KKC International Platform
February 25, 2020

Donald Trump and the Transformation of U.S. Trade Policy
Ian C. Graig and Douglas J. Bergner
First as a candidate and now as president, Donald Trump has been a relentless critic of free
trade and an advocate of a unilateral and often-protectionist approach to trade policy. As aresult, he has broken from the longstanding and bipartisan support in Washington for the
pursuit of trade liberalization and multilateral trade accords. Trump’s trade policies, which
are integral to his populist approach to governing, have often roiled global markets andhelped drive a rise in protectionist policies around the world. The question of whether Trump
has fundamentally transformed the U.S. approach to international trade will remainunanswered at least until after the 2020 U.S. elections, but he has clearly had a dramatic
impact on U.S. trade policy over his first three years in office and his views are reshaping the
traditional partisan alignment on trade in the United States.

Trump, Trade, and Populism
A key theme in Donald Trump’s successful run for the White House was his criticism of free
trade and his embrace of protectionist trade policies. Trump vowed to terminate or negotiate
significant changes in existing free trade agreements, and he questioned the value of theWorld Trade Organization (WTO) and other multilateral trade bodies. He promised to takestrong action against China, Mexico, and other U.S. trading partners, and to moveaggressively to reduce bilateral U.S. trade deficits. He premised his radical revision of U.S.
trade policy as being essential to protect U.S. industries and boost domestic employment,with an emphasis on traditional manufacturing and heavy industry.
Trump’s views on trade are integral to the broad economic populism that was an essential
component of his successful campaign, and this continues to shape his policies as president.
Trump argued on the campaign trail that traditional institutions, including the WTO andother institutions of the postwar global economic order, are failing to address real concerns,
especially in advanced economies like the U.S. His populist appeal to American voters was
successful for a number of reasons, including: the uneven economic growth since the 2008
global financial crisis and the resulting increase in income inequality; globalization and theshift of production from the U.S. to China and other emerging markets; technological change
and growing automation; job loss in the “Rust Belt” and rural areas; and gridlock in
Washington. These and other trends led many Americans to support Donald Trump and toembrace his protectionist trade proposals. This newly emergent U.S. populism led others to
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support the democratic socialism of Bernie Sanders, who also argues that free trade has notbenefitted American workers.
Trump has largely followed through on his campaign promises on trade. In one of his firstactions as president, for example, Trump withdrew the U.S. from the Trans-PacificPartnership (TPP). He quickly moved to launch talks with Canada and Mexico to renegotiate
the North American Free Trade Agreement (NAFTA). Trump’s trade policies during his firstyear in office often fell short of his most-protectionist campaign rhetoric – he did not actually
withdraw from NAFTA despite repeated threats to do so, for example – but he built thefoundation for a sharp turn toward protectionism in 2018 and 2019.
That policy shift came as the White House staff and economic advisers to Trump turned overduring the past two years. Whereas the advisers to Trump at the start of his presidency
embraced a relatively broad range of views on trade policy, Trump came to rely more heavily
during 2018 and 2019 on advisers who agree with his inclination toward protectionist
policies. For example, Trump’s decision to raise tariffs on imported steel and aluminum inearly 2018 led to the departure of one of White House’s strongest advocates of free trade,
National Economic Council Chair Gary Cohn, and boosted the influence of more protectionist
advisers like Peter Navarro. Other supporters of free trade, including U.S. allies and trading
partners, business, and Congressional Republicans, have increasingly found they have only
limited influence over Trump’s trade policies.
Trump’s embrace of protectionism abandons decades of bipartisan support in the U.S. forthe broad goal of trade liberalization. Trump has focused almost exclusively on bilateral trade
deficits, eschewing arguments by economists that such deficits are not a good measure of
trade’s economic impact. Trump has largely rejected the benefits of multilateral tradeaccords, preferring bilateral negotiations – in part because he views trade policy through atransactional lens in which one-on-one deal-making is the best way to achieve success.
Once again rejecting the arguments of a vast majority of economists, Trump says tariffs are“good” and that they are paid by U.S. trading partners, not by American companies andconsumers. This view has freed him to raise tariffs on a wide variety of products, often in aseemingly arbitrary manner.

