Sina Delenda Est

Making America Great Again Without China

By Alex Capri

President Donald Trump

Speculation on the topic of President Donald Trump's trade policies has been widespread. 

On one extreme, observers claim that Trump’s threats are more bark than bite: the real goal is to force America's trading partners to the negotiation table, where, when confronted by a superior bargaining position, they would quickly fall into line with the “America First” agenda. 

On the other extreme, alarmists are predicting trade wars, an unraveling of the American-led international trading framework and, ultimately, geopolitical upheaval. 

It seems nothing can be ruled out. 

Remember, all of this began with the very unlikely possibility of a Trump candidacy, followed by an even more outlandish election.
So how should stakeholders prepare for the uncertainty of the Trump Trade Doctrine?
The answer: first, look at who President Trump has anointed as his most trusted trade advisers, and, secondly, look at what they have written about trade policy.

Professor Peter Navarro — dubbed Trump’s “Trade Czar” — has established himself as an outspoken anti-China academic and is spoiling for a fight with the Chinese Communist regime. 

The Trinity

Three experts will have an inordinate amount of power to influence White House trade policy and to shape the landscape of international trade: Peter Navarro, the head of the newly established White House National Trade Council; Wilbur Ross, Trump’s nominated Secretary of Commerce; and, Robert Lighthizer the newly appointed United States Trade Representative (USTR).
All three are card-carrying economic nationalists with strong leanings toward protectionist and interventionist policies. 

This is a clear signal that Trump’s election season hyperbole should be taken seriously.
Professor Peter Navarro — dubbed Trump’s “Trade Czar” — has established himself as an outspoken anti-China academic and is spoiling for a fight with the Chinese Communist regime. 

Wilbur Ross, a billionaire investor, holds equally strong opinions and regards China as the world’s most egregious trade-cheater and free-rider. 

He, too, is primed and ready to take action. 

Robert Lighthizer is the only inner circle appointee with previous government experience, having served in the USTR office during the Reagan era. 

Lighthizer established his credentials by aggressively prosecuting a campaign of voluntary restraint agreements, countervailing duties and anti-dumping duties against Japanese imports during the 1980s, at a time when Japan was enjoying its economic heyday as Asia’s top exporter.

Overview of the Trump Trade Doctrine
A brief paper written in September, 2016, entitled “Scoring the Trump Economic Plan,” by Peter Navarro and Wilbur Ross, is the primary road map for Trump’s policies. 

It sets out the cornerstones of Trumpian Trade Policy and the rationale behind a new hard-line approach to managing global trade. 

Below are the highlights from the paper.

The Great American Bargaining Chip
The United States boasts the largest and most advanced economy in the world. 

Quite simply: the world needs America more than America needs the rest of the world. 

But American leadership has failed to leverage this unique advantage when negotiating free trade deals and other international agreements.
Instead, in exchange for trading and operating in the U.S. economy, U.S. leadership should extract tangible concessions from allies and trading partners— similar to what China has done during its rise as a major power.
The U.S. must put America's self-interest first. 

This starts by “renegotiating” existing trade deals and scrapping all bad ones. 

Trump and his team have already said “no” to the Trans-Pacific Partnership (TPP), shrugging off the collateral damage this has inflicted on American prestige and influence in Asia. 

They have said they will go after the NAFTA and other FTAs as well, and renegotiate them under an “America First” agenda.
Even America’s membership in the WTO should be reconsidered.

One particularly glaring injustice is that the majority of WTO member countries assess import and export valued added taxes (VAT) in addition to customs duties against U.S. products, while the U.S. does not assess VAT against any imports. 

But if the U.S, as the world's largest economy, threatened to pull out of the WTO, this would spell doom for other trading nations and they would quickly acquiesce to the Trump White House.

Trade is a Zero Sum Game
If America runs a trade deficit, in any sector, it’s losing in the trade game. 

America must re-balance and redistribute these deficits by imposing tariffs against any products that threaten a trade imbalance. 

In this vein, the White House must punish unpatriotic American firms (like Apple) that move production abroad. 

This will involve “border tax” against imports on foreign made articles, arriving back into the U.S. from cross-border value chains.
Trump’s high-profile corporate welfare program, which has already featured the public spectacles of the Ford Motor Company and Carrier Corp’s capitulating on where to locate manufacturing operations, is a taste of things to come.

China is Already in a Trade War With America
Beijing has been in a trade war with America — by its own design — since China joined the WTO in 2001, but American leadership has been too passive or too naive to acknowledge this fact. 

It’s time to hit back hard.
China Inc. has been gaming the rules-based trading system by surreptitiously subsidizing and dumping its exports, selectively blocking trade in strategic goods, systematically stealing intellectual property and cleverly circumventing rules of origin.
Ross and Navarro will steer a Trump White House into confronting the Chinese, and, if push came to shove, Beijing would have more to lose than Washington.

Protectionist Tariffs Must be Implemented
To execute the “Make America Great Again” agenda, the Trump Trade Doctrine calls for a 45% tariff against Chinese products and 35% tariff against goods from Mexico, as well as a swath of tariffs against currency manipulators.

Together, these countries constitute the majority of America’s top trading partners. 

All would eventually bend to the will of the President, or reach a mutual compromise before things got out of hand.

Disrupted Supply Chains Will Adjust
In the long-term, protectionist tariffs would have a relatively minor impact on the overall U.S. economy, due to the percentage of U.S. jobs that are tied directly to exports—about 10% of GDP or about 11 million jobs out of a workforce of 124 million. 

China’s export sector accounts for 23% of its GDP; and, for Mexico, it’s as high as 35%.
Yes, there would be supply chain disruptions and job losses, with a manageable impact on the economy, but these would be short-term, as supply chains adjust and reconfigure and more firms begin to leapfrog over import tariffs by relocating operations within the U.S. 

They point out that this is precisely what happened in the 1980s when the Reagan administration pounded Japanese automakers and steel producers into submission with a series voluntary restraint agreements and anti-dumping and countervailing duty initiatives.

How Will It All Play Out?
There is little reason to doubt that a Trump Administration would follow through on all of its clearly stated trade strategy. 

However, no one can realistically predict how far this will go.

What’s clear is that firms, governments and other stakeholders need to get ready for uncertainty and disruption on an epic scale.

Change is coming fast.