When we first explored the possibilities for trade policy in a Trump administration back in January, that’s all it was: a possibility. Now, 130-plus days into a Trump administration, the president’s senior trade team has finally taken shape – and they appear to be hitting their stride. American businesses and industry associations should take notice because this administration’s approach to trade is remarkably different than his predecessors’.
Compared to prior administrations, Trump’s approach to trade and investment policy will introduce a much clearer set of winners and losers among countries, industries, and private sector firms that depend upon access to the American market.
What’s Different?
Since the end of World War II, American trade policy has largely been driven by a bilateral consensus that free trade – through institutions like the World Trade Organization (WTO) and multilateral preferential trade agreements (PTAs) – enhances prosperity not only for Americans, but for billions of people around the world.
The evidence is unmistakable. Free trade has been generally good for both Americans and people around the world. It enhances purchasing power, increases incomes, and creates more efficiencies across global supply chains. Yet, the benefits of free trade are diffused and less tangible compared to free trade’s side effects. For President Trump, who prides himself as much for his showmanship as for his acumen in negotiating deals, the present system yields few rewards that are tangible to mainstream America.
Certainly, the benefits of free trade are concentrated, and free trade agreements ultimately force some in the workforce to retrain and find new jobs, which has a very real, negative impact on families.
This administration is pursuing its stated policy of “America First” as the antidote, and it has strong implications for America’s private sector.
The Border Adjustment Tax
It’s expected that in the upcoming budget the Trump Administration will propose to Congress the imposition of a Border Adjustment Tax (BAT).
This proposed tax will place a special fee on all goods being imported into the United States. For consumers, this would mean higher costs on goods produced abroad, encompassing everything from t-shirts and other textiles to manufactured goods.
Present statutes by the WTO allow firms manufacturing goods in countries with a Value Added Tax (VAT) system for export to have a competitive advantage by being only taxed once; goods from countries with tax systems like the United States are taxed twice. The BAT tax is an attempt to ensure that goods produced and sold in the United States have an equal footing against goods imported from abroad.
This proposed BAT tax has American manufacturers lined up in favor, while retailers and consumer advocates are aligned in opposition to the tax, as it would increase costs for consumers and introduce shocks into supply chains. Large agricultural groups are also concerned about possible retribution by our trading partners.
Speaker of the House Paul Ryan has staked a controversial position among his Republican colleagues as in favor of the BAT, but he will have an uphill battle. Speaking of sentiment in the House, his predecessor called the proposed BAT tax “deader than a doornail” on Capitol Hill. Strange bedfellows may yet be made – and the debate over a BAT will not limit itself to Capitol Hill. For example, communities with either air or shipping ports will certainly have differing interests in the issue than communities with a significant manufacturing presence. So, it is fair to say there will be significant “horse trading” by the various constituencies involved, who could stand to win or lose by a BAT tax.
Bilateral Reciprocity
Arguably, the most interesting shift occurring within this administration on trade policy would be its shift from multilateral trade agreements to a bilateral approach.
Bilateral reciprocity involves exchanging access to the American market in return for access to another’s market, and the administration has indicated that its preference is to pursue access on a bilateral and sector-by-sector basis.
It’s unsurprising that the administration finds this approach appealing. “Wins” are more striking and tangible to beneficiaries.
But pursuing this approach leads to some American industries gaining access to new markets, while others will suddenly face new competitors in America. Several weeks ago President Trump touted his first success: American beef exporters can now access the Chinese market in exchange for allowing the Chinese poultry industry access to American consumers.
Undoubtedly, the Chinese poultry for American beef deal is the first of what will likely be many such deals.
Enforcement
President Trump ran a campaign where a chief policy hallmark was how Americans were getting “ripped off” by other countries that are either throwing up non-tariff barriers to prevent competition from the United States, or dumping products into the American market to gain market share.
The executive branch has strong powers to act, and it’s likely that the administration will be actively seeking to protect American corporate interests against dumping and being unfairly prevented from accessing specific markets.
How Companies and Trade Associations Can Respond
This administration has shown itself to be more receptive to public opinion than prior administrations. Before, multilateral deals were negotiated under the cloak of security clearances meant to prevent industry influence; today American industry will be met with an ear by this administration.
Whether seeking access to a market or preventing unfair competition in the United States, gaining air cover both in the D.C. beltway and across the American landscape can help achieve favorable outcomes like no other time in modern American history. But there will be winners and losers — silence is not an option.
Jere Sullivan is vice chairman, International Public Affairs, Edelman Washington, D.C.
Daniel Workman is an account supervisor, Edelman Washington, D.C.