Analysis 01-27-2017


Trump’s “America First” Economic Policy and the Impact on Foreign Policy

Trump’s “America First” economic policy was probably the winning edge for his presidential campaign. With it, he won traditional Democratic states of Pennsylvania, Wisconsin, and Michigan – and the White House.

And, unlike some politicians who fudge on their campaign promises, Trump made it quite clear that an America first economic policy was at the head of his agenda after the weekend of inaugural celebration. On Monday, he signed several executive orders including one officially withdrawing the US from the Trans Pacific Partnership.

He also made it clear that renegotiating the North American trade treaty (NAFTA) would take place soon. Both Canada and Mexico, who had opposed Trump’s stand on NAFTA, made it clear that they were ready to renegotiate it.

However, Trump’s focus wasn’t totally about trade restrictions. He also announced that his first official foreign leader meeting would be with British Prime Minister May and part of the talks would be about a new post-Brexit trade treaty. This would ease any trade restrictions caused by Britain leaving the European Union.

Trump’s trade focus fulfills a campaign promise to rewrite America’s trade policy during his first days as president. In declaring his determination to renegotiate NAFTA, Trump would rework an agreement that has governed commerce in much of the Western hemisphere for 22 years. By scrapping the Trans-Pacific Partnership accord negotiated by Obama, Trump will delight many of his Republicans and Democrats who were concerned about the loss of jobs under free trade.

The TPP, a 12-country deal that sought to liberalize trade between the U.S. and Pacific Rim nations including Japan, Mexico and Singapore, was a signature piece of Obama’s attempt to pivot U.S. global strategy to focus on the fast-growing economies of Asia.

TTP was politically dead anyway since Congress wasn’t going to ratify it

While critics say the demise of TPP will benefit China, that isn’t necessarily true. First, TTP leaders were already talking about adding China to the agreement. Second, although some are saying that a new multilateral trade agreement will be passed that includes China, but excludes the US, it will take years. Such an agreement may be difficult given China’s aggressive ambitions.

With TPP now history, Trump will next focus on NAFTA.

The president said Sunday that he’ll meet with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto to begin discussing NAFTA, which he has routinely blamed for the loss of U.S. jobs. The newly sworn-in president praised Mexico for being “terrific” and signaled that he’s willing to work with the U.S.’s closest neighbors.

“We’re going to start renegotiating on NAFTA, on immigration, and on security at the border,” Trump said at the start of a swearing-in ceremony for top White House staff. “I think we’re going to have a very good result for Mexico, for the United States, for everybody involved. It’s really very important.”

Officials in Canada, which is the biggest buyer of U.S. exports, have indicated they want to avoid getting entangled with the Trump administration’s targeting of imports from Mexico and China. The three countries are the biggest trading partners of the U.S.

While Mexico, Canada and China may have worries, domestically, Trump was winning political points for his decisive moves.

Shortly after Trump signed the executive order formally withdrawing the U.S. from the Trans-Pacific Partnership free-trade deal, Trump met labor leaders of construction, carpenters, plumbers and sheet metal unions and told them that he would renegotiate the North American Free Trade Agreement “at the appropriate time.”

“This is a group that I know well,” Trump said referring to the union bosses, adding “we’re going to put a lot of people back to work” and “stop the ridiculous trade deals.”

When Trump said the administration “just officially terminated TPP,” it prompted applause from the labor chiefs. Later the labor leaders called their meeting with Trump, “Incredible.”

But even more notable, was the dramatic pivot by the US labor unions, historically stalwart Democratic Party supporters, who have suddenly emerged as big supporters of Trump policies, and perhaps no one more so than AFL-CIO President Rich Trumka who said TPP withdrawal is “a good first step toward building trade policies that benefit workers.”

As a reminder, nearly all major unions endorsed Trump’s rival, Hillary Clinton, during the presidential election campaign: they now appear to be shifting their allegiance.

Teamster President Jimmy Hoffa, who supported Clinton noted, “We take this development as a positive sign that President Trump will continue to fulfill his campaign promises in regard to trade policy reform and instruct the USTR (US Trade Representative) to negotiate future agreements that protect American workers and industry.”

And with that statement, pundit attention will closely follow the Trump-Trumka relationship which promises to be one of the more interesting in US politics over the next few years. Trump and top advisers see an opportunity to destroy traditional political alliances. Their theory worked in the election, when they peeled white working class voters (and many union households) in Democratic Midwest states.

Trump also met with business leaders on Monday and promised tax and regulatory relief. He followed up that meeting on Tuesday with auto manufacturers.

On Tuesday, Trump also signed two executive actions today that would advance construction of the controversial Keystone XL and Dakota Access pipelines. Both of these pipelines would move oil from Canada to refineries in Texas.

