January 23, 2017

US Trade Policy. What Now? January 2017

Re-building the US industrial base, aiming to “massively increase jobs, wages, incomes and opportunities for the people of our country” is the principal economic objective of the Trump Presidency.

Start of a new era in US trade policy?

  • Trade was one of the key themes of Mr Trump’s campaign. As his inauguration as President nears, attention focuses on what trade policies the Trump administration will pursue. Mr Trump’s call for radical reform in US trade policy to lift domestic employment and wages reflects his strong criticism of what past policies have delivered. He has advocated imposing higher tariffs on countries that trade unfairly (with particular criticism of China), re-writing or scrapping the North American free trade agreement (NAFTA), taking a more aggressive line in bringing cases to the World Trade Organisation (WTO) and avoiding big new multi-country trade deals like the Trans-Pacific Partnership.
  • In part one we discuss Mr Trump’s trade objectives, some of the constraints that could stop him getting what he wants, what he is likely to do, whether it will deliver the scale of boost to employment he has mentioned on the campaign trail and what it means for Australia. The difficulty that Mr Trump faces is that sweeping trade measures would best achieve his ambitious jobs agenda, but those are precisely the reforms most likely to lead to WTO cases and trade wars. A trade war could also appreciate the US dollar via a ‘flight to safety’ in financial markets, working against the improved trade balance that the protectionist policy was intended to achieve. In summary, we see a significant move towards protectionism that still proves unable to generate enough jobs to re-build the US industrial sector and which is generally not positive for Australia.
  • In part two we outline the various trade and tax measures that the Trump administration could adopt. Mr Trump specifically mentioned many of these as policy options on the campaign trail and the experts he has nominated for senior trade positions in his administration are across the detail. The economic impact of using potential measures already on the US statute book ranges from fairly minor to presenting quite a shock to established economic patterns. We assess how likely these individual trade and tax measures are to be pursued by a Trump administration, but stress the situation remains fluid.

For further details please see the attached document