trade deficit
The trade deficit: Does it really matter?
02:43 - Source: CNNMoney

Trump’s slow-burn trade agenda is poised to heat up

trade deficit
The trade deficit: Does it really matter?
02:43 - Source: CNNMoney

Story highlights

Economists' grimmest predictions of trade wars haven't come true

But neither have Trump's loftiest promises, such as a revitalization of US manufacturing

Washington CNN  — 

It took President Donald Trump just two and a half days to make good on his promise to pull the US from the Trans-Pacific Partnership, the behemoth free trade agreement negotiated by his predecessor.

The move was just one in a series of executive actions he took in his first week in office that sent unambiguous signals to his supporters and detractors alike that President Trump was going to make good on candidate Trump’s promises.

Nearly a year later, the rest of Trump’s ambitious trade agenda is still largely unfulfilled. Economists’ grimmest predictions – a trade war with China or Mexico – haven’t come true. Neither have Trump’s loftiest promises, such as a complete revitalization of US manufacturing or the rebalancing of the US trade deficit.

But free trade advocates are not yet cheering, and the President’s supporters in the manufacturing sector – while sorely disappointed – have not yet given up hope.

Key moment

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Instead, all eyes are turning to the beginning of Trump’s second year in office to gauge the direction of US trade policy under a President who made the issue a core tenet. In the first weeks and months of 2018, Trump faces a consequential series of deadlines on the trade actions he queued up in his first year.

“It’s a key moment,” said William Reinsch, the Scholl Chair in International Business at the Center for Strategic and International Studies. “It’s clearly a case so far of all bark and no bite. He’s made a lot of threats and he hasn’t really followed through on any of them. The prevailing expectation is that he’s determined to bite somebody.”

In the last weeks of January, Trump is being handed reports on investigations into the impact of steel and aluminum imports on national security. He’ll have 90 days to decide whether to impose the tariffs or quotas he is empowered to institute. He is also facing a January 26 deadline to decide whether to erect trade barriers to protect US solar panel and washing machine manufacturers.

An investigation into China’s alleged intellectual property theft is also nearing its conclusion, an upcoming Mexican election is ramping up the pressure for movement in NAFTA negotiations and the State of the Union address on January 30 may signal where trade falls in Trump’s list of priorities.

Trump faces this bottleneck of trade issues after largely under-delivering on the ambitious trade agenda he set for himself during the 2016 campaign.

Then, he regaled crowds with broad promises of revitalizing US manufacturing, returning long-lost manufacturing jobs to the US and aggressively confronting foreign trade abuses by China and other countries. Now, steel manufacturers – among others – are facing a surge in foreign imports in anticipation of new trade barriers Trump promised but has yet to deliver.

“When subsidized foreign steel is dumped into our markets, threatening our factories, the politicians have proven, folks, have proven they do nothing,” Trump said during a June 2016 speech on US manufacturing. “We are going to put American steel and aluminum back into the backbone of our country.”

By April, Trump announced a pair of investigations into steel and aluminum imports – quickly predicting he would take action by the summer. He hasn’t yet.

‘Terribly disappointed’

“We’re terribly disappointed and hugely frustrated,” said Leo Gerard, president of the United Steelworkers union, who was at Trump’s side when he announced the moves. “There’s been no action that has done anything to protect and defend American jobs. … In some cases we’re worse off now than we were then.”

That disappointment also applies to Trump’s posture toward China, whose trade abuses the President has continued to call out while taking little substantive action to change things. Trump’s national security strategy emphasizes China’s economic threat, but his administration has yet to lay out a cohesive strategy to confront it.

Even Trump has conceded that he has not been as tough on China as he promised – telling The New York Times in a recent interview that he has held back to foster greater cooperation in confronting the North Korean nuclear threat. (The North Korean threat has also affected the extent of the administration’s efforts to renegotiate the US-South Korea free trade deal.)

“China’s hurting us very badly on trade, but I have been soft on China because the only thing more important to me than trade is war, OK?” Trump said in a late December interview. “If they’re helping me with North Korea, I can look at trade a little bit differently, at least for a period of time.”

Competing factions

Trump’s posture on trade in his first year has also largely been borne out of the internecine conflicts that have defined the administration’s trade policy perhaps more than any other issue. While his US Trade Representative Robert Lighthizer, National Trade Council director Peter Navarro and former chief strategist Steve Bannon fueled Trump’s protectionist instincts on trade, that camp of “nationalists” has been countered at every turn by the camp of “globalists,” such as National Economic Council Director Gary Cohn and Treasury Secretary Steve Mnuchin.

While “literally 180 degrees away” from Trump’s position on trade issues, in the words of one administration official, Cohn and Mnuchin have managed to curb Trump’s instincts for erecting trade barriers, particularly on the question of steel and aluminum tariffs.

The most successful case the pair made came during the summer, when Trump was eager to erect tariffs to protect the US steel industry and Cohn and Mnuchin convinced him that such action could threaten support for the tax reform effort they were leading on Capitol Hill on his behalf.

Now, with the passage of tax reform behind them, three sources familiar with the discussions said the two men are making a new case to Trump: that tariffs would undermine the record-high stock market figures.

“That’s where Steve would’ve been useful,” an administration official said of Bannon. “Mnuchin and Cohn just kind of take over some of these discussions … and the President gravitates toward people who make their arguments more aggressively.”

First of many trade debates

The debate over whether to impose trade barriers on steel and aluminum imports will be just the first of several major debates within the West Wing that will challenge Trump’s long-held beliefs on trade and his wariness of unsettling the growing economy, which has been the thick silver lining of his tumultuous presidency.

A political argument also looms. Two sources close to the White House have underlined the importance of Trump delivering on his nationalist trade agenda or risking the loss of his blue-collar support.

Even as he continues to threaten to pull the US out of NAFTA if Mexico and Canada don’t agree to more favorable terms, he is facing similar economic arguments about the importance of preserving that free trade deal from the business community, agriculture leaders and congressional Republicans.

But the consensus among both the President’s supporters and opponents is that he will not be swayed by those urging restraint for long.

Joshua Meltzer, an international trade expert at the Brookings Institution, predicted that Trump’s consistent rhetoric on trade means he’s not likely to abandon his views.

“I think we are seeing, certainly, a more benign trade outcome than you might have expected at the beginning of last year. But I think what we have witnessed, though, is a desire on Trump’s behalf to do a lot of what he promised,” Meltzer said. “There’s a lot that people still are increasingly nervous about.”