Trump has delivered little on trade - and that's partially because of North Korea
- President Donald Trump made the debate over free trade one of the central topics of his campaign, focusing his ire on China, Mexico, and other trading partners.
- But aside from leaving the TPP, he has delivered little on the trade front in the year since his election.
- That's likely at least partially because the US needs the support of China and South Korea in the on-going North Korea crisis.
During the 2016 presidential campaign, Republican candidate Donald Trump tapped into anger over the loss of manufacturing and coal jobs. The culprit behind the misery of American workers, he said, was international trade.
He criticized China, Mexico, and Japan; once suggested putting a 45% tariff on Chinese imports; said he would declare China a currency manipulator on his first day in office; proposed taxing imports from Mexico; and argued in favor of ripping up trade deals like the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP).
However, Trump has delivered little on the trade front in the year since his election, aside from leaving the TPP.
"One year on from his election, Donald Trump is struggling to live up to the promises he made on the campaign trail to get tough with countries that run big bilateral trade surpluses with the US," Gareth Leather, senior Asia economist at Capital Economics, said in a note to clients.
It's likely that Trump backed down on trade at least partially because the US needs the support of China and South Korea in the on-going North Korea crisis. The president himself implied as much in an interview with The Economist published in May 2017 when speaking about why he had not yet labeled China a currency manipulator despite vowing to do so on his first day in office:
"Now, with that in mind, [Chinese president Xi Jinping is] representing China and he wants what's best for China. But so far, you know, he's been, he's been very good. But, so they talk about why haven't you called him a currency manipulator? Now think of this. I say, 'Jinping. Please help us, let's make a deal. Help us with North Korea, and by the way we're announcing tomorrow that you're a currency manipulator, OK?' They never say that, you know the fake media, they never put them together, they always say, he didn't call him a currency [manipulator], number one. Number two, they're actually not a currency [manipulator]. You know, since I've been talking about currency manipulation with respect to them and other countries, they stopped."
Over the short term, it's unlikely that Trump will push either China or South Korea too hard on trade because of North Korea, Leather said. But it's possible that he could reignite his protectionist rhetoric in the future.
"The bigger risks lie in the medium term. Trump has shown himself to be both unpredictable and volatile," Leather said. "Sooner or later it is possible that he will become tired of the North Korea issue, especially once it becomes clear to him how little leverage he has. If this happens, trade tensions with China or South Korea could easily flare up."
"What's more, a trade war with Mexico could prove a useful distraction if problems start to mount at home," he continued. "There is also the possibility that with midterm elections approaching next year, and having previously promised to get tough with China, Trump will want something to show his supporters."
Fears of a possible NAFTA collapse have also started to simmer again after the US came out swinging in the fourth round of NAFTA re-negotiations in October. The Trump administration presented a number of tough proposals, including the addition of a sunset clause, which would lead to NAFTA expiring every five years unless all three countries agree to extended it.
The next round of NAFTA negotiations are slated for November 17-21 in Mexico City.
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