Opportunities to Lead on Trade
The recently released Economic Report of the President reiterated President Donald Trump’s goal of “zero tariffs, zero nontariff barriers, and zero subsidies” for international trade. This is a goal that deserves bipartisan support. A good start would be for Congress and the administration to work together to achieve passage of the United States-Canada-Mexico Agreement. In his State of the Union Address, President Trump referenced this as a key policy directive for 2019.
Canada and Mexico represent our nation’s two largest export markets. As the President’s Economic Report pointed out, nearly 25 percent of U.S. trade is accounted for by Canada and Mexico. Per-capita GDP of all three countries has soared under free trade. After adjusting for inflation, per-capita U.S. GDP is up nearly 40 percent under the North American Free Trade Agreement. U.S. manufacturing output has increased by a similar amount.
The bottom line is that the USMCA preserves NAFTA’s core intent of liberalizing trade in North America, and a modernized USMCA agreement would allow this progress to continue. With such stark consequences attached to the fate of the USMCA, Congress and President Trump should work together to ensure the trade deal is passed as early in 2019 as possible. A good start would be to remove U.S. barriers to steel and aluminum imports from those two countries.
President Trump also has an opportunity to improve U.S. trade with China. U.S. tariffs on imports from China were supposed to force China to change its economic policies, but as the President’s Economic Report pointed out: “Rather than changing its practices, China announced retaliatory tariffs on U.S. goods.” Predictably, other countries did the same.
It’s time to try something new instead of doubling down on a tariff policy that isn’t working. Fortunately, President Trump says he never gets too attached to one negotiating approach. A bilateral agreement that encourages market-oriented reforms and allows both countries to claim victory would be far preferable to another round of mutually destructive tariff increases.
Finally, President Trump will soon decide on whether to impose a massive tax hike on imported cars and parts. Such a move would be incredibly costly for both car buyers and autoworkers across the United States. A study from the Center for Automotive Research calculated that a 25 percent tariff on motor vehicles and parts from countries other than Canada and Mexico would cost more than 197,000 American jobs while increasing average car prices by $2,450.
A better approach would be to learn from Canada and Mexico. Companies that manufacture in those countries can export their cars to Japan and the European Union duty-free thanks to zero-tariff free trade agreements, like the one the Trump administration claims to want.
If the administration has learned anything from last year’s trade actions, it should be that higher tariffs here don’t lead to lower tariffs there -- instead they provoke retaliation against U.S. exporters.
President Trump’s Economic Report includes a chapter on markets versus socialism, with a discussion of the costs imposed when governments adopt central economic planning. The costs of central planning apply to trade policy as well. Countries where powerful central governments pick winners and losers by imposing restrictive trade barriers are much poorer than those that embrace free trade.
For success in 2019 and beyond, the Trump administration needs to reject a trade policy based on central planning. The President’s critics have said his “zero tariff” rhetoric is an empty promise. By implementing the USMCA, pursuing a trade policy designed to encourage market-oriented reforms in China instead of haphazardly slapping on more tariffs, and rejecting new taxes on vehicle imports, the Trump administration can show it means it when it says its goal is zero tariffs, zero nontariff barriers, and zero subsidies.
Bryan Riley is Director of the National Taxpayers Union’s Free Trade Initiative. The views expressed are the author's own.