The pipelines had been supported by labor unions although Obama had put the brakes on both projects. By giving the “go ahead,” Trump further divides the Democratic Party coalition.

Are Trade Restrictions Good Economic Policy – or Good Foreign Policy?

Although Trump has won political points by moving quickly on trade, it remains to be seen if they will spur economic growth in the US or if they will seriously damage relations with American trading partners.

The European Union trade chief says the trade policies U.S. President Trump has set out are “doomed to fail” and that the world’s biggest trading bloc remains committed to open borders and economies.

EU Trade Commissioner Cecilia Malmstrom said Tuesday that most countries still share the same vision of open trade and investments.

She said that “building a wall is not the answer. The success of the EU relies on our open societies.”

Malmstrom said “those who in the 21st century think that we can become great again by rebuilding borders, re-imposing trade barriers, restricting people’s freedom to move, they are doomed to fail.”

Trump’s policies won’t just upset the EU. Trade and immigration issues have definitely soured US/Mexican relations. And, Mexican politicians are facing increasing civil unrest over gasoline price increases that can only get worse if the trade and manufacturing sectors start to suffer. Trump also has the ability to restrict money transfers from immigrants in the US to family back in Mexico – a major source of hard currency.

The result is that Mexico will have to make trade concessions, even if it will end up in creating more distrust of their northern neighbor.

Although trade restrictions are popular with some factions within a country, which makes it easy to win elections, they pose many problems. Economists point out that free trade moves resources to those nations that are best suited to manufacture and provides the consumer with the lowest price.

At this point in time, China is the manufacturing leader. However, in the past, it has been the US; and before that Britain.

In the end, trade restrictions cost consumers in higher prices. They also cause friction between nations. For instance, the increase in trade restriction during the Great Depression in the 1930s hurt economic development and helped create the conditions that lead to WWII.

However, the concept of trade deals has grown more complex in the past 70 years. In the past, the key to reduced trade restrictions was what was called the “Most Favored Nation” (MFN) clause. The recipient of this treatment receives the best trade advantages offered by the other nation. These include low tariffs or high import quotas. In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country.

These MFN agreements have been used by the US and other countries in conjunction with other foreign policy initiatives. They were used by the US as an enticement to make the Soviet Union and China follow human rights standards. They were also used to open relations with Japan in 1858. They were granted to Britain in 1795 as part of a treaty that settled many remaining issues from the Revolutionary War.

Since World War 2, trade agreements have tended to be multi-national rather than bilateral. The result has been more complex and has led to the creation of bureaucracies that handle disputes.

Multi-national trade agreements also fail to account for changing relations between the nations in the agreement. Imagine the problems today if Turkey had been granted membership in the EU. Bilateral agreements allow a more flexible resolution to evolving national relations.

But, it appears to be the inflexible bureaucracies that spring out of these agreements that vex the citizenry. An excellent example of the growing bureaucracy of trade agreements was that created by the European Common market. This trade agreement, that led to the EU created a massive bureaucracy that became increasingly political in nature rather than merely one designed to settle trade disputes.

This has created much of the populist resentment of trade agreements – a bureaucracy outside the political infrastructure that isn’t’ answerable to anyone. It led to the Brexit, the Trump victory, and what may be several populist victories in European nations this year.

Ironically, this hasn’t been lost on many of those who advocated such unions in the past. One example is Dr. Henry Kissinger, former US Secretary of State and considered one of the leading advocates of multi-national agreements.

In an interview with the London Times just before the inauguration, Dr. Henry Kissinger said Trump has, “an instinct for trends.” He might not be able to describe these trends, “As a professor would.” Yet, “some of the statements he makes that outrage people are so outrageous because they are partially correct.”

As far as the advantages of large economic agreements, it seems that Kissinger has gone over to Trump’s way of thinking. Kissinger told the London Times, he had undergone a “personal evolution” regarding Brexit. “As I analyzed what I thought the long-term interest to be, I became increasingly open to the Brexit idea.” He questioned the bureaucratic concept inherent in major economic entities.

While the idea of free trade is a good one, the idea of multi-national trade agreements may be a fad that is out of date. TPP has suffered a major blow that may be impossible to recover from. NAFTA will undoubtedly undergo some serious revisions. And, the European Union has surely seen its peak.

As President Trump and Prime Minister May look at a bilateral US/British trade agreement in the next few months, it could very well mean a new phase in international trade relations.




