Trump presidency could end free trade

WASHINGTON — Guess what? A President Trump could adopt his new trade agenda without any authorization from Congress — and that could trigger a global trade war and a deep U.S. recession. Policies that promise to make us stronger economically could do the opposite.

That’s the main take-away of a study by the Peterson Institute, a Washington think tank, of the trade policies of Donald Trump and Hillary Clinton. Both candidates oppose the Trans-Pacific Partnership (TPP), and Trump has advocated stiffer anti-trade policies — high tariffs on Mexico (35 percent) and China (45 percent) as well as possible withdrawal from the World Trade Organization (WTO).

Not surprisingly, Peterson — whose free-trade bias is no secret — deplores these proposals. For Congress not to ratify the TPP would be a huge strategic blunder, writes economist Marcus Noland. It would represent a retreat from a leadership position in Asia, ceding “to China the lead in setting trade rules” for the region. “China’s economic influence [would grow] at the expense of” America’s. The TPP eliminates most tariffs among its 12 country members and sets some rules for state-owned enterprises and other areas of international commerce.

The study’s most startling conclusion is that Trump could implement most of his proposals, which repudiate decades of pro-trade policies, by executive order. So contends Peterson’s Gary Hufbauer after a review of trade laws. Over the past century, Hufbauer says, Congress has passed many laws that “authorize the president to impose tariffs or quotas on imports.” These provide ample precedent for independent presidential action, Hufbauer says.

The laws include the Trading with the Enemy Act of 1917, the Reciprocal Trade Agreements Act of 1934, the Trade Expansion Act of 1962, the Trade Act of 1974 and the International Emergency Economic Powers Act of 1977. Even the North American Free Trade Agreement (NAFTA) allows its members (the United States, Canada and Mexico) to withdraw with six months’ notice. There are similar provisions in other free trade agreements (FTAs) that the United States has with 18 countries, including Colombia and South Korea. Trump has said he might withdraw from these if they can’t be satisfactorily renegotiated.

Of course, all Trump’s bluster may simply be a ploy to improve his bargaining position with other countries. It’s also likely that domestic opponents — big agricultural and industrial exporters — would rush to court, seeking a temporary injunction pending the outcome of a trial. Presumably, they would argue that Congress had delegated details of trade policy to the president, but not fundamental changes in policy.

Still, Hufbauer doubts the courts would be persuaded. He thinks they would move against the president only if the White House lost a trial. A trial could take a year or two, giving Trump a long period of freedom to pursue his policies.

If Trump raises tariffs on Mexico and China, they will retaliate, and this could set off a full-scale global trade war, the Peterson study says. Even assuming Trump doesn’t adopt other extreme measures (leaving the WTO or abrogating other FTAs), the result would be a severe recession, estimates an economic model used by Peterson. Trade and investment would decline. Unemployment would rise to 8.6 percent in 2020.

Actually, no one knows what would happen. But it almost certainly would be unfavorable. Through the decades, expanding trade has been an engine of growth for the world economy. Trump seems to assume that if he can cut the trade deficit, he would be defending U.S. jobs and stimulating U.S. economic growth. With a $500 billion U.S. trade deficit in 2015, there seems to be ample room for improvement.

Although this appears logical, it’s actually backward. When the U.S. economy grows rapidly, the trade deficit rises (because imports surge) and the unemployment rate falls (because shoppers also buy domestic goods and services). By contrast, when the economy falls into recession, the trade deficit declines (because Americans buy fewer imports) and unemployment soars (because consumption also weakens). Not surprisingly, the Great Recession caused a huge drop in the trade deficit. In 2009, it was $384 billion, down from $762 billion in 2006.

If Trump gets his way, some offshore factories might shift back to the United States and other home countries. But the much larger effect would be weaker global trade and investment. A trade war that demolishes political support for global commerce would be a landmark event. Because companies wouldn’t know where they can buy and sell profitably, they would delay investments until the outlook clarified. That could be a long time.

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