Trump and China
Trump’s views on trade are nowhere more apparent than in his trade policy toward China.
Trump’s campaign platform was often highly critical of China, and he called as a candidate forchanging the economic dynamic with China to give American workers a level playing field
and restore the U.S. manufacturing base. At one time, Trump called for levying a 45% tariffon all imports from China, and he pledged to label China a currency manipulator and impose
punitive tariffs on Chinese goods. After winning the election, Trump broke with establishedpractice by speaking on the telephone with the president of Taiwan before speaking to thepresident of China.
Despite such harsh rhetoric, the first year of Trump’s presidency was marked by relative quiet
in U.S.-China trade relations. Three months after he became president, Trump welcomed
Chinese President Xi Jinping for a two-day summit at his Mar-a-Lago resort in Florida, where2they discussed bilateral trade and North Korea. Trump’s personal relationship with Xi seemed
good and benefitted from Trump’s focus on trying to reach a deal with North Korean leader
Kim Jong Un, whose regime depends on China. Trump made a state visit to China in late2017, reinforcing the sense that U.S.-China relations were good.
Presidents Trump and Xi had agreed in their meeting at Mar-a-Lago to launch 100 days ofbilateral trade talks, but those talks failed to lead to an agreement and bilateral traderelations started to sour. In early 2018, President Trump decided to impose tariffs on importsof solar cells and modules, most notably from China. Chinese steel and aluminum imports
were then hit with higher tariffs when President Trump took action on national security
grounds against metals imports from most U.S. trading partners in early March. The decision
led to retaliation by several U.S. trading partners, including China.
The most important tool for the increasingly tough trade policy toward China has been an
investigation launched in mid-2017 under Section 301 of the Trade Act of 1974, which gives
the president broad discretion to act against unfair foreign trade practices. The investigation
focused on how China’s forced technology transfer, intellectual property, and innovation
policies are harming U.S. companies. It concluded that such policies cost the U.S. “tens ofbillions in damages” every year.
That investigation was the basis for a dramatic surge in bilateral trade tensions during thespring of 2018 that started in March when President Trump announced that he intended toraise tariffs on $50 billion-$60 billion in Chinese products, based on the conclusions of theSection 301 investigation. Trump also said his administration would soon propose restrictions
on investment by China in sensitive U.S. technology sectors.
The Section 301 report has subsequently served as the basis for many of the actions taken by
the Trump administration against China over the past year and a half. These actions haveresulted in the levying of higher tariffs on virtually all Chinese imports, while China has
retaliated with tariffs on $135 billion in U.S. products. The tariffs have been raised in a seriesof steps, starting in July 2018, when the U.S. levied a 25% additional tariff on $34 billion in
Chinese products and China retaliated by raising tariffs on $34 billion of U.S. products. The
tariff hikes culminated in September 2019, when the U.S. levied a 15% additional tariff on$125 billion in Chinese products and threatened to levy tariffs on another $160 billion on
December 15, 2019. The December tariff hikes would hit, for the first time, a wide range of
U.S. consumer products.
The U.S. and China held over a dozen rounds of trade negotiations aimed at reaching a deal
during the time these tariff increases were being imposed, but those efforts failed until the
U.S. and China announced agreement on the general outlines of a “phase-one” trade deal
during the fall of 2019. Bilateral talks to finalize the deal intensified in November and early
December, as both sides sought to avoid the new round of tariff increases scheduled to takeeffect on December 15.
Finally, on December 13, U.S. Trade Representative Robert Lighthizer announced that the
U.S. and China had reached a deal to finalize an agreement under which China committed toincrease purchases of U.S. goods and services by at least $200 billion over the next two
years, including an increase in purchases of U.S. agricultural products to $40 billion-$50
3billion annually. In return, the U.S. committed to cut the 15% tariffs on $125 billion in
Chinese goods levied in September to 7.5% and to suspend indefinitely the December 15
tariff hike on $160 billion in Chinese goods. In addition, China made commitments on
intellectual property, currency manipulation, and financial services. The two countries also
agreed to the creation of a U.S.-China dispute-resolution mechanism.
Reaction in Washington to the trade agreement was generally lukewarm, though businessgroups and policy makers alike have welcomed the likelihood that the phase-one deal willease U.S.-China tensions over the near term. Chinese officials initially indicated that the U.S.
also committed to phasing out the 25% tariffs that are still being levied on $250 billion in
Chinese goods, but Lighthizer said any further tariff reductions will be linked to success infuture phases of talks. The U.S. and China signed the phase-one deal on January 15, and it
took effect 30 days later.
Critics of the phase-one accord have focused on one issue: the trade agreement hardly
seems worth the past two years of economic turmoil, threats, and drama. Trumpadministration officials insist that the agreement is merely the first phase, and that phasetwo talks will address the broad structural concerns that set off the trade war in the firstplace, but critics have raised questions about whether that is the case. The deal is goodshort-term news for financial markets, the economy, the farm and financial services sectors,
and international business, though it does little to address the fundamental issues at theheart of U.S.-China trade tensions – issues that are now unlikely to be addressed until after
the 2020 U.S. elections.

