Trump Blunders Forward with Incoherent Trade Policy

AP Photo/Andrew Harnik

President Donald Trump, center, and First Lady Melania Trump, second from left, accompanied by Chinese President Xi Jinping, third from right, tour the Forbidden City in Beijing.

This article originally appeared at The Huffington Post. Subscribe here

What on earth is President Donald Trump up to with his trade policy? So far, he has managed to grab the symbolism of trade serving the interest of elites but not regular people. Slapping on tariffs, almost indiscriminately, does accomplish that. Tariffs are popular with frustrated working people who see jobs migrating overseas.

But he has totally bungled the substance of repositioning America in the world, rebalancing the calculus of whose interests are served by trade and rebuilding an American economy of broadly shared prosperity.

This is classic Trump, of course. This botched execution is one part short attention span, disdain for details and thin skin, and one part a preference for cheap political symbolism over substance.

This includes a schizophrenic policy on China, bailing out ZTE one week and starting a general tariff war the next; a bizarre demonization of close allies whose collaboration we need if China is to change its overall predatory system; and a blunderbuss attack on Canada and Mexico in the context of a legitimate need to renegotiate NAFTA.

All of this could have serious economic consequences in an election year, as well as long-term ramifications. Gary Cohn, the Wall Streeter who was Trump’s first chief economic adviser, has warned that trade conflicts could wipe out the stimulus effects of the tax cut (admittedly, a pretty low bar). Trump’s approach also fails to connect a revised trade policy to a serious industrial policy, which we will need if we are actually committed to reclaiming American manufacturing.

The usual suspects have framed this debate as free trade versus protectionism. But that is highly misleading. There is no such thing as perfectly free trade. All markets are creatures of rules.

Domestically, we have long regulated capitalism, because markets often price things wrong—everything from wages and working conditions to research and education to pollution to toxic financial products. And markets do not suddenly become perfect just because commerce crosses borders.

Trump’s policy mess needs to be located in a broader debate about what America’s trade policy should look like. The free trade establishment has used “trade” deals like NAFTA and the Trans-Pacific Partnership, as well as the WTO, to use global rules to dismantle domestic managed capitalism. If you want an impeccably mainstream critique of this use of “trade,” check out the work of Harvard economist Dani Rodrik. I have also been making this criticism for three decades.

A variant on this critique holds that the U.S. has allowed China to use state-led capitalism to pillage American manufacturing and trade secrets, because the Wall Street allies making U.S. policy are happy to let key sectors go as long as they get cut in on the financial action.

On the far right, there is a kind of economic nationalism that partly overlaps the left critique, though it includes a disgraceful racism. This was the pitch of Steve Bannon that led to his phone call to me last summer and then to his dismissal as White House chief strategist. Even Bannon, however, has a more coherent view of how to proceed than his former boss does.

Some of Trump’s current key trade advisers, such as chief trade negotiator Robert Lighthizer, have a sensible approach to revising trade policy. They have a clearer sense of the words, while Trump gets only the music. They must be having fits.

Trump’s actual policies are problematic in several respects. First, they do real damage with allies.

Second, when it comes to China, where trade policy really is overdue for revision, they don’t get the job done—they just increase acrimony.

Third, they make it easier for critics to blur the legitimate progressive critique of free trade policy with Trump’s own mess.

There is one good effect of Trump’s approach. It splits the Republican business coalition down the middle.

The powerful farm lobby, which depends heavily on exports, is apoplectic. Congress is on the verge of passing rare bipartisan legislation to overturn Trump’s lifting of sanctions on Chinese telecom giant ZTE. The corporate lobby is massively unhappy with an impending trade war with the European Union.

In this respect, Trump is a useful idiot. Not only is he widening the latent schisms between his own right-wing populism and the GOP’s corporate elite, but he has blown open the door to a very different view of trade.

Trump’s own faux-populist impulses grasp the need for a different approach to trade. But his own impulsiveness and ultimate corporate allegiance prevent him from devising a constructive alternative.

The important thing for Democrats and progressives to do is to selectively support some administration initiatives, such as the need to renegotiate NAFTA and to challenge China’s state-led capitalism—while a spotlight on the need for a different trade policy that is both coherent and supportive of a decent society.

This is not a simple choice of smart free trade versus stupid protection, though most aspects of Trump’s policies are surely stupid. It is a choice between the old, discredited formula of letting free markets rip and a sensible form of managed capitalism both domestically and globally. The next administration just might get both the politics and the policies right.

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