Valdai Club

Donald Trump’ s political views have shifted back and forth over the decades. At times he has advocated for a wealth tax, national health insurance, and abortion rights. On many issues he has no position at all. Even now, two years after his election to the presidency, he remains ignorant about numerous policy areas. Trump’s lack of knowledge and disengagement is extreme, even in comparison to George W. Bush who, prior to Trump’s election, was seen as the laziest and dumbest president of the modern era. However, all presidents accept the policy positions of their party in most areas and leave the details of policy formulation and implementation to appointees who for the most part have had long careers in those areas, if only as lobbyists seeking to bend governmental decisions to favor their corporate employers. So it is no surprise that Trump, once he decided to pursue the Republican Party’s nomination assumed positions in favor of banning abortion, gutting environmental and financial regulation, and enacting tax cuts heavily skewed toward the rich. 

There are two areas in which Trump has taken clear stands: race and trade. Trump’s long record of open racism is obvious and not my focus in this article. Trump also has consistently opposed liberalized trade and believes that trade agreements disadvantage the United States. In his view, when the U.S. runs a trade deficit that is prima facie evidence that the country with a surplus is robbing America. Back in the 1980s he denounced Japan, which to Trump and many others seemed the rising economic power whose innovative firms were dominating the auto and electronics sectors. Trump then advocated for a 20% tariff on Japanese imports. Trump’s views had mainstream support. The Reagan Administration forced Japan to agree to “voluntary” limits on auto exports to the U.S. More significantly, the 1985 Plaza Accord between the U.S., Japan, Germany, Britain and France led to coordinated central bank efforts that pushed the dollar’s value down by almost 50%, giving a huge advantage to American industrial firms. That accord sharply reduced the U.S. trade deficit. Of course, the Reverse Plaza Accord of 1995, which pushed the dollar up against the yen and European currencies, undid those effects, leading to waves of financial speculation that hit Asia, developing countries around the world, and finally the U.S. and Europe in 2008.

Trump gives no indication that he is aware of any of the details or even the basic logic of trade agreements and currency movements. Since his anti-trade beliefs are at odds with most Republicans he has been unable to staff his administration with officials who share his views but also have the skills to enact effective trade restrictions and negotiate new treaties. His appointees are a mix of mainstream Republicans who favor relatively open trade like Treasury Secretary Steven Mnuchin (formerly of Goldman Sachs) and journalists with minimal economic expertise like the chair of the Council of Economic Advisors Kevin Hassett who wrote a book, Dow 36,000, that contained basic math errors and was published just before the 2000 stock market crash. Emblematic of the divisions among Trump’s economic advisors is the move from his first Director of the National Economic Council, Gary Cohn (a former Goldman Sachs CEO) to his successor Larry Kudlow, who isn’t even an economist, but made a career playing one on TV as a regular guest and as host on various financial advice shows. Then there is the Commerce Secretary, Wilbur Ross, who has repeatedly been accused of stealing from business partners.

Divisions among advisors, combined with incompetence and self-dealing, make it hard if not impossible for the U.S. to present a coherent set of demands for concessions to its trading partners. Other countries and the EU have teams of professional negotiators who are steeped in the details of trade economics, treaty provisions, and have deep historical knowledge of past agreements and of other countries’ negotiating positions and interests. The U.S., of course, also has such experts on the staffs of the Treasury and Commerce Departments and in the Office of the United States Trade Representative, but Trump and his top appointees for the most part ignore those professionals’ advice until the moment when they are compelled to reach agreements with other countries. 

The renegotiation of NAFTA between the U.S., Canada, and Mexico is emblematic of the real dynamics of trade deals under Trump. Trump repeatedly called NAFTA a disaster for the U.S. It was a potent argument during the 2008 campaign, in part because Bill Clinton had negotiated NAFTA and therefore Hillary was unable to escape association with the treaty. In addition, for many Trump supporters NAFTA was seen as somehow linked to the supposed waves of Mexican rapists and murderers who Trump claimed were flowing into the U.S. When he assumed office Trump threatened to withdraw from NAFTA. That prospect upset key businesses that were longtime backers of the Republican Party. Republicans in Congress pressured Trump to reach a new agreement with Canada and Mexico.

The U.S.-Mexico-Canada Agreement is almost identical to NAFTA. The U.S. has gained little and the American workers who thought that Trump would end trade agreements that undermine their interests will be sorely disappointed when the reality of the new agreement sinks in. Trump, however, touted the new deal as a great victory for the U.S. and evidence of his negotiating process. Perhaps he really believes that. In any case, he can hope that the complexities of such trade deals will make it hard for voters to figure out if Trump is telling the truth before the next election. 

Trump is facing similar and even more intense pressure to end the trade war with China. He reportedly is spooked by the recent drop in U.S. stock markets and worries, with ample justification, that if there is a recession he will lose in 2020. As with NAFTA, he is sending his team of ideologues, political hacks and crooks to face the seasoned experts of other countries.

We can expect a deal with China that will be little different from current arrangements. Again, Trump will celebrate his negotiating “victory,” his supporters will believe him, and eventually (probably long after 2020) the reality will prove that Trump is a fool and a con man and his supporter dupes. However, the stock market will bounce up as investors breathe a sigh of relief that the trade war is resolved. We will see how long the markets remain buoyant and how much that matters for the next election.