For Trump and Brexit Backers, Trade and Sovereignty Hard to Meld

  • Republican’s remarks spark feud with U.S. Chamber of Commerce
  • Trump says trade causes poverty but he doesn’t want to end it

Donald Trump's Personal Trade War Targets TPP, NAFTA

Donald Trump is in a fight with the U.S. Chamber of Commerce. On Tuesday he revealed plans to abandon the Trans Pacific Partnership, renegotiate NAFTA, and bring trade suits against China to the World Trade Organization. This would mean higher prices and fewer jobs, said the Chamber. But how, Trump tweeted, could the Chamber be upset by better trade deals and penalties for cheaters?

The distinction is important. Trump says the way the U.S. trades now causes “poverty and heartache,” but he’s not seeking to end it. He’s arguing for what he calls “trade reform”: different agreements, aggressively enforced, that protect American workers. He is not the first to do so. Democrats sometimes call this “fair trade.” He will find it as difficult to achieve as they have.

“I’m going to direct the Secretary of Commerce to identify every violation of trade agreements a foreign country is currently using to harm our workers,” said Trump in Pennsylvania.

Julia Gray, who lectures on trade at the London School of Economics, was listening. "I was like ooh, I want that data," she said. 

She doesn’t have it because it doesn’t exist. Particularly for thousand-component products and complex services, violations are subjective, difficult for even experts to pin down. "It’s really hard to figure out what’s one country’s subsidy, and what’s another country’s closely guarded health and safety standard,” said Gray.

Implementation Key

Gray’s research shows two findings. First, politicians seldom follow through on campaign threats to renegotiate or leave trade agreements. Second, implementation of a trade pact is just as important as the terms. Many agreements end up as what she calls “zombies” -– signed but meaningless, because they lack enforcement.

Trump says that China’s entry into the World Trade Organization has been “disastrous,” and he’s going to use the WTO’s own terms to fix the problem. He plans to bring trade cases to the WTO’s courts, to fight subsidies he believes the pact prohibits. “We will stand up to trade cheating anywhere and everywhere it threatens an American job,” he said Tuesday.

A 2016 paper in International Studies Quarterly by Stephen Chaudoin, Jeffrey Kucik and Krzysztof Pelc looked at 15 years of WTO cases, and failed to find a significant increase in trade. That is, if China blocks widget imports, and the U.S. brings China to the WTO and wins, there isn’t much evidence that China will buy more widgets from elsewhere. There isn’t good evidence that Trump’s approach will increase the kind of fair trade he says he wants. 

Trump Wary

Trump also said, however, that he’s wary of strong enforcement mechanisms. He wants out of multilateral trade agreements, and says the Trans Pacific Partnership "will undermine our independence." 

In this way, he’s similar to the U.K.’s Leave campaign, which wanted trade with Europe, but not at the expense of sovereignty. 

"The European Court of Justice," said the now-departed Boris Johnson during the campaign, "is now taking decisions on absolutely every sphere of political life in this country."

Fair trade requires both rules and enforcement, said Christina Davis, who teaches trade policy at the Woodrow Wilson School of Public and International Affairs at Princeton University. “To be truly fair, one has to agree on fixed rules and delegate to a third party for interpretation,” she said.

Trade, Sovereignty

You can have no trade and perfect sovereignty -– see North Korea. You can have free trade, enforced through maximum sovereignty, something like the trade wars of the 1930s. Or you can have fair trade, with a loss of sovereignty.

One example of a free trading area with rules, bureaucrats and a loss of state sovereignty is the U.S. Another is the European Union. When the heads of government of the remaining EU states met in Brussels this week, they took a hard line. The U.K. could either have all of the EU, they said, or none of it. 

No “cherry picking,” said Angela Merkel, Germany’s chancellor. This is more than just petulance. It’s the cumbersome, bureaucratic institutions of the EU that make the free trade possible.

Daniele Gallo, adjunct professor of EU law at the American University School of Law in Washington, said that the European Court of Justice, which Boris Johnson wanted to escape, defines for the EU what trade is. 

Bureaucracy Needed

In 1979, for example, it set a precedent by ruling that Germany could not prevent the import of a French liqueur by demanding that it contain at least 25 percent alcohol. This precedent wasn’t written in the European treaties; it was produced from the European bureaucracy. “Without the ECJ,” says Gallo, “we wouldn’t have the common market.”

“Even medieval Europe found that trading in large merchant fairs required the development of legal institutions,” said Princeton’s Davis. “Simply making a good deal is not so easy without the accompanying rules and bureaucrats to manage the rules.” 

Trump may be right that free trade has been bad for some Americans, but if he wants both trade and trade reform, he’s going to need more than just a better deal.

Before it's here, it's on the Bloomberg Terminal.