There probably won’t be a trade war

Many overlook the fact that Trump doesn’t want to shut down trade altogether, just shift away from multilateral deals.

US President Donald Trump signs an executive order in the Oval Office of the White House in Washington, DC, January 23, 2017. (AFP PHOTO/SAUL LOEB)

It’s probably a big mistake to think that US President Donald Trump will cause global trade to freeze up.

(“Probably” because anything seems to be possible in the US these days, so definite predictions are dangerous.)

But what’s usually missed, or ignored, about President Trump’s January 23 memorandum pulling the US out of the Trans-Pacific Partnership is that it was a surgical withdrawal from one deal only, and that Trump used it to make a generally pro-trade statement.

“Trade with other nations is, and always will be, of paramount importance to my Administration and to me, as President of the United States,” the memorandum says.

It’s just that he won’t do multilateral trade agreements any more, only bilateral ones — “it is the intention of my Administration to deal directly with individual countries on a one-on-one … basis in negotiating future trade deals”.

This is hardly revolutionary. Ever since the Doha Round of GATT (the General Agreement on Tariffs and Trade) was killed in 2008, mainly by the United States over agriculture and pharmaceuticals, the TPP has been the last hope for multilateral deal-making.

Now the US has killed that too, but it wasn’t just Trump. Both candidates in the US presidential election promised to withdraw the US from the TPP, although Hillary Clinton, as one of the deal’s architects as Secretary of State, was late to arrive at that point, pushed there by the popularity of Trump’s opposition to it.

The irony, of course, is that America was not only behind the TPP and multilateral trade in general, as an architect of the WTO and GATT, but has also been the driver and main beneficiary of globalisation.

Foreign sales by S&P 500 companies almost reached 50 per cent of their total sales (48.9 per cent) in 2015 although that fell to 44.3 per cent in 2016, largely because of a drop in sales by US firms in Asia and Europe.

Globalisation, combined with the US dollar reserve currency status, has ensured that America’s economic hegemony is virtually absolute.

With the TPP, the US led the negotiations and shaped the deal, so that it reflected US priorities on a wide range of issues. In particular it gave US firms wideranging rights to invest in the countries that signed it, and to sue their governments over any sovereign decisions that cost them money.

It is, in short, a pro-American deal. But during the US election, the TPP became a convenient symbol for the supposed role of trade and globalisation in the destruction of US jobs.

Which was nonsense: the main culprit has been technology — also driven by the United States as it happens.

But trade is easier to hate than technology; in fact politicians everywhere love being photographed alongside hi-tech machinery and making speeches about the benefits of innovation, and everyone loves their smartphone and Uber and Airbnb.

On the other hand, the notion that a trade deficit is bad and trade surplus is good is relatively easy to get across, even though it’s stupid. It’s like talking about your deficit with the supermarket.

So trade it is for US populist scapegoat, and specifically the TPP, even though it’s clear that it would have benefited all of its signatories, including the United States, and cancelling it certainly won’t bring back any jobs to America. Those jobs have been destroyed by technology and are never coming back.

And anyway, according to that January 23 memorandum, Trump does not want to shut down trade, just the TPP — he’s simply going to pursue bilateral deals, continuing US policy that’s been in place since the GATT collapsed nine years ago.

Hundreds of free trade agreements have been signed since then, while the WTO has focused on customs barriers and border controls, through what it called the Trade Facilitation Agreement.

And as it happens, a couple of days after President Trump pulled the US out of the TPP, the WTO announced its first big success since, well, ever: the TFA has now been ratified and will come into force within two weeks, boosting global trade by US$1 trillion, according to the WTO. The deal needed 110 countries to ratify in order for it to take effect, and that has now been reached.

The director-general of the WTO, Roberto Azevedo, told Reuters last week that “the TFA is the biggest agreement the WTO has ever reached”. It will standardise and simplify customs procedures, cutting the time and cost of getting goods across borders — waiting times are apparently going to be cut from weeks to days.

And by the way, the US and China were among the first countries to ratify the TFA.

So there’s little reason to think the US and China are about to have a trade war; if anything, given Donald Trump’s intention to do bilateral deals and Chinese President Xi Jinping’s rhetoric about global trade at Davos, there’s probably more likely to be a free-trade agreement between them than a trade war.

Also, by the way, note how limited Trump’s suspension of immigration from Muslim countries was: it names seven countries that have not supplied terrorists but which the US doesn’t do much trade with and leaves out several countries from which terrorists are known to have come, such as Saudi Arabia, UAE and Egypt, that the US has important trade relationships with.

Funny that.

Alan Kohler is publisher of The Constant Investor — www.theconstantinvestor.com