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Opinion: Trump and free trade

November 21, 2016

Will Donald Trump be the grave-digger of NAFTA, TPP, TTIP and other free trade agreements? He says he will pull out of TPP as soon as he takes office. But perhaps this presents an opportunity, argues DW's Henrik Böhme.

Freight containers
Image: picture-alliance/dpa/R. B. Tongo

When senior government leaders meet these days, no matter where in the world, a man who is not yet part of the meetings is always a major presence: Donald Trump, who in January will take office as the 45th President of the United States of America.

Everyone seems to have some advice to offer to the controversial billionaire. For example, this past weekend at the the summit of the Asia-Pacific Economic Community (APEC) in Lima, the host, Peru's President Pedro Pablo Kuczynski, offered a finger-wagging warning against any move to close off the US market to imports, and made a pitch for free trade. Trump for his part has announced he will pull out of TPP the day he takes office.

Not everyone agreed with Mr. Kuczynski's stance anyway. Last week there were major protests against the Trans Pacific Partnership (TPP) trade and investment agreement. After seven years of negotiations, TPP was signed by a consortium of twelve countries around the Pacific Rim, ranging in size from tiny Brunei to the mighty USA, in February 2016. Peru was among the signatories.

But TPP still must be ratified by the Peruvian parliament in Lima. Critics oppose the deal in part because it was negotiated behind closed doors, and they harbor suspicions that this must mean the deal will benefit influential corporate and financial interests at the expense of the general public. Similar criticisms can be heard in Europe, in relation to the Transatlantic Trade and Investment Partnership (TTIP), which the European Union has been trying to negotiate with the US government.

For all opponents of such agreements, a new dawn is on the horizon. Donald Trump, during his campaign, never tired of making his position clear: For him, free trade is a noble thing in theory, but in reality, the US has long been in a "trade war" with China. Similarly, trade agreements with Canada and Mexico (NAFTA) should be renegotiated, TTP should be revoked, and TTIP negotiations scrapped. And because the Chinese (and Mexicans) are guilty of America's economic problems, having "taken our jobs," they should be punished with import tariffs.

Globalization adversaries of the world, unite behind this man!

Unfortunately, things aren't quite so simple

Let's take things one step at a time. Not even a President Donald Trump can simply proclaim an overnight end to economic globalization, or wave a magic wand that would instantly demerge global supply chains. A sudden application of protectionism and isolationism would, as its immediate impact, throw the world into a deep recession. And his advisors will eventually figure out a way of making it clear to the Donald that punitive import duties, say of 35 percent, on products imported from China would make the products correspondingly more expensive. Whom would that affect the most? Correct: Walmart shoppers. People who cannot afford expensive products.

Trump's advisors may also tell him that TPP is a free-trade agreement that is intended, in part, as a counter-pole to China's dominant trade policy, as the Chinese are not part of TPP. If TPP is abandoned, the Chinese are likely to try to push through their own proposed trade agreement, called RCEP - which was designed without consulting the US. Moreover, those who, like Trump, want to increase tariffs, would inevitably have to leave the Asia Pacific Economic Cooperation network of countries - because APEC's declared objective is to reduce tariffs and other trade barriers. The US' clout in eastern Asia and around the Pacific Rim would diminish.

The real world is complicated

The real answer to the question whether free trade (or, alternatively, globalization) is responsible for job losses in the industrialized countries is never a simple yes or no. If cheap steel is no longer produced in Duisburg or Pittsburgh, but somewhere in China instead, the workers in Duisburg or Pittsburgh lose their jobs. But then it's up to the relevant governments to give people a perspective for their future, through education, skills training, and sensible structural changes.

It isn't free trade that's the main driver of job-market changes - it's technology. Factories are increasingly automated; there are fewer jobs in manufacturing industries, and more in service sectors. (In Germany, however, the trend toward de-industrialization is far less pronounced. Governments of some other countries - Britain, for example - have recognized this, and are now talking about trying to induce a renaissance of domestic manufacturing industry.)

Fear is spreading amongst businesspeople and mainstream economists around the world that Donald Trump really is what he said he was during the election campaign: An arch anti-free-trader.

Boehme Henrik Kommentarbild App
DW senior business editor Henrik Böhme

In my view, if his plans were put into action, the world would quickly find itself in a trade war, and from there, it would spiral into ruin. So let me propose another plan for the new man in the White House. First step: Away with all bilateral and regional free trade agreements! Because such agreements, including TPP, TTIP, NAFTA and others, have one thing in common: They always discriminate against the countries that are not members. TTP excludes the Chinese, RCEP excludes the Americans, and all these deals exclude African countries.

What's needed is a global trade agreement. The UN World Trade Organization (WTO), which was charged with convening such a world-wide agreement, had nearly succeeded in achieving one, before the effort stalled in 2008 - partly because Barack Obama, professed champion of free trade, didn't push very hard for a deal.

So, Mister President-elect. What do you say? Maybe a global free-trade deal won't get you a Nobel Peace Prize. But it would surely generate new jobs in the US. And that's what you promised your fellow Americans, isn't it?

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