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Trump's new line on trade

US president may yet return to multilateral table if others carry on without him

| China
U.S. President Donald Trump delivers his first State of the Union address to a joint session of Congress in Washington on Jan. 30.   © Reuters

A neo-conservative has been described as a liberal who has been mugged by reality. But in the case of Donald Trump, could the opposite be true: a nationalist mugged by global economic realities?

Many looked to Trump's State of the Union speech this week for signs that he might expand on his recent surprise hints indicating a possible softening of his tough trade views.

In the event, the U.S. president did not oblige. There was, for example, no reference to the suggestions he aired at the World Economic Forum at Davos that he might considering rejoining the Trans-Pacific Partnership, the high-profile trade pact that he abandoned in his first days in office.

But, if Trump failed to nudge the door open any wider he also avoided slamming it shut again. Even though the U.S. is poised to launch an array of trade sanctions on China, he did not enter into any economic diatribes against Beijing or other Asian capitals. The most concrete point he made on trade was, by his standards, vaguely constructive: "We will work to fix bad trade deals and negotiate new ones."

While hardly a ringing endorsement for change, that Trump did not use the high-profile domestic platform to walk back on the comments made in Davos suggest that his trade views are evolving, if incrementally.

The first hint of a shift was a television interview in Davos, when he told CNBC: "I would do TPP, if we were able to make a substantially better deal." In his WEF speech, reportedly written by National Economic Council Director Gary Cohn, Trump he held out an olive branch to the 11 nations which have committed to TPP in the U.S.'s absence. "We have agreements with several of them already," he said. "We would consider negotiating with the rest, either individually, or perhaps as a group, if it is in the interests of all."

Trump himself is not the only one dropping hints. Commerce Secretary Wilbur Ross has suggested that he "is open to resuming" negotiations on the Transatlantic Trade and Investment Partnership (TTIP), between the U.S. and the EU which was shelved just before Trump took office. His rationale: Barack Obama did not do it, and the EU is one entity, so it is bilateral.

Moreover, in the ongoing talks to renegotiate North American Free Trade Agreement, there have been signs of flexibility on key Trump demands such as local content requirements for autos.

Trump's apparent flexibility in regard to a TPP deal he has scorned as "horrible" and would "lead to a rape of America," must be viewed with a healthy dose of skepticism. There is no evidence his basic views on trade have changed significantly.

Trump has never offered a single explanation of what he disdains in all the trade deals he has scoffed at. He has simply assumed they are flawed because the U.S. has trade deficits, his sole metric. But this defies economics: trade deficits are a result of savings and investment, consuming more than producing. Much of Trump's wrath is based on his ire at the U.S. massive deficit with China, a record $275.81 billion in 2017, roughly half the U.S. total trade deficit. Part of the problem is that Trump extrapolates legitimate concerns about China -- and its gaming of the system -- to the entire world trade regime.

Trump may still reject NAFTA and the Free Trade Agreement between the U.S. and South Korea that is also being renegotiated. Moreover, the U.S. recently slapped tariffs on imported solar panels and washing machines, in what is likely to be only the first round of U.S. protectionist measures. Actions over Chinese steel and aluminum imports and alleged intellectual property theft are expected in coming weeks.

Yet there is something new affecting the thinking of Team Trump. I would suggest three related developments that, taken together, may have finally led to a Trump revelation that the U.S. is not the center of the universe.

The first is that The White House has discovered that there is little interest in bilateral trade deals. In an era of global supply chains and conflicting rules of origin, why would smaller nations disadvantage themselves with a bilateral deal with the world's largest economy? This posture reflects an exaggerated sense of U.S. leverage, a time warp mentality, as if it if were 1983, when the U.S. accounted for roughly one-third of world trade: Today the U.S. accounts for just 13% of world trade. And there is no evidence that the White House has a Plan B.

Also shaping U.S. perceptions, is Tokyo's success in finalizing a revised TPP which will be concluded March 8. And TPP reflects a larger global trend of accelerated hedging against the uncertainty of the U.S. trajectory. Thus, the EU and Japan have concluded a trade deal, following an EU-Canada pact. The EU is exploring other trade deals with Mercosur in Latin America, and Latin nations like Mexico are pursuing deals with ASEAN and others.

The third factor is the global stature assumed by a rising China and its leader Xi Jinping, which Trump's recent National Security Strategy dubbed a "strategic competitor." The specter of Xi shaping the rules and assuming the mantle of global leadership grates on the White House.

In sum, there is glaring evidence that the world is moving on without the U.S. This is further accentuated by heavy lobbying by U.S. agricultural interests and industries concerned they may lose market opportunities in Asia and elsewhere as preferential trade arrangements take hold.

But with Tokyo making it clear that TPP is moving forward regardless of Trump's comments, is it too late for the U.S. to get back in the game? Maybe not. Japan's Trade Minister Hiroshige Seko last Friday, "We welcome President Trump's first display of positive interest [in the pact], even though it comes with various conditions attached."

In fact, Prime Minister Shinzo Abe has been pressing Trump on TPP from their first meeting, and Japan's diplomacy has been designed to make it as easy as possible for the U.S. to reverse course. Access to the U.S. market was a driving force for many in TPP, and the accord was seen as a pillar of U.S. strategy and commitment to the region. By freezing key parts of TPP related to the U.S. in the revised TPP, Tokyo has sought to preserve the U.S. re-entry option.

Of course, the devil is in the details, and it remains to be seen whether the reality of a post-American Asia will compel Trump to temper his nationalism in the face of hard economic realities. Old myths die hard.

Robert A. Manning is a senior fellow of the Brent Scowcroft Center on International Security at the Atlantic Council and its Foresight, Strategy and Risks Initiative. He served as a senior counselor to the undersecretary of state for global affairs from 2001 to 2004, as a member of the U.S. Department of State Policy Planning Staff from 2004 to 2008, and on the National Intelligence Council Strategic Futures Group from 2008 to 2012.

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