Past Event

Implications of the new US trade policy by the incoming president Trump

An event about the implications of Donald Trump's emerging trade agenda on global trade.

Date: January 19, 2017, 12:30 pm Topic: Global Economics & Governance

SUMMARY

International trade played a prominent role in Donald Trump’s presidential campaign. The now President of the United States of America argued for protectionist trade policies, ranging from a renegotiation of the NAFTA agreement and an exit from the WTO and the TPP, to imposing a 35 percent tariff on Mexican imports and a 45 percent tariff on Chinese imports.

At this event, Bruegel hosted Adam Posen, President of the PIIE, to elaborate on the implications of the views expressed by President Trump on trade policy.   As a result, two main ideas have emerged:

A double-edged sword

While the convictions expressed by President Trump may be taken at face value, these reflect a world view in which bilateralism is superior to multilateralism; in which the system is biased against the U.S. and in which trade deficits are inherently bad. Despite the facts being in opposition to these views, actual policies are expected to align accordingly. In this sense, the United States are likely to ramp up pressure on Mexico. This strategy, however, may be counter-productive given its effect on exchange rates.

Following the U.S. elections, the Mexican peso has dropped 13.4 percent against the American dollar. Given the American planned fiscal expansion and the response of the Fed, the dollar is expected to appreciate in the long-run – a weakened peso vis-a-vis the U.S. dollar, in turn, might lead to an expansion of trade deficits rather than the anticipated contraction, catalysing more aggressive measures against Mexico.

In fact, exchange rate movements prior to the election accounted for a 0.3 p.p. revision on the 2020 U.S. current account deficit, rising to 4.63% of GDP. While in the past trade deficit pressure was resolved through exchange rate agreements, such realignments require an appropriate institutional set-up. Thirty years after the Plaza Accord, the set-up has changed with more players involved and a lower likelihood of an agreement.

Fighting fire with water

It is true that the U.S. President has executive power to change trade agreements. Nonetheless, the argument is raised that Europe does not have to wait for protectionist measures to be implemented to defend its interest in a rules-based system. It was pointed that the current framework may provide an opportunity to not only discuss existing rules but even extend them to other grounds, such as global investment.

The consensus in the room was that direct confrontation is unlikely to solve problems. Likewise, scenarios such as the EU reaching agreements with Canada while the U.S. disrupts NAFTA, or partnering with Asia while the U.S. forestalls TPP, could also be deemed controversial.

It is nonetheless legitimate and appropriate for China and Europe to make use of existing platforms – such as the WTO – to defend the rules-based system and hold the United States accountable, if necessary. A reinforcement of commitment in existing agreements is also a possibility. In a hypothetical scenario of provocations, is up to the EU and China’s to lead the negotiations in a constructive manner.

Event notes by Inês Gonçalves Raposo

Video recording

 

Schedule

Jan 19, 2017

12:30-13:00

Check-in and lunch

13:00-14:00

Panel discussion

Chair: Guntram B. Wolff, Director

Adam Posen, President, PIIE

André Sapir, Senior Fellow

Xiang Yu, First Secretary for commercial affairs, Chinese Mission to the EU

14:00-14:30

Q&A

Chair: Guntram B. Wolff, Director

14:30

End

Speakers

Adam Posen

President, PIIE

André Sapir

Senior Fellow

Guntram B. Wolff

Director

Xiang Yu

First Secretary for commercial affairs, Chinese Mission to the EU

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

[email protected]

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