Are NATO Members Carrying Their Weight? Only 5 of 28 Countries Pay ‘Fair Share’
By Josh Siegel
Heritage Foundation
January 24, 2017

President Donald Trump alarmed European allies during the campaign when he suggested he might not defend NATO nations if they don’t fulfill their financial obligations, but he is not the first U.S. leader to express concerns that member countries don’t spend enough on their militaries. Currently, only five of NATO’s 28 members—the U.S., Greece, Britain, Estonia, and Poland—meet the alliance’s target of spending at least 2 percent of their own gross domestic product on defense, a fact that is especially concerning, experts say, because of Russia’s aggressive behavior. While the alliance increased overall defense spending in 2015 for the first time in two decades, the U.S. continues to be overwhelmingly the largest contributor, committing 3.61 percent of its GDP. The U.S. spends nearly three times as much as all European members of NATO combined.

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Withdrawing from TPP Was a Senseless Act of Wanton Destruction
By Daniel J. Ikenson
Cato Institute
January 23, 2017

Earlier today, demonstrating his preference for action over reason, President Trump signed an executive order to officially withdraw the United States from the Trans-Pacific Partnership agreement. On the one hand, it’s refreshing to witness the rare act of a politician fulfilling a campaign pledge. On the other hand, there is nothing else good about it. Trump detonated a bomb; six years of negotiations went boom; now what? To a president who seems intent on turning the country inward, raising the barricades, demanding self-sufficiency, and eschewing the outside world, the TPP was an obvious target. But what’s especially disconcerting is that the president didn’t need to go this far to keep TPP out of play. The agreement couldn’t possibly take effect without congressional passage of implementing legislation, and his signature affixed. He could have just kept TPP on the back-burner in the event that its utility, relevance, or imperative to U.S. economic and geostrategic objectives became evident, as his term progressed. Because it will.

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The Case For and Against a “Realist” Strategy in Syria
By Anthony Cordesman
Center for Strategic and International Studies
January 24, 2017

The Trump Administration has inherited Syria as a land of lost options, and as a country where U.S. policy is broadly seen as a failure and a sign of growing American weakness in the Middle East. It is not clear that the United States ever had good options, but if there were chances to act decisively to remove Assad and still create a moderate and effective government, they are long gone. U.S. diplomacy has failed to counter or balance Russian influence and has become a side show to efforts to negotiate a cease fire. The U.S. does play a military role in the fight against the Islamic State of Iraq and the Levant (ISIL, ISIS, or Daesh) in Syria, but the U.S. has not created effective, unified, or moderate Arab rebel forces. It has avoided committing large ground forces to Syria, or becoming involved in a serious air war with pro-Assad forces. This has come at the cost of far more decisive Russian, Iranian, and Hezbollah military intervention, and seeing Turkey intervene as much against America’s Syrian Kurdish allies as they have against ISIL.

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Use a Strategic Review to Drive Change
By Christine Wormuth
Center for Strategic and International Studies
January 2017

President-elect Donald Trump clearly intends to shake up U.S. foreign policy in significant ways. It seems likely he will try to take a harder line toward both China and Iran, be more aggressive in the fight against ISIL, and significantly increase the size of the defense budget. He has signaled his desire to cooperate more with Russia, as well as his skepticism of NATO and the European Union. He has said much less publicly about other areas where there could be change, such as whether to keep U.S. military forces in Afghanistan, or what will be the broader U.S. counter-terrorism strategy.

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President Trump, the U.S. Security Guarantee, and the Future of European Integration
By Hans Kundnani
German Marshall Fund
January 17, 2017

The election of Donald Trump as U.S. president could have consequences for the internal dynamics within the EU and thus for the European project itself. Historically, the U.S. security guarantee was the precondition for European integration. The question now is whether, given that the EU has not evolved into a full political union or become independent of the United States in security terms, the new doubt about the security guarantee could lead to a process of disintegration. Military power could even once again become a factor in relations between EU member states and, in the worst case scenario, security competition between EU member states could re-emerge and security dilemmas could be reactivated — as realist international relations theorists argued would happen if the United States withdrew from Europe after the end of the Cold War. In order to respond to this new situation, Europeans will now need to demonstrate much greater creativity and flexibility than they have since the euro crisis began seven years ago.

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General Principles to Guide U.S. Middle East Policy
By James F. Jeffrey and Dennis Ross
Washington Institute
January 2017

Given the unprecedented turmoil and uncertainty afflicting the Middle East, the new administration will need to devote particular care and urgency to understanding the essence of America’s interests in the region, and applying clear principles in pursuing them. This is the advice offered by two U.S. diplomats with a distinguished record of defending those interests under various administrations. As Trump and his team take office, they face a regional state system that is under assault by proxy wars that reflect geopolitical rivalries and conflicts over basic identity. Rarely has it been more important for a new administration to articulate clear goals and principles, and Ambassadors James Jeffrey and Dennis Ross outline both in this transition paper. With 30 percent of the world’s hydrocarbons still flowing from the Middle East, safeguarding that supply remains a critical U.S. national security interest, along with preventing nuclear proliferation, countering terrorism, and preserving stability.

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