Trump and Automotive Trade
The trade war with China, which is the highest profile aspect of President Trump’s trade
policy, is in some ways unique: while Trump’s tactics of unilateral threats and tariff hikes havebeen subject to bipartisan criticism, there is strong bipartisan support for a tougher tradeand economic policy toward China. This was readily apparent in bipartisan support forlegislation passed in 2018 that strengthened U.S. export-control and foreign-investment laws
– legislation that was driven by Congressional concerns about technology competition from
China. U.S. companies have also supported a tougher policy toward China, though much of
the U.S. business community has been highly critical of Trump’s unilateral approach andheavy reliance on tariffs in implementing that tougher policy. The differences on trade policy
toward China are more over tactics than broader strategic goals.
In sharp contrast, there has been limited support in Congress or the business community forseveral other high-profile elements of President Trump’s trade policy, including his decision
to raise tariffs on steel and aluminum imports. Trump took that action in early 2018 under
Section 232 of U.S. trade law, which gives the president great flexibility to address importsthat are found by the Commerce Department to threaten national security. With a few
notable exceptions, those tariffs largely remain in place.
There has also been little support in Congress or the business community for another highprofile part of President Trump’s trade policy: his frequent threats to raise tariffs on importsof vehicles and auto parts from Europe, Japan, and elsewhere, once again using Section 232
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as the basis for doing so. Business and lawmakers from both parties have warned that raising
automotive tariffs as Trump has threatened could cause severe economic harm in the U.S.
and abroad, but Trump continues to threaten to do so. [While Trump has warned that hemay target automotive imports from Europe and Japan for tariff hikes, Japanese officials saythey have been assured that Trump will not levy new tariffs on Japanese automotive
products in light of the new U.S-Japan trade accord.]
A statutory deadline passed in November 2019 without Trump deciding whether to raise
tariffs on automotive imports under Section 232, which has raised questions about whether
he still has authority to act without a new Section 232 investigation of automotive imports by
the Commerce Department. Trump does have other options if he decides to follow throughon his threat to raise automotive tariffs, though his doing so would likely face fierce
opposition and have a potentially negative impact on the economy and financial markets.
Most notably, the administration could launch a Section 301 unfair trade practices
investigation of automotive imports that could also consider subsidies to justify tariffs or
quotas.
U.S. Trade Representative Lighthizer has said that, with the U.S. reaching trade deals recently
with Japan and China and the U.S. Congress having passed legislation to implement the U.S.Mexico-Canada Agreement (USMCA), the Trump administration may now focus its trade
policy on the European Union. A Section 301 investigation of the EU could look not only at
automotive trade but also at other areas of concern to the U.S. The passing of the November
deadline lessens the risk that President Trump will raise tariffs on automotive imports in thenear term, but imports from Europe remain at risk as the administration looks to broader
concerns.

