only embolden Trump to destroy the global trading system and continue trampling on the Constitutional role of Congress.

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Chris Taylor

Chris Taylor is an economics policy analyst at the New Democrat Network, where he works on trade, tax, and economic development issues.