Introduction
For a long time, the international economic order has been characterized by heightened globalization that is expected to continue. However, in recent times, the trade policy landscape that has propelled greater integration of global economies appears to be on a transformative trajectory. The rate of growth in global trade is on a decline as the drive towards economic integration fades away. The international trade and multilateral systems that have propelled globalization are being stifled by some of the leading economies, particularly the United States and China. Today, policymakers in these and other top economies of the modern world tend to drop decisions furthering international integration in favor of nationalist and protectionist policies.
The latest example is based on the events under the Trump administration, christened by the introduction of trade tariffs and quotas seeking to reduce America’s trade deficit amounting to billions of dollars. In 2018, the government imposed several rounds of tariffs and quotas targeting a range of products from China and other trading partners (Supyan, 2020). The trade tariff primarily targets steel and aluminum, as well as washing machines, solar panels, and a range of other products from China. Even as China was the main culprit, Trump’s policy on trade also affected other countries, including Canada, Mexico, Argentina, and the European Union (EU), which responded by imposing individual retaliatory tariffs. The move may have succeeded in curbing trade among the parties, leading to a decline in the trade deficit, but it has had a damaging impact on the US economy.
Trump’s Stance on International Business and the US Economic Development
Trump’s Economic Policy on Trade
Donald J. Trump campaigned vigorously, and one of his primary messages was to put America first. During the 2016 US presidential campaigns, the Republican candidate emphasized the need to renegotiate or withdraw from international trade agreements, such as the North American Free Trade Agreement (NAFTA) (Fajgelbaum et al., 2019). His approach marked a profound departure from previous leadership in trade, as he promised to implement protectionist measures to safeguard American industries and workers.
Trump indicated that he would negotiate for more favorable terms for the US in trade agreements and impose tariffs on imports. He believed that prior trade deals had led to the outsourcing of jobs and the decline of local manufacturing, which had led to unfair treatment from other countries. Trump’s argument was based on the fact that the US had a big trade deficit as the country had to buy more than it sells internationally. This message was emphasized as Trump delivered his inaugural address, where he announced that America’s trade policy would be centered on reducing the trade deficit and rebalancing burden sharing with partners.
Soon after the inauguration, the president directed the Office of the U.S. Trade Representative to pull the U.S. out of the Trans-Pacific Partnership. The partnership that was endorsed under the Obama administration focused on trade agreements between the US and Asia and comprised 12 countries (Barattieri et al., 2021). Soon after, the US announced its intention to modernize NAFTA, and the Trump administration announced that it would renegotiate the agreement, whose other key parties included Canada and Mexico. The goal was to remove support that seemed oppressive to the US, so it would revive manufacturing jobs and relax intellectual property constraints that would help the country to bridge its trade deficit.
The three countries settled on several modifications to NAFTA in 2018, which was renamed to the United States-Mexico-Canada Agreement (USMCA) (Barattieri et al., 2021). The new trade pact outlined stronger protections for US intellectual property and contained newly-fangled labor stipulations. It also introduced higher standards for the automotive industry, including minimum wage hikes and rules of origin that would be beneficial to American manufacturers.
The US continued its foreign trade reform policy by focusing on other countries that the US believed used unfair trade practices. The Trump administration applied legal means, particularly the Commerce Act of 1974, which allowed the President to retaliate against nations that disregard fair trade statutes or discriminate against the US trade relations. Bimantara (2018) indicates that Article 232 of the Trade Expansion Act of 1962 also provided another approach to deal with unfair business practices based on the preservation of national security.
The legislation provided the basis for increasing tariffs on steel and aluminum and other Chinese goods, amounting to over $250 billion (Bimantara, 2018). The national security defense was also invoked when imposing import duties on solar panels and washing machines worth $8.5 billion and $1.8 billion, respectively, based on recommendations from the US International Trade Commission, which were supported by adequate evidence that similar goods were produced in the country. The government agency concluded that the relevant US industries needed to be protected to preserve domestic production and the market. The Trump administration also actively used antidumping tools to limit imports from key competitors more than its predecessors.
Furthermore, the Trump administration sought to protect intellectual property and address what was deemed unfair trade practices in the technology sector. Article 301 of the Commerce Act of 1974 was applied in instituting investigations against China, which the US Trade Representative indicated caused the country to suffer a perennial loss of approximately $225 to $600 billion (MacIsaac & Duclos, 2020). As a result, the Trump administration proclaimed relevant measures to address such phenomena, covering over 1,300 items of goods from China that would be subjected to an additional duty of 25 percent. Import tariffs on several other products were raised from 2.6 percent to 16.6 percent (Park & Stangarone, 2019). The restrictions specifically targeted China, while Canada, the EU, and other states considered friendly to the US were allowed time for trade negotiations.
