America first, geo-economic logic last

April 27, 2017

America first, geo-economic logic last

by Gary Hawke, Victoria University of Wellington

Image result for tomahawk over syriaTrumponomics–Military Power over Geo-Economics

The Trump Administration has introduced a new set of challenges to the international economy. It has profoundly changed the role of the United States in international economic diplomacy, ceasing to be a champion of multilateralism.

Within the first 100 days of the Trump administration, reality has overwhelmed a good deal of campaign rhetoric, and individuals experienced and skilled in conventional public management have prevailed over some who epitomised revolt against elites. But ideas that challenge longstanding US positions on the world economy and international integration remain at the core of the Trump administration.

Image result for America Fist

Get the Message, Theresa May?

Bilateral trade balances have long been known to be an inappropriate policy objective. Yet the Trump administration is pursuing this without any sound argument. Its belief is that only bilaterally balanced trade (or an excess of US exports) is ‘fair trade’. This nonsense is reinforced by concentrating on trade in goods, ignoring surpluses on services trade. And the capital account is ignored entirely.

Trump expands the idea of bilateral balance to the trading relationship with every other country. He insists on what Gary Hufbauer has called ‘mirror-image reciprocity’. Every component of a deal, every individual tariff rate, any provision about rules of origin for specific products, and any condition for foreign investment must be no less favourable for US exporters than the corresponding rule applied to the United States. This is misplaced concreteness has gone mad.

The idea of a win-win overall deal is rejected. The very idea of complementarities between economies is ignored. That this is endorsed by the chair of the newly established National Trade Council Peter Navarro, who holds a Harvard PhD in economics, is a conclusive argument for an enquiry into Harvard standards.

Two of Trump’s executive orders on trade deficits and trade laws would both fail the most elementary of economics examinations.

Under the Trump Administration, history is no more respected than economics. It has been argued that the WTO and its predecessor GATT were intended to apply only to developed economies. Those who were at the Havana conference in the 1940s and those who negotiated with developing economies in the Uruguay Round saw no such belief among their US colleagues.

This is a thin disguise for wishing to continue using subterfuge rather than economic logic in consideration of so-called ‘countervailing duties’ and ‘anti-dumping penalties’ against China. The idea that there is an indisputable definition of a ‘market economy’ is absurd, but then so is the underlying idea of dumping. Artificial lowering of prices with the intention of raising them after forcing a competitor out of business should be countered — if it were ever properly detected.

Even more absurd is the notion that ‘over capacity’ is something that requires government intervention. Consumers gain from cheap products. When producers cannot sustain output levels at such low prices, the appropriate response is for the least efficient producers to exit. In the case of steel, ‘least efficient’ is probably not the same as ‘Chinese’.

Most concerning is an attack on the WTO dispute resolution system. US opposition to it predated the Trump administration. The Obama administration vetoed the reappointment of a judge to the Appellate Body for the little-disguised reason that his decisions were uncongenial.

US resistance to the dispute resolution system has never been far from the surface. It is often rationalised by a constitutional principle that only the US Congress can create laws which bind US citizens. Some US judges can nevertheless make positive use of international reasoning, and previous administrations have recognised that membership of international institutions could require them to persuade Congress to amend US law or to compensate a foreign party.

The language in the final statement of the WTO dispute resolution system is in no way an exemption of the United States from the dispute resolution system. The words of the dispute settlement understanding that a ruling can’t ‘add to or diminish the rights or obligations’ of a member country — relate to member countries’ commitments, not US law, and their interpretation is not a US prerogative.

Rhetoric about a ‘rules-based international order’ or the ‘modern liberal international order’ is now entirely empty when set beside the declared intentions of the Trump administration. Again, the problem is deeper than Trump. No country can be an effective advocate of the rule of law when its partisan politics dominates the choice of its most senior judges. Fundamentally, the United States has to adjust to no longer being able to dominate global affairs.

Economic integration now has to be led by countries other than the United States. But successful integration elsewhere will cause responses within the United States as businesses miss profitable opportunities and as voters see that they are missing out on consumption and employment gains.

Gary Hawke is retired Head of the School of Government and Professor of Economic History, Victoria University of Wellington.

6 thoughts on “America first, geo-economic logic last

  1. ‘Mirror-image reciprocity’ is a form of mutual concessions in which foreign enterprises in different countries are granted the same rights to do business, that is, enterprises of country A enjoy in country B the same rights as enterprises of country B in country A. It says nothing about “every component of a deal, every individual tariff rate, any provision about rules of origin for specific products, and any condition for foreign investment must be no less favorable for US exporters than the corresponding rule applied to the United States.” Peter Navarro is a disgrace to a reputed institution like Harvard University. Trump loves “poorly educated people.”

  2. Good article…but what it misses is the underlying reason why the President has started on such an “un-orthodox” trade policy…he is not going to be allowed to undertake the one method that will create the millions of jobs he promised his nation… so all kinds of economic rhetoric (trade laws…tariffs etc.) are going to be put before the public to show that these will get them out of their poverty… they will not…

    Yet another way to bamboozle his people…

  3. The Trump administration held an unprecedented briefing on Wednesday at the White House for the entire U.S. Senate on the situation in North Korea. All 100 senators have been asked to the White House for the briefing by Secretary of State Rex Tillerson, Secretary of Defense Jim Mattis, Director of National Intelligence Dan Coats and General Joseph Dunford, chairman of the Joint Chiefs of Staff, While administration officials routinely travel to Capitol Hill to address members of Congress on foreign policy matters, it is unprecedented for the entire Senate to go to the White House, and for all four of those officials to be involved. Such a huge meeting, on such a volatile topic, had people wondering: Was the United States about to announce some risky new policy on North Korea? Perhaps some kind of scary military escalation, or even a preemptive strike on a nuclear-armed power?

    Nope. According to senators who attended the briefing, it was a whole lot of nothing. There was no revelation about North Korea policy in the briefing. The briefing failed to clarify even the most basic questions like how they plan on dealing with North Korea’s work on missiles that could hit the US. Bob Corker, the Republican chair of the Senate Foreign Relations Committee, said he wasn’t sure if the meeting was worth his time.

    The Trump administration has turned the White House into a circus.

  4. The key phrase in diplomacy and trade is, “Mutual Benefit.” TBs and NTBs have been used by nations to keep imports out with the blessing of WTO. It is almost impossible to negotiate a fair intnternational Trade Regime. Tales should try and stop wagging the dog and get down to the basics to work out the best deal they can get. Many individual companies using national quotas have done well by just only exporting to US. We must avoid the temptation to throw the baby out with the bath-water.

  5. Whatever the pros and cons of newly evolving trade arrangements and unusual briefings in the White House, the fact remains that the longer the President leaves it before seriously tackling the unemployment issue, the more his Administration will need foreign “threats” and even military strikes…. these will become, for him, necessary diversions and smokescreens.

    And if the unemployment tinderbox that is parts of the US is in danger of exploding, then a new false flag will be on the cards…only this time it may make 911 look like a picnic…

    Pray for the people of the US…and for the World..

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