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Trump Courts Economic Mayhem

Robert B. Zoellick

By Robert Zoellick

(The Wall Street Journal) – President Trump’s new National Security Strategy argues that the U.S. must compete in a hostile world. Yet the White House also wants to retreat behind trade barriers. The Trump administration has stacked up a pile of trade cases that will come tumbling down early in 2018. More important than any specific case is the signal of a strategy of economic defeatism.

The U.S. is ready to block steel and aluminum imports through a rarely used “national security” rationalization. As an alternative, Commerce Secretary Wilbur Ross had tried negotiating capacity cuts in Chinese production, but Mr. Trump waved him off with a demand for tariffs. Because most of China’s metal exports already face U.S. tariffs of more than 80%, Mr. Trump’s tactic will likely trigger retaliation from other countries.

Next up are “safeguards” to block imports of solar panels and washing machines. Imposing “safeguards” doesn’t even require a claim of unfairness. On top of this, last year (through Sept. 20) the Commerce Department conducted 65 investigations of alleged low-cost or subsidized imports. That figure is a 16-year high, up 50% from the year before.

But these amount to an overture to the big show: likely withdrawal from the North American Free Trade Agreement, the U.S.-Korea Free Trade Agreement or both. The continuing negotiations to “fix” Nafta are doomed. Mexico and Canada would probably agree on eliminating barriers and setting new rules for the digital age. But Mr. Trump’s real aim is to dictate market outcomes. The administration wants to start with the goal of eliminating the U.S. trade deficit with Mexico and then manipulate rules to that end. It wants the U.S. to be excused from keeping its side of the Nafta bargain. It wants a five-year sunset clause.

Mr. Trump’s National Security Strategy covered every region except North America, our home continent and base for projecting power. The administration gives the bilateral trade deficit with Mexico precedence over areas where our interests align: Asian competition, border security and energy security. Moreover, trade deals cannot change the economic fundamentals that determine the balance. Mexico and Canada cannot agree to managed trade or any deal that lets Washington ignore the rules when it chooses.

The president is trying to placate his political base, which will be enraged if he accepts a deal on “Dreamer” immigrants and fails to build his promised border wall. He relies on the support of economic isolationists who find it easier to blame others than to make America more competitive. Killing Nafta would fit the bill.

Mr. Trump does not know how to use bilateral trade negotiations to create pressure for stronger multilateral rules. The U.S. has historically used bilateral deals not only to eliminate tariffs and trade barriers but also to set higher standards for services, agricultural products, intellectual-property protection and more. Such deals have added environmental and labor protections, while boosting anticorruption and transparency rules.

The U.S. has used trade to expand the circle of like-minded nations. The Trans-Pacific Partnership included six countries with which the U.S. already had a free-trade agreement, and added five more. That offered leverage with China, but Mr. Trump abandoned the deal.

No country wants to do a bilateral deal with Mr. Trump now because he demands managed trade, not fair competition. He wants excuses to raise barriers, not rules to boost trade. That’s why Mr. Trump will use his indictment of China’s intellectual-property practices to justify more protectionism, not solve the problems. During the president’s recent trip to China, when Beijing proposed opening some of its financial markets to U.S. companies, the Trump team dismissed this as the old way of doing business. The new way is to block Chinese exports.

Some in Congress, with Mr. Trump’s backing, want to establish a new technology-control regime under the rubric of screening foreign investment. But government reviews of “covered transactions” could apply to countless business deals with foreigners—licensing, joint development, hiring—far beyond those involving China. The U.S. already has the authority to block investments and regulate the transfer of technology. The Committee on Foreign Investment in the U.S. reviews 200 or so deals a year. Expanding that to many thousands would harm America’s competitiveness.

These are all signs of an America in withdrawal, not one confidently pressing the world to adopt new rules of fair competition and technology security. Farmers and ranchers are fretting that the retaliation triggered by a Fortress America trade policy will leave them behind a closed door. Companies that rely on sophisticated supply chains, such as auto makers, will pay a high price.

The U.S. is abandoning the challenge of setting new trade standards, whether for data, e-commerce or transnational services. America once attracted the world’s talent, but Mr. Trump’s hostility is driving people away. If he pulls the U.S. out of Nafta, even financial markets might recognize that his economic isolationism poses a risk to growth.

True competitors honestly assess their weaknesses, adapt and then grow stronger. Those are the qualities that made America great. This will be the year that trade policy could define Trump’s fearful America.

Mr. Zoellick is a former World Bank president, U.S. trade representative and deputy secretary of state.

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