Donald Trump’s trade policy seems chaotic, but it’s not, according to University of Saskatchewan agricultural economist Bill Kerr.
“I think they (U.S. administration) know what they are doing,” Kerr, who specializes in trade, told the annual Fields on Wheels conference in Winnipeg this fall.
By pulling out of trade deals (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), trying to upend NAFTA (North American Free Trade Agreement) and undermining the WTO (World Trade Organization), the president of the United States wants to end rules that constrain him from using tariffs and non-tariff trade barriers to restrict access to U.S. markets and maximize his negotiating advantage.
“What rules of trade do is restrain politicians,” Kerr said. “That’s why we have trade deals.”
Kerr said like most economists and previous U.S. presidents since 1947 and the creation of the General Agreement on Tariffs and Trade (now WTO), he sees liberalized trade as good because it increases efficiency and economic growth. But Trump sees it differently.
“It’s not like an economist’s point of view,” Kerr said. “It’s more like a legal point of view. It makes me think of two lawyers going after a divorce settlement… and the only way you win is by taking something away from someone else. It’s a confrontational process to divide a fixed pie. So you only gain by winning concessions from trade partners.
“And you lose either from poor negotiation or foreign guile — currency manipulation, subsidies, wage suppression, underpriced inputs like softwood lumber or electricity, or they (trading partners) have no intent of keeping their end of the bargain.”
Both NAFTA and WTO rules make it illegal for the U.S. to impose tariffs on imports of Canadian aluminum and steel unless those products are dumped and causing material injury to American aluminum and steelmakers. But Trump did it anyway, using a WTO loophole that allows tariffs if imports threaten national security.
“And nobody can really question what you think is your national security,” Kerr said.
Canada maintains its steel and aluminum exports to the U.S. don’t threaten U.S. security and retaliated with tit-for-tat tariffs on American imports. Ironically, the U.S. immediately complained to the WTO.
Meanwhile the U.S., the driving force behind the WTO’s creation, threatens the organization’s future by refusing to appoint new appellant judges.
Some of Trumps tactics are working, Kerr said. After the U.S. slapped tariffs on steel and aluminum from Australia, Brazil and Argentina they “caved” and agreed to import quotas.
But despite pushing hard, and cutting a separate deal with Mexico designed to weaken Canada’s negotiating position in the NAFTA talks, the new United States-Mexico-Canada Agreement changes little.
“I think it was a pretty good outcome for Canada,” Kerr said.
“I think you can attribute this to the skill of the Canadian negotiators. If I see Steve Verheul, Canada’s chief negotiator, I’m definitely going to buy him a beer… I think they did a good job.”
Trump’s self-imposed negotiation deadline ahead of the U.S. midterm elections gave Canada an advantage too, he said.
“Maybe cynically, politically the big win (for the U.S.) is in the name,” Kerr said. “It is USMCA. It certainly puts America first.”
Canada’s supply management system is taking a hit under the USMCA, but it doesn’t threaten the future of Canada’s dairy farmers, he said. American dairy access will increase 3.6 per cent, increasing total foreign milk access to 10 per cent.
“But the growth in the Canadian domestic (dairy) market is about three per cent a year,” he said. “The growth of their market is going to be constrained, but they’re not going to have to eat a big amount of imports. So I don’t think supply management is threatened at all and there will be compensation (to milk producers).”
The revised NAFTA agreement still has to be ratified by the U.S., Canada and Mexico. The U.S. Congress has to approve the deal and that could prove more difficult now that the House of Representatives is controlled by Democrats.
“Sure we have this new agreement, but I don’t think we’re out of the woods,” Kerr said. “Certainly if the other constraints (under WTO) are removed and you can have anti-dumping and countervail happening whenever they want… if other countries take up this different view of trade I think the whole system is in big jeopardy. But that’s not happened yet.”
China will be the ultimate test for Trump’s trade strategy, Kerr said. China has an interventionist government, which the U.S. sees as changing the rules, he said.
Before 1976 the world’s most populous country wasn’t involved in international trade much. But that has changed. In December 2001 China joined the WTO.
“The world’s trading economy has now had to accommodate a fifth of the world’s population into the international trade system in about 20 years,” Kerr said. “That’s an amazing change. There are probably going to be some changes from that. There will be some jobs lost and things moving around. But there are huge benefits from bringing in a fifth of the world’s labour force into the world economy.”
Because of its history, China doesn’t view trading rules the same as other countries, he added.
In the 19th century, western countries imposed unequal treaties on China and they haven’t forgotten, Kerr said.
“So I guess you can expect them to cheat a bit, right?”