By John Lyons
For U.S. President Donald Trump, quitting the already moribund Trans-Pacific Partnership may be the easiest part of his pledge to remake global trade relationships and protect jobs. His vows to confront China and renegotiate the North American Free Trade Agreement will be harder, trade experts say.
Upending existing trade rules risks hurting U.S. firms that depend on sales Canada, China and Mexico, the top three buyers of U.S. goods and services. Moreover, global trade is anchored in regulations layered on since the end of the World War II, making it difficult to change terms without setting off a domino effect of unintended consequences. That will likely complicate the Trump administration's efforts to wrest economic concessions from existing trade partners.
Any move, for instance, to introduce tariffs on a specific industry in a country covered by Nafta could jeopardize the entire agreement's validity under World Trade Organization rules, experts said.
"I don't think they have a realistic sense of what it takes," said Douglas Irwin, a Dartmouth College professor and historian of U.S. trade policy, referring to Trump administration officials. "It's going to take time and be very complicated, with the risk being making sure that what you do is not completely disruptive to the U.S. economy."
Mr. Trump formally quit the 12-member TPP on Monday, killing a proposed trade agreement the Obama administration had already abandoned hope of getting ratified in Congress. During his campaign Mr. Trump decried the pact as an emblem of how U.S.-negotiated trade deals benefit low-wage nations in the developing world at the expense of U.S. manufacturing.
To help navigate these crosscurrents, Mr. Trump is establishing a team of trade advisers steeped in international policy and Chinese business affairs, including Wilbur Ross, who was approved as commerce secretary by a Senate committee Tuesday. Some analysts following Mr. Trump's policy say the administration's tough stance toward China and other major exporters could help wring some economic concessions or even lead to deals.
Still, given the overwhelming backlash against trade agreements that brought Mr. Trump to power in 2016, the new president is likely to face political opposition to major deals that don't meet the wide-ranging goals of domestic lawmakers, regardless of the international rationale for the agreements.
More broadly, the TPP withdrawal symbolizes a U.S. shift away from promoting free-trade blocs as a path to growth. A one-paragraph "America First Trade Policy" now inhabits the website of the U.S. Trade Representative. "USTR is working to reshape the landscape of trade policy to work for all Americans," it says.
To keep jobs in the U.S., Mr. Trump and others have floated ideas that include ripping up existing trade deals like Nafta, erecting trade barriers, and prioritizing bilateral deals with individual nations over multilateral accords with trade blocks -- a strategy adopted by the administration of George W. Bush.
The true test of how effective Mr. Trump can be in remaking U.S. trade will come when the administration takes on the economies it accuses most of taking U.S. jobs: China and Mexico. Together they account for more than $1 trillion in U.S. trade, or 30% of total U.S. imports and exports
Mr. Trump has threatened a 45% tariff on Chinese goods unless the country stops practices such as subsidizing steel. While Mr. Trump has leeway to raise tariffs, such an across-the-board hike could put the U.S.in violation of WTO rules, opening up the U.S. to retaliatory measures from China and other nations.
Mr. Trump also vowed to declare China a "currency manipulator," referring to Chinese policies in past years that kept the yuan weak. That designation would allow the U.S. to hit China with more tariffs. But the administration may have trouble making the case, since China has recently sought to prevent its currency from weakening too much.
Tariffs could also trigger a trade war with the world's No. 2 economy. That would affect U.S. firms doing business in China and hurt U.S. allies, such as South Korea and Japan, that supply China with many components used in its exports. Such an outcome could be a blow to U.S. security interests in the region.
Mr. Trump has scheduled meetings with leaders of Canada and Mexico to discuss changes to Nafta. But some experts said that to get concessions from those countries -- the No. 1 and No. 3 U.S. trade partners -- the U.S. must have something to offer. For example, the Obama administration, which also criticized Nafta, sought to upgrade some aspects of the deal in the TPP talks, which included Mexico and Canada.
If the U.S. scraps Nafta, trade with Mexico and Canada would revert to WTO rules, which also tend to promote open trade. The 0% tariffs on cars under Nafta, for example, would only be allowed to rise to 2.5% under WTO rules.
"This is the kind of minefield that Trump is standing in the center of," said Matt Gold, a Fordham University adjunct law professor and former deputy assistant U.S. Trade Representative. "You can't step in any direction without setting off a chain reaction."
--William Mauldin contributed to this article.
(END) Dow Jones Newswires
January 24, 2017 12:52 ET (17:52 GMT)
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