Trump's Trade Plan Is a Looming Disaster
Trump and Ross have a plan to make you worse off.
Even by his standards, President-elect Donald Trump's statements on trade have been stunning in their recklessness. His proposals essentially amount to the repudiation of a system that has fostered global stability and lifted hundreds of millions of people out of poverty over the last several decades -- and if he actually intends to execute his radical agenda, there's little to stop him.
In other areas of economic policy, such as budget matters, Congress will make the crucial choices. On trade, the White House has wide discretion. The stakes could hardly be higher.
During the campaign Trump threatened to rip up existing trade pacts, withdraw from the North American Free Trade Agreement, and put punitive tariffs on imports from Mexico and China. He's called the World Trade Organization, which promotes liberal trade and adjudicates disputes, "a disaster," and he has said the U.S. might "pull out." Congratulating Britain on its decision to quit the European Union, he says the U.K. and the U.S. can design a new trade deal -- but that it makes no difference to the U.S. whether the EU, "a vehicle for Germany," stays together or falls apart.
Trump's nominee for commerce secretary, meanwhile, appears to believe in the top-down management of trade: "We should treat ourselves as the world's biggest customer and treat nations that are selling to us as suppliers to us," Wilbur Ross told the Financial Times. The global economy, according to this thinking, is not about myriad firms competing across borders to give consumers everywhere the best products at the lowest cost; it's a zero-sum battle between two monolithic collectives: us and them.
Trump's other trade appointments aren't reassuring. Peter Navarro, named as head of the new National Trade Council, seems opposed to imports on principle. He says they subtract from economic growth, which is nonsense. The nominee for U.S. trade representative, Robert Lighthizer, brings his experience as an advocate for restrictions on imports of cars and steel -- restrictions that made U.S. consumers worse off and impeded the ability of U.S. manufacturers to compete.
Congress wouldn't be able to do much to restrain the new team's trade measures, especially in the short term. Laws authorizing existing trade agreements, as well as other statutes delegating authority to the president in times of emergency, grant the president wide powers to take unilateral action such as terminating previous commitments and imposing tariffs, quotas or other restraints. Such moves would surely face a legal challenge, but before the cases were resolved, President Trump could very well kill or cripple Nafta, the WTO and any prospect of orderly market-driven trade arrangements.
Americans have legitimate concerns over trade, jobs and living standards. But they should be addressed in the same way as the threat from automation and other kinds of technological advancement -- forces that are likely to be more disruptive in the future than trade. And the record of nations trying to resist trade and innovation speaks for itself: It leads to economic stagnation.
The right approach is to focus on competitiveness, opportunity and effective social insurance. Education reform, tax reform, deregulation, and investment in the right kind of infrastructure could raise the long-term rate of growth and spread the benefits to more workers. Trump deserves some credit for taking up some of these points. Doing more to help workers retrain and move to new jobs would also relieve the stress, as would more effective unemployment and health insurance.
If Trump follows through on trade, it won't be long before he and his supporters regret it. Declaring a trade war on the world can only lead to collapsing confidence and recession. Yet if the system of international commerce, painstakingly put together over decades, is carelessly torn down, rebuilding it won't be easy or quick -- however much a chastened Trump administration might wish to.
Mr. President-elect: Just don't do it.
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