Experts on international trade based in Germany and in the U.S. discussed the new trade agreement replacing NAFTA, the US-Mexico-Canada agreement or USMCA, President Trump’s strategy in making trade policy for the United States, and how multilateral trade organizations need to be modernized for the current global trading system in which countries, such as the U.S. and China, are now more equal trading partners.
Tarrif-ied of Change? The Future of Trumpian Transatlantic Trade
Sascha Tamm, Director of Transatlantic Dialogue and Latin America, Friedrich Naumann Foundation, Potsdam, Germany
Ken Levinson, Executive Director, Washington International Trade Association, Washington, DC
Tim Murray, President and CEO, Worcester Regional Chamber of Commerce, Worcester, Massachusetts
Katie Reilly, Director of Global Affairs, Aon Corporation, Chicago, Illinois
Negotiating Free Trade Agreements between the United States and Europe
The panel began the discussion with the question of why countries would need to make “agreements” in the first place in order to maintain free trading relationships. The current global trading system can be compared to a “spaghetti bowl,” in which some countries are interconnected by trade agreements and some are excluded from them. Not all trade agreements line up with each other one-to-one.
Free trade agreements between the U.S. and European Union, such as the Transatlantic Trade and Investment Partnership (TTIP), have been difficult to negotiate because of how heavily both of these economic areas are regulated. Both the U.S. and European Union are attempting to harmonize multiple domestic regulations with one another and do not always succeed.
Modernizing Multilateral Trade Organizations
The multilateral organizations established after the Second World War in order to prevent future conflicts were founded at a time in which the U.S. was willing to sacrifice some of its economic interests for the benefit of the global trading system. This global trading system is currently facing disputes from countries which do not consider it in their interest to make this sacrifice. In particular, the World Trade Organization needs to be modernized because it is not equipped to deal with a situation in which China is no longer a developing country. The rules in the World Trade Organization for resolving trade disputes do not help to adjudicate the trade disputes between the U.S. and China. The main issues in the trade disputes between the U.S. and China have been artificial intelligence, 5G networks, and autonomous vehicles. This dispute with China has the potential to bring the U.S. and Europe together to cooperate further on issues in trade, such as intellectual property, subsidies, and government influence on companies. However, President Trump so far chooses to pursue bilateral trade negotiations.
Consequences of President Trump’s trade policies on the local and regional level
Turning from the global trading system to examine the situation on the local and regional levels, the panel discussed how the steel and aluminum tariffs are affecting manufacturing companies in Worcester, Massachusetts. This region has been a center of manufacturing in the U.S. since the Industrial Revolution and the companies here look for predictability and stability in order to operate, which is currently lacking.
Riverdale Mills, a manufacturer of wired mesh, was the dominant employer in the Worcester, Massachusetts area for many years. While healthcare and higher education are now the largest employers, there is still a manufacturing base, which is part of international supply chains. Due to the tariffs on steel, the steel prices have doubled. Foreign competitors are buying steel at half the price. The company has already lost 50 manufacturing jobs after the tariffs were imposed, leading to economic dislocation in this region. While steel tariffs were used in this manner a century ago, the interconnected supply chains today have become more complex. If the tariff issues are not resolved, this will impact others higher on the employment chain.
Participants questioned President Trump’s strategic imperative for his trade policies and why he would place tariffs on steel and aluminum. According to the panelists, the goal is to change the way global businesses operate and source the components as close to the U.S. as possible. This would break global supply chains and fundamentally change the way companies source their products. President Trump also has a more short-term political strategy of providing a few benefits to groups of voters who already support him, even if these are more illusory benefits, and have other groups bear the costs for these policies.
Although President Trump and others in his administration have promoted the goal of manufacturing as many components of automobiles in the U.S. as possible, the American automaker index shows that even if a car is listed as made in the U.S., such as the Ford Explorer, 43% of its components are manufactured in other places. Trump has presented the manufacturing of automobiles in the U.S. as not only an economic interest, but also as a national security interest. The panel acknowledged that trade is one area in which Trump’s stated principle of “America First” has remained consistent since the presidential campaign in 2016, even if these policies do not have the intended consequences.