Monday, November 21, 2016

Charles Finney: Give Trump a break on trade policy – it may be better than you think

Since the outcome of the US presidential election became clear, there have been many people commenting on the implications of the result for trade policy. The views expressed are largely gloomy. 

Some go so far as to suggest that globalisation is at an end and that the era of trade liberalisation died with it. Others suggest the US has created a leadership vacuum that China will fill. Yet more are suggesting a different approach to the way New Zealand negotiates free-trade agreements.

These people may well be proved correct but my advice to everyone is to take a cold shower and be more patient. It is too early to reach any firm judgments on what a Trump Administration is going to mean for trade policy. 

Ill-informed policy positions 

What is clear is that a number of the policy positions advocated during the election campaign were not particularly well informed. It was also clear from discussions I held online with some of the people advising the Trump campaign that they did not have strong backgrounds in the field.  

One of the first things that will happen after January 20 is that the new Administration will be getting much better advice. While those in the more senior positions in the US Trade Representative Office and the departments of State, Commerce and Treasury will change, the rank and file will be the same (at least initially).  And like any professional public servants they will be providing advice based on facts, not what their political masters want to hear. 

That advice can be ignored but at least those in senior positions in the new administration will be better informed than they were during the campaign.

Views of business

The other thing that will happen is that the US business community will be talking to the new administration. There will probably be some similarity between the advice tendered by business leaders to that being provided by officials. This might have some impact.

I suspect the European Union and those who have been negotiating the Trans Pacific Partnership (TPP) with the US will be prepared to be patient for a while. They won’t want to force the US into taking a final position on their negotiations.

They will want the new administration to reach its own conclusions about negotiations that candidate Trump said he would walk away from. Are they really as bad as they appeared to be during the election campaign? Is it really better to rip these agreements up or might it be better for job creation in the US if they were re-negotiated? 

Cannot wait forever

The EU and TPP members won’t wait forever; indeed, I am sure plan B is very much under discussion at Apec and other trade forums. But by about next September we will all have a much better idea about what we are dealing with and act accordingly.

It would indeed be unfortunate for the global economy if the US turns inward and goes the isolation route. But it does not mean the rest of the world will take the same course. 

In New Zealand’s case, negotiations are continuing with India and the Gulf countries. They are about to begin with the EU.  The Asean-centered Regional Comprehensive Economic Partnership (RECEP) is continuing and post-Brexit vote Britain seems dead keen on FTAs. Work is also under way with the Pacific Alliance in Latin America. This doesn’t look like an end to trade liberalisation.

US free trade myth

The idea that the US is a world leader in trade liberalisation field is a joke. That leadership was real up until the end of the Uruguay Round. It was dented when the US decided that it couldn’t do Apec-only liberalisation in 1998. 

It was damaged further at the Seattle World Trade Organisation ministerial summit in 1999.  It was not at all strong during the Doha negotiations. 

The more recent debacle over TPP negotiating authority and ratification further confirms that US trade policy is a complete mess. I suspect many others hold the same view. 

The US is an important market but New Zealand has survived for many years without an FTA and will survive for many more without one. It is a nice-to-have but not essential factor for both countries’ economic futures.

However, I would welcome some fresh thinking from President Trump and his team on trade policy. The US actually needs this. It needs to be more open in the way it negotiates future deals. And it needs to negotiate great deals that are relevant to the needs of the modern economy, not one that has been transforming itself since the 1970s. 

The TPP has its flaws as does the TTIP (Trans-Atlantic Trade and Investment Partnership) being negotiated with the EU.

Mr Trump says he negotiates great deals. Well, here is a great opportunity to demonstrate these skills. And don’t forget the WTO. When the US was a leader of trade negotiations, the world used to name GATT Rounds after US leaders, such as the Kennedy Round. 

A Trump Round, anyone?

Charles Finny is a former trade negotiator and is a director of Saunders Unsworth. This article was first published in the NBR - see HERE - and is republished with permission.  

1 comment:

Anonymous said...

Mr Trump is a first world leader that is at last looking to "fair Trade" and comparisons of pay rates and working conditions between Chinese, Asian, Indian and other like economies, with those in the western economies. Things like; comparing pay rates ($1 per hour or even child labour, compared with $20/hour), Health & Safety in the work place, emission, waste disposal, and the costs involved to industries, and so it goes on.

The West, competing in manufacturing with these low cost economies is very difficult even though generally products manufactured in the US, Europe, Britain and even New Zealand is of far better quality and has to pass much stricter quality controls.

While we have people who support the "Buy New Zealand made campaign" it is very difficult for them to pay as much as 5-10 times the price for NZ product, compared to a similar Chinese made product.

Because of the suspect quality of some of the Chinese (etc) made product we find lots of these products taking up room in our Landfills.

So we see what Mr Trump has been advocating:- Large manufacturers having their product manufactured in these low cost economies which means transferring jobs to the low cost economies. Those smaller companies, who don't have the resources to do this, downsize or close, which means not only loss of jobs, but a loss of skilled employees. Also our country lose the ability/skills to manufacture “necessary” products, which were considered some time ago, a security issue.

I often wonder if we could not "outsource" some of these jobs of highly paid commentators who support this "unfair competition" "free trade" and have all the smart answers and are paid 100's of thousands of dollars to do so. I am sure we could outsource their jobs to China and save 100's of thousands of dollars in doing so. I am sure there are many other highly paid jobs we could the same with. To subject manufacturing industries, and a like, to low cost Asian products, and quote they have to be competitive, is just so easy and so easy to “justify”.

Mr Trump did strike a chord in the USA and has come out a winner.

Who in New Zealand would be game to promote this policy? ! ! They may be surprised at the support they get.

Go Mr Trump - Drain the Swamp.