Trump trade: A dead end?
It is this system that Trump is repudiating on the grounds that it has backfired on American workers and firms. "We are not going to let the United States be taken advantage of anymore," he said in his trade speech last week. Poor trade agreements and abuses by our trading partners have caused U.S. trade deficits, the president said.
To be sure, the United States should be more aggressive in pursuing trade complaints against countries that steal intellectual property (patents) or engage in dumping and illegal subsidization of exports.
Still, these are not the major sources of our trade deficits. That distinction belongs to the dollar's status as the major global currency, used to conduct trade and cross-border investment.
This drives the dollar's value higher, making U.S. exports more expensive and U.S. imports cheaper. Given the nature of the resulting trade deficits -- and as is obvious from the economy's present state -- the United States can achieve "full employment" and run trade deficits simultaneously.
Having misdiagnosed the problem, Trump has embraced protectionist solutions. He withdrew from the Trans-Pacific Partnership (TPP), an agreement with 11 other countries, thereby antagonizing these nations and weakening American influence over the region's trading practices. China is the obvious alternative.
Now Trump is offending Canada and Mexico by demanding major changes in the North American Free Trade Agreement (NAFTA). If the talks fail, who knows how the more than $1 trillion in trade among the three countries will fare?
Naturally, Trump appears late in Irwin's story. A harsh judgment is possible: Trump trade leads to a dead end. But Irwin is more judicious, writing: "Whether the Trump administration marks a turning point in U.S. trade policy, or just one with strong posturing on trade issues, remains to be seen. ... [At the least, Trump] portended a loss of U.S. international economic leadership." Time will tell.
(c) 2017, The Washington Post Writers Group