A hostile relationship with China, coming out of a consistent aggressive trade policy, is arguably going to be the most enduring legacy of the Trump Presidency.
US President Donald Trump undertook economic policies in his first term that did not deviate significantly from his predecessors. The emphasis has been on monetary policy, including fixing interest rates at near-zero levels and supplying adequate credit to keep the economy running.
As the COVID-19 pandemic hit the country hard, a US$2-trillion fiscal stimulus package was signed into law on 27 March 2020. The package enjoyed overwhelming bipartisan support. Such fiscal stimulus, however, is more of an aberration than a continuation, as subsequently proven by Trump’s withdrawal from negotiations for a second stimulus package in early October 2020. He ruled out any discussion till the November elections are over.
What perhaps sets Trump apart from any other American president in history is his trade policy, seamlessly dovetailed with his “America First” rhetoric. Trump has accused his political opponents of undermining and compromising American interest in the trade deals that the US inked in the past. He declared himself as “Tariff Man” and exhorted that “trade wars are good and easy to win.” Thus, the American trade war began with the imposition of US$360 billion in tariffs on Chinese goods. It did not stop with China.
What followed were the renegotiation of the North American Free Trade Agreement (NAFTA), involving long-term allies Canada and Mexico, and the imposition of tariffs on European Union (EU) partners and other countries, including India. The Trans-Pacific Partnership (TPP) trade deal that excludes China, painstakingly negotiated by the Obama administration, was summarily dumped. Soon enough, the “free trade” era led by the US itself was replaced by “America First” protectionism.
If economic history teaches anything, however, it is that trade victories are not only extremely difficult to achieve—they inevitably inflict collateral damage. The worsening US trade deficit numbers, even before the pandemic, reaffirms this lesson of history.
The US’ aggressive stance against China — nurtured under Trump — is likely to survive irrespective of the outcome of the November polls. There is a near consensus within the American polity that China has been violating international trade laws and conventions, engages in predatory trade practices, and behaves like a schoolyard bully in its relations with other nations. Although critical of tariffs, Joe Biden is yet to clearly voice his opinion on the withdrawal of US tariffs on China. The US-China trade relations would never be the same again — and this is arguably the most important legacy of Donald Trump.
The second is the collapse of global multilateral trade. Apart from the trade wars, the Trump administration’s refusal to appoint members in the Appellate Body of the WTO (World Trade Organization)—thereby rendering the body virtually defunct—bear testimony. Multilateralism in trade is practically in a coma.
More than seven decades of American leadership propelled free international trade and allied global organisations. Under Trump, the US relinquished that global leadership. China will continue making desperate attempts to fill the void. Even a Biden win may find it extremely difficult to recapture that leadership mantle. An uncertain world where bilateralism and plurilateralism are likely to replace multilateralism, therefore, will be another enduring leftover of the Trump presidency.
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Abhijit was Senior Fellow with ORFs Economy and Growth Programme. His main areas of research include macroeconomics and public policy with core research areas in ...Read More +