Free-Trade and its path to success

The evolution of America’s trade policy in the past century

Since the end of the 19^th century, namely after 1860, the US adopted an aggressive, protectionist stance regarding international trade.¹ Average tariff rates rose, in a single decade, from roughly 15% to 45% (Figure 1). This period of persistent high tariffs coincided with the affirmation of America as a serious player in the international panorama.² Slowly but steadily, tariffs where diminished throughout the beginning of the 20^th century. They reach a relative minimum after the Great War and rise again during La belle époque. The increase is pushed even further after the Great Depression of 1929.

After 1935, the path is a clear one: especially after the 2^nd World War, tariffs kept on decreasing. The US were now activists of the Free-Trade world order and worked around the clock – whether it be via GATT/WTO³, regional trading blocs⁴ (NAFTA) or by multilateral agreements⁵ –to low tariffs to near-zero values. Thus, it is clear that periods with low tariffs sometimes coincide with periods of spectacular growth², but sometimes protectionism coincides with it as well⁶. It is often argued that, after the 2^nd world war, the international community was more in favor of such a policy due to the scars left by the war.

Nevertheless, there are other economic factors which should be also taken into account, namely economic interdependency.⁷ Furthermore, as H.Prechel argues, “Business unity among domestic capitalist groups was highest (…) undermined accumulation in the economy as a whole. (…) business was less unified during periods of rapid economic growth”⁸ Moreover, as some authors argue, “no one sector has been dominant in the postwar United States”⁹. Another extremely important factor, frequently disregarded when analyzing tariffs, is that non-tariff trade barriers actually increased substantially during the post-2^nd world war until the end of the century¹⁰.

The Consequences of Trumpism in trade

Mr. Trump is a gambler. With every controversial statement, angry tweet or campaign-style speech, he aims at pursuing his agenda in a unique fashion. He deliberately acts as an incumbent alpha male, imposing its power via coercive means¹¹. He does so to pursue “America’s national interests”. “It is going to be America first” he often says. And he does so regarding migration, enforcement of the law, environmental issues, international trade agreements, and many other areas.

His approach is superbly risky, and many do not grasp the skill to handle or understand it. In no way do I endorse Mr. Trump’s behavior. Nevertheless, it is remarkable the success he had so far, with so many faux pas along the way. The list is vast: Mr. Trump often labels as fake news many Media brands (namely CNN); “Witch Hunt” is a constant when referring to the investigation on Russia’s interference on the American elections; he acts as a dictator within his own party; denies global warming, ignoring abundant evidence… The list could go on. What should be kept in mind, though, is the permanent bully behavior. And he uses it a lot in international diplomacy.

Consequences in the short term are already visible: punctual disruptions of international trade¹², a broad increase in tariffs by and against the U.S., and occasionally a more hostile exchanging of words. I would dare to say it is the natural reaction of a declining nation. Not that the US will collapse, but rather that it is bound to lose its supremacy. And this premise leads me to assess that the short-term effects differ a lot from the medium-term ones. By being aggressive in the global panorama, Trump aims at delaying the loss of the front-runner place to China and, later, second-best to India¹³. It is a rather individual move of a country and not a broader one.

Besides the U.S., no other major country is advocating protectionism. In opposition, Europe¹⁴, and even China¹⁵ are championing the fight for free-trade. Thus, the ongoing discussion on whether free trade will lose ground to protectionism is, in the medium term, exaggerated. Furthermore, Mr. Trump defends a political agenda which is not ideological, but rather pragmatic¹⁶: he aims at pleasing those who elected him. He does not care for protectionism or free-trade. As long as he can bring back home a victory (even if a pseudo one), he will label it as “free but fair trade¹⁷”. And those who support him will cheer. Moreover, it must be kept in mind that, being a democracy, the US shifts its economic strategy often. And Trump is the symbol of an exception – not a trend – regarding trade policy. Both the Democrats¹⁸ and the Republicans (namely the moderates¹⁹ and the extreme Tea Party²⁰) majorly advocate for free-trade. And with no substantial benefits arising with protectionism, they will continue to do so.

A purely temporary setback

The revisionism which Trump supports, as if someone obliged the U.S. to sign free-trade deals, advocates that the current drawing of trade partnerships is profoundly unjust for America²¹. This unfairness may have risen due to the lack of previous policymakers’ competence, or by the shifting in economic strategies and circumstances. It may not even be a realistic premise at all. But whether this is true or not, realpolitik – “politics or diplomacy based primarily on considerations of given circumstances and factors, rather than explicit ideological notions or moral and ethical premises”²² – will prevail.

America’s power – namely how much it trades with its partners – is too meaningful (economic-wise) for third countries to enter in an ad aeternum economic war with the U.S. Besides the circumstantial “tit for tat” retaliations, it is clear most will allow Trump to come back home with small, yet symbolic victories, so as to sustain their own growth, as I have explained in my previous answer.

When looking at the TTP, the case may be a little different from this narrative at a first glance, but it is not. The United States retreat was indeed symbolic. Being an agreement with numerous but far away nations, its economic effects would have been mild (when compared to NAFTA, for example)²³. Although net benefits would have been positive to all signatories²⁴, Trump pulled out, arguing it would cost American jobs and a higher current account deficit²⁵. But it is false that free-trade gave a step back. In fact, the remaining signatories enforced a new trade deal which emulates TPP, but without the US (called CPATP)²⁶. Therefore, free-trade ended up giving a small but steady step towards a more trade-liberalized Pacific.

As for NAFTA 2.0., to rip apart the original free-trade agreement with no substitute would have dire consequences. The volume of American exports and imports from Canada and Mexico is huge and having no backup plan would cause chaos²⁷. As argued before, a symbolic victory was all Donald wanted in order to fulfill the government’s pledges. Namely, by granting a bigger access to its dairy market (Canada), and implementing bigger tax exemptions to domestic car manufacturers (in all 3 countries)²⁸, the deadlock was broken: as of October 1^st, 2018, the USMCA was born²⁹. Consequently, NAFTA was kept alive, no major trade disruptions took place, and the Americans could chant “victory”.

Lastly, the most complicated scenario is certainly China. Albeit economic disruption is big, so are the stakes. Whereas both Canada and Mexico are highly dependent but traditional economic partners, China is not.⁵ Trump often claims China has already an ongoing economic war with America, whether it be due to currency manipulation³⁰ or buying huge amounts of American sovereign debt. Moreover, both aim for global supremacy, via international relations and military power. This state of affairs, although politically feasible on the short-run (with the exacerbations of nationalisms), has its days numbered³¹. With prices skyrocketing and the scarcity of Chinese and American products, populations (namely in the US, which has democratic means of reaching power) will demand a policy change. Furthermore, having an isolated international stance regarding trade, the US will lack backup from its allies. In a camouflaged way, the US will be forced to change their tone³¹. That moment will certainly set history in motion, symbolically marking the definitive end of an US-hegemonic era and the return to a bipolarized one.

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