In his US Presidential campaign one area that Donald Trump was clear about was trade. During the oil crisis years of 1973 (oil prices quadrupled) and 1979 (oil prices doubled) the traditional US car / truck became very expensive to run and Americans started to buy significant numbers of Japanese cars which were much more reliable and cheaper to run. Trump alluded to this and stated that Japan was robbing America blind. He also criticised inept and corrupt elites for moving jobs abroad – ‘China is killing us’ he said.
In order to even the playing field he has vowed to:
- impose a 45% tariff on imports from China to compensate for their manipulation of its currency.
- impose a 35% tariff on goods from Mexico in order to protect American jobs.
- renegotiate existing agreements like the North American Free Trade Agreement with Canada and Mexico
- pull out of the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.
- Trump has threatened to withdraw from the World Trade Organisation (164 members)
America has free-trade agreements with 20 other states and the percentages below tell you how important trade is. See also the graphic from The Economist.
- 33% of America’s imports come from countries they have free trade agreements
- 50% of Americas’ exports come from countries they have free trade agreements
If Trump does go ahead with a trade-war it is estimated employment in private companies employment would decline by 4.8m jobs by 2019. It is ironic that the very group that supported Donald Trump will be the most disadvantaged. Furthermore, with anti-free trade policies comes higher prices which will harm living standards and worsen Americas fiscal position. Although it might preserve some jobs it will worsen prospects and lower well-being for others – OECD.
With America pulling out of the TPP China maybe keen to take the place of the US in this agreement with 11 other Pacific nations.
TPP [would be] a good thing in the long run because it sets high standards for international trade and investment,” says Prof. Larry Qiu, of Hong Kong University’s School of Economics and Finance. He adds that what the world needs is not “more trade and investment … but higher quality and better ordered trade and investment