The administration of new US President Donald Trump has significant power under the country’s laws to disrupt longstanding trade policies and to implement a protectionist agenda, a trade policy expert has said – but the use of such power may have its costs.
Pearson is a senior fellow at the Cato Institute, a libertarian think tank in Washington. He is also a former chairman of the US International Trade Commission (ITC), where he worked for ten years in total.
Over the years, he added, the US Congress has delegated much of its international trade authority to the president. “The assumption was that the president would always be there ‘guarding the eggs’,” he said. “US trade laws simply aren’t prepared for a president who views trade as a threat and protectionism as a weapon.”
Pearson, who has also worked at Minneapolis-based Cargill, a commodities processing and trading firm recognised as one of the largest private businesses in the USA, was speaking on Thursday February 2 at Metal Bulletin sister title AMM’s 22nd annual Mexican Steel Forum, in Cancun.
Trump’s trade policies will be guided by three people, Pearson said. They are Peter Navarro, head of the White House National Trade Council; Wilbur Ross, nominated to be the new Commerce Secretary; and Robert Lighthizer, nominated to be the new US Trade Representative. All three have “protectionist inclinations”, Pearson said.
They could advise Trump to invoke Section 232 of the trade expansion act of 1962, Pearson said. That would allow the president to impose tariffs on imports if he decides they are arriving in such great volume as to pose a threat to national security.
Another possibility is that Trump could withdraw from the North American Free Trade Agreement (Nafta) by enacting certain provisions of Article 2205 of the pact, Pearson said.
He could also, without scrapping Nafta, impose duties on Mexico or Canada to the extent he thinks the trade deal is unfair toward the USA.
Mexican and Canadian leaders might be tempted to retaliate but should instead ignore any Trump “trade tantrum”, Pearson said, who believes that Trump probably does not really want the USA to leave Nafta.
“If Mexico and Canada refuse to respond to Trump’s provocations, he will start to look increasingly silly, and, perhaps, begin to grow up,” Pearson said. “Patience will serve Mexico and Canada well in this very unusual situation.”
Trump’s radical short-term actions on trade could hurt not only the US economy but also his own prospects for re-election in four years’ time.
“American politics tends to punish economic failure, and if President Trump is seen as having hurt the economy by restricting trade, the American people will be all too happy to kick him out of office in 2020,” Pearson said.
Piling tariffs on imports may also have unintended consequences. They could hurt downstream consumers of steel products such as carmakers, Pearson said, noting that such manufacturers employ far more workers than steel mills.
Manufacturing employment has declined since 1979, but that is less the result of free trade than of automation. “About 13% of job losses can be linked to international trade; the other 87% was the robots,” Pearson said.
The current situation is not without precedent, he added. About 48% of people in the USA worked on farms in 1900, Pearson said; today, that proportion is less than 2%.
“I haven’t heard Trump come forward and say, ‘We have to rebuild our farms!’ because everyone knows that would be foolish,” Pearson said, noting that the USA has an efficient agricultural economy that is a world leader in exports.
“We’re seeing the same trends work out in manufacturing, and I don’t think we should fear that,” Pearson said. The USA should instead focus on helping workers who lose their jobs to trade or automation.
Pearson also blasted the administration of former President Barack Obama for over-regulating the US economy and slowing down growth, following the financial crisis of 2008-09.