Recent Successes: The Japan Agreement
The recent trade deal with China is one of several recent developments cited by the Trumpadministration as evidence that its trade policies are delivering results. Another example is
the recent “phase-one” trade deal between the U.S. and Japan. The most notable aspect ofthat agreement, from the U.S. perspective, is Japan’s agreement to lower or abolish tariffs on
many U.S. farm products to match levels offered to members of the Comprehensive andProgressive Agreement for Trans-Pacific Partnership (CPTPP) trade accord, the successor to
the TPP. The U.S. will reduce tariffs on some Japanese industrial goods. The accord, which did
not require action by the U.S. Congress, took effect on January 1. The U.S. and Japan havecommitted to “phase-two” trade talks on thornier issues, including tariffs on automotive
products, but there is little expectation of progress before the November 2020 U.S. elections,though talks will be ongoing.
The phase-one Japan deal has been praised by U.S. farmers but garnered little attention
otherwise, since it does not address the structural issues of concern to the broader U.S.
business community. But President Trump has said the deal offers evidence that his trade
policies can lead to agreements that benefit the U.S. (though many of these benefits in termsof Japanese markets had already been won through the TPP before Trump withdrew fromthat accord). Supporters of Trump’s trade policy argue that it was the threat of tariffs on
automotive imports that brought Japan to the negotiating table in the first place, and thus
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made even a phase-one trade deal possible.

Recent Successes: The USMCA
Unlike the China and Japan trade deals, which are both seen in Washington as relatively
minor accords setting the stage for more comprehensive negotiations, implementation of
the U.S.-Mexico-Canada Agreement is widely seen as a major accomplishment for President
Trump. The three countries last year signed the USMCA, the successor to the North American
Free Trade Agreement, and the U.S. Congress passed and President Trump signed into law
legislation to make the necessary changes in U.S. law to implement the accord.
The Trump administration spent much of the past year negotiating with lawmakers in aneffort to ensure Congress would pass USMCA implementing legislation. Most notably, U.S.
Trade Representative Lighthizer held extensive talks with a small group of House Democrats
to garner their support for USMCA. Those talks resulted in an agreement, announced in early
December 2019, to make certain changes in USMCA to address concerns raised by
Democrats on labor, environmental, pharmaceutical, and enforcement provisions. Thechanges were subsequently addressed in a protocol to amend USMCA that was signed byLighthizer and his Mexican and Canadian counterparts on December 10, 2019.
These changes managed to win the support of top House Democrats, who argued that they
were able to secure “a true transformation” of the original USMCA that result in anagreement that could set a pattern for including tougher environmental and labor provisions
in future trade accords. Business groups criticized some of the changes in the USMCA
protocol, and the pharmaceutical industry was particularly critical of an agreement to drop
longer data protections for biologic drugs. But most major business groups called on
Congress to pass USMCA implementing legislation, although the accord is projected to havea small (and even slightly negative) economic impact.
The USMCA implementing bill passed by Congress technically repeals the North American
Free Trade Agreement, though much of NAFTA will essentially remain in place because
USMCA is so similar to the earlier accord. The bill only “suspends” the U.S.-Canada Free
Trade Agreement, which predates NAFTA, so it could serve a fallback if a USMCA termination(“sunset”) provision is ever implemented.
Implementation of USMCA [which awaits action by the Canadian parliament] will be a major
political victory for President Trump, delivering on his promise to replace NAFTA – though the
USMCA in fact is very similar to the predecessor agreement, of which candidate Donald
Trump was highly critical. While USMCA is projected to have a modest economic impact, its
implementation (along with the U.S.-China and U.S.-Japan deals) offers some certainty on
trade policy and thus could encourage business investment and ease financial market
concerns. Approval of the USMCA can also been seen as evidence that, even with
Washington sharply divided along partisan lines, the two parties can work together on anagreement that is seen as beneficial for the U.S.

