President Trump is really making a mess of global trade — and hurting himself and the country he leads in the process.
The errors are really piling up: withdrawing from the TPP trade deal, threatening to exit NAFTA, slapping hefty tariffs on imported steel and aluminum, steaming into an aimless trade conflict with China, and now shouting about stopping all trade with U.S. allies. The self-defeating results so far have been a perhaps irrecoverable loss of confidence among our friends, growing uncertainty for some U.S. businesses and real pain for others, and 6.5 million American workers at steel-using businesses wondering about their futures.
Not that Trump is trying to Make America Worse. It's just that he's stumbled into a series of bad mistakes that unfortunately are at the core of Trumpism. After the G7 fiasco, in which Trump refused to sign the conference's joint communique and bashed Canadian Prime Minister Justin Trudeau as "very dishonest and weak," White House chief economic adviser Larry Kudlow said Trump believes "the world trading system is a mess. It is broken down."
Almost, but not quite correct. Trump doesn't think the problem is some recent hiccup because, say, the 20-year-old World Trade Organization wasn't set up to deal with the state capitalism of China. Trump's critique is much broader than that, and thus his mistake much deeper and more profound. He rejects the very idea of modern globalization and the notion that the free flows of trade can be mutually beneficial even if one side has a technical trade surplus and the other a deficit.
There is nothing new here for Trump. As he said during the presidential campaign, "I think we were a very powerful, very wealthy country. And we're a poor country now." For 40 years, Trump has been blaming this continuing impoverishment on dumb trade deals, and how other nations have taken advantage of the United States.
All of which is ridiculous, and all of which is based on Trump's idiosyncratic, evidence-free perception of trade. The global trading system isn't broken, although it could be stronger. Between 1985 and 2007, according to the IMF, real world trade grew twice as fast as global GDP. More recently it has slowed somewhat, a deceleration due to a combination of factors, including the Great Recession. That said, the WTO thinks trade will grow 4.4 percent this year vs. a stretch of 3 percent growth following the global financial crisis. Trade restrictions are up a bit, but tariffs overall remain low, with the average G7 trade-weighted tariff less than 2 percent.
And while global trade has been growing, America has been benefiting from it. The U.S. economy has outperformed five of the other six G7 nations since the WTO's creation in terms of per capita GDP, notes trade expert Philip Levy. A recent study declared the U.S. economy still the most competitive in the world, thanks in part to trade agreements such as NAFTA. And although some U.S. workers have suffered from trade, most have not, with medium incomes for the broad middle class up more than 40 percent, adjusted for inflation, since 1980, according to the Congressional Budget Office.
So blowing up the system under which America has prospered is, you know, risky. And little attempt has been made to show much upside from taking that risk. Even if Trump's efforts somehow lead to the fanciful G7 free trade zone he mentioned in passing, there's no guarantee the U.S. still wouldn't run those big trade deficits that annoy Trump so much. A more likely outcome: more trade barriers and less trade.
Tr(ump)exit is kind of reminiscent of Brexit, where the "leavers" convinced themselves the statist EU was shackling the U.K.'s free-trading, entrepreneurial spirit despite evidence suggesting it was doing just fine. That was another high-risk, low-reward wager. And it has yet to pay off. The U.K. was one of the fastest growing advanced economies in 2016 when the Brexit vote occurred, but lagged all other G7 economies in 2017 and isn't expected to do much better this year.
Likewise, there is little to be gained from picking fights with Canada and much to lose — not least of all focus. A unified G7, led by the United States, should be collectively confronting the strategic, economic, and ideological threat posed by China's authoritarian economic model. Indeed, the G7 joint communique mentioned all this stuff, but Trump didn't sign it because he felt "stabbed in the back" by Trudeau. Yet another own goal in a match the U.S now seems determined to lose.