The pattern of trade restrictions was eased when the world was severely ravaged by the emergence of the coronavirus pandemic, which negatively affected all economies. Still, Trump continued his blame game on foreign nations on local challenges by stating that China, which is where the virus originated, misled the world, and he threatened to retaliate. The crisis prompted the Trump administration to withdraw the US’s support to the World Health Organization (WHO) despite being a founding member, based on the belief that China unfairly controlled it. In a further move towards disintegration, the US failed to join the COVID-19 Vaccine Global Access Facility (COVAX Facility) (Council on Foreign Relations, 2021). The endeavor spearheaded by the WHO entailed a joint global ambition to formulate, manufacture, and distribute a COVID-19 vaccine.
Impact on International Business Based on Economic Integration and Economic Policy
Nearly all economists concur that free trade facilitates greater economic production, resulting in higher output and income levels. On the other hand, the imposition of trade barriers reduces economic output. In particular, import tariffs and quotas hurt a nation’s economic well-being, as they lead to reduced production, resulting in fewer employment opportunities and lower income levels. Barattier et al. (2021) indicate that tariffs cause a heavy burden on consumers earning lower incomes and tend to be regressive. Protectionist policies also reduce competition leading to high commodity prices due to reduced availability of goods and services both for commercial and household uses.
The measures preferred by the Trump administration yielded some results, resulting in a reduction in the high trade deficit. The feat was achieved despite a reduction in both imports and exports, with imports declining the most. The specific US tariffs imposed by the US led to an overall decline in imports by approximately 32 percent, while exports fell by only 10 percent (Goldberg & Reed, 2023). Prices were not affected, as there was no major variation in pre-duty import prices from source countries exporting the same product, observed between those targeted and the untargeted.
However, the trade policy adopted by the Trump administration could not have helped the country to completely deal with the problem of a high trade deficit. Georgieva (2020)states that reducing one bilateral deficit budget does not guarantee an overall reduction in the policy deficit. Therefore, even as the trade deficit with China declined, there was an observable increase in trade deficits from other nations, such as Mexico, Vietnam, and Taiwan. This can be explained by the reasoning that the trade balance with other parts of the world cannot be driven mainly by restrictions that countries impose on one another’s products. The primary driving force is whether countries import more commodities from other countries than they produce, which is why nations strive for greater economic integration to facilitate cross-border trade.
The US trade policy also invited retaliation from China and other affected nations. For instance, the country imposed a 25 percent duty on several US products that mainly comprised of automobiles (ships, aircraft, cars) and agricultural produce(Supyan, 2020). Another countermeasure was the imposition of tariffs amounting to over three billion US dollars, along with an increase in tariffs from approximately seven percent to over 20 percent (Bimantara, 2018). The measures affected over 8,000 items, covering $ 127 billion, or slightly over 8 percent of annual US exports (Bimantara, 2018). The negative effects caused the two nations to prefer to hold talks that would lead to a broader trade agreement. However, the negotiations collapsed, and additional restrictions were imposed by both parties, followed by threats to stop private investments.
Conclusion
The Trump administration sparked greater trade wars among some of the biggest economies simply due to the increasing US trade deficit. Different tools provided the means that allowed the US to impose new and increase old tariffs and quotas. The primary products targeted include steel and aluminum, solar panels, washing machines, and other goods imported from China. Although the regime targeted several nations, China was the most affected, as it contributed the most significant portion of the trade deficit. The approach may have succeeded in reducing imports more than the exports, but it did not yield significant economic gains as intended.
I disagree with the economic and trade policies ratified during the Trump administration, as they resulted in greater harm to the US economy than the benefits realized. Georgieva (2020) indicates that the policies largely ignored the fundamental sources of the US trade imbalances and were based on a reactionary approach founded on obsolete ideas about how trade works. The bilateral tariffs mainly did not address the mechanisms that caused the US to have lower demand for local produce.
References
Barattieri, A., Cacciatore, M., & Ghironi, F. (2021). Protectionism and the business cycle. Journal of International Economics, 129, 103417.
Bimantara, A. (2018). Donald Trump’s protectionist trade policy from the perspective of economic nationalism. Jurnal Hubungan Internasional, 7(2).
Council on Foreign Relations. (2021). Trump’s Foreign Policy Moments.
Fajgelbaum, P. D., Goldberg, P. K., Kennedy, P. J., & Khandelwal, A. K. (2019). The return to protectionism. The Quarterly Journal of Economics, 135(1), 1–55.
Georgieva, P. V. (2020). Trump’s foreign policy and international trade law. Anuario Mexicano de Derecho Internacional, 1(20), 687.
Goldberg, P., & Reed, T. (2023). Growing threats to global trade. IMF.
MacIsaac, S., & Duclos, B. C. (2020). Trade and conflict: trends in economic nationalism, unilateralism and protectionism. Canadian Foreign Policy Journal, 26(1), 1–7.
Park, J., & Stangarone, T. (2019). Trump’s America First policy in global and historical perspectives: Implications for US–East Asian trade. Asian Perspective, 43(1), 1–34.
Supyan, V. B. (2020). President Trump’s foreign economic reforms: Preliminary results. Herald of the Russian Academy of Sciences, 90(6), 653–660.