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Trump and the Politics of Trade
President Trump’s views have helped drive at least a short-term shift in the politics of tradein Washington and disrupted the old partisan alignment on trade: while Republicans wereonce the key supporters of free trade, Republican support for trade liberalization fell sharply
during Donald Trump’s successful presidential campaign in 2015-16. Trump’s core supporters
still oppose free trade, though business groups and many moderate Republicans still support
it. Polls show that Republican support for free trade has rebounded some over the past two
years, but the Republican party, which was once a bastion of support for free trade, is now
divided on the issue.
The same can be said of Democrats: while Democrats were once known for supporting
protectionist policies, polls now find that two-thirds of Democrats say free trade is good forthe country. This shift reflects the growing strength of the Democratic party in coastal statesthat are more heavily dependent on trade and which have benefitted from tradeliberalization more than traditional manufacturing or farming states in the Midwest. But
many progressive Democrats – including Bernie Sanders and Elizabeth Warren – remain
skeptical about trade liberalization. These Democrats see free trade as favoring corporations,
not workers, and thus often oppose free trade agreements. Key Democratic groups, includingorganized labor, are also wary of free trade, and many union voters are strong supporters ofDonald Trump and his trade policies.
Trade is unlikely to be a major issue in the 2020 elections, in part because many of theleading Democratic candidates differ with Donald Trump more on the tactics than the goalsof trade policy. For example, most leading Democratic presidential candidates support
tougher policies toward China. They may differ with Donald Trump on the tactics of taking aharder line toward China, but not on the broad policy goals. In addition, voters rarely list
trade as a top priority: “global trade” ranked last among dozens of public policy priorities for
2019, according to a Pew survey. The impact of trade on jobs and the economy is an
important issue, but the specifics of trade policy are rarely discussed beyond broad
generalizations on the campaign trail.
While trade may not be a top issue on the campaign trail in 2020, the outcome of the 2020
elections will have a major impact on future directions in U.S. trade policy. The impact of a
Democratic win is unclear, since the identity of the Democratic candidate is not yet known.
While a win by a progressive like Bernie Sanders or Elizabeth Warren would result in policies
that remain wary of the benefits of free trade, a win by a moderate Democrat like Joe Biden
or Michael Bloomberg could see the U.S. reclaim its position as a leading advocate for tradeliberalization and multilateral institutions and agreements. A victory by Donald Trump, in
contrast, likely points to four more years of policies like those seen over the past two years.
Such an outcome would likely lead to a more permanent transformation of U.S. trade policy
and a complete break with the era in which the U.S. was the driver of global tradeliberalization. It would also directly threaten the WTO and other international tradearchitecture that was implemented, largely under U.S. leadership, during the postwar era.
Thus while trade may not be a top issue in the 2020 campaign, the outcome of the 2020
election could have a profound impact on the future direction of U.S. trade policy.

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Ian C. Graig is Chief Executive and Douglas J. Bergner is Senior Adviser of Global PolicyGroup, a Washington-based public policy research and consulting firm. This article is based on
their November 11, 2019, seminar for Keizai Koho Center in Tokyo on “U.S. Trade Policy andthe 2020 Elections.” For more information on Global Policy Group, see www.globalpolicy.com.

Keizai Koho Center (Japan Institute for Social and Economic Affairs, KKC) has served
as a bridge for the Japanese business community to interact with its key stakeholders insideand outside Japan. With a wide range of its domestic and international programs, KKC hasdeveloped a worldwide network encompassing businesses leaders, lawmakers, government
officials, journalists, university scholars, and school teachers.
The KKC International Platform is a forum to discuss new developments,changes, and challenges of Japan and the international society.
The views expressed in the essays on the KKC International Platform are solely
those of the authors.

Keizai Koho Center
http://en.kkc.or.jp
Keidanren Kaikan, 1-3-2 Otemachi, Chiyoda-ku, Tokyo 100-0004 JAPANe-mail: platform@kkc.or.jp8