President Trump's announcement to impose stiff tariffs on aluminum and steel imports is causing alarm among trade partners who fear the tariffs could lead to a trade war.
In the meantime, next week, 11 countries are expected to sign the Trans-Pacific Partnership (TPP-11) trade agreement a year after Trump withdrew from the deal, while China has been busy negotiating agreements on its own in a Regional Comprehensive Economic Partnership.
Marina Whitman, professor emerita of business administration and public policy at the University of Michigan, discussed the president's announcement and international trade.
Q: President Trump has announced he would impose tariffs on steel and aluminium imports, and stated trade wars are "good" and "easy to win." What are your thoughts on that?
Whitman: Trade wars are a disaster for all concerned, as the one that escalated during the 1930s attests. It was a misguided attempt to alleviate widespread depression but, instead, contributed to making it worse. Since a trade war is a lose-lose proposition for all concerned, I don't know what "win," let alone "easy to win," means. In the current case, Trump's tariffs, if they do go into effect, are likely to raise prices of consumer goods containing aluminum or steel and, more important, will raise them for manufacturers whose products use aluminum and steel, making them less competitive.
A lot more people are employed in the U.S. in companies using aluminum and/or steel in their products (e.g., cars and trucks, airplanes, heavy machinery) than in those making them. As for retaliation, other countries are skilled in hitting us where it hurts, such as agricultural products. Finally, it is a major step toward undermining the international rule of law in trade, which the U.S. took the lead in creating ever since WWII.
Q: How is the TPP-11 different from the agreement backed by the U.S. during the Obama era and rescinded last year by Trump?
Whitman: First of all, the TPP is really an attempt to have a modern international trade agreement. It's called a trade agreement but it covers a lot of things, for instance, the digital universe. It attempts to have fairly stronger protections for labor and the environment. It was designed under the leadership of the United States as a 21st-century multilateral trade agreement. With the United States having pulled out, it's obviously smaller and won't have quite the same clout. The two biggest countries in the world by gross national product, the United States and China, are not in it but it still will have some significant impact on trade among the 11 countries that are signing. I think the United States will suffer some from being on the outside rather than inside.
Q: There has been speculation about the U.S. rejoining the agreement down the line. Do you think that's possible?
Whitman: That's so hard to tell. It seems somewhat unlikely under the present administration but you can never tell. Of course, it's possible. It's complicated because typically it was the Republicans who favored these multilateral trade agreements and the Democrats who opposed them. Now things seem to have sort of flipped. It was President Obama that pushed for the TPP. And at that time Republicans were still supporting it. But now the majority of the Republican establishment has joined in President Trump's position: that we should not join because he believes that it is in some way unfair to the United States, which is what he says about all multilateral trade agreements.
Q: What about China and the agreement it is creating with several countries?
Whitman: China is creating its own multilateral trade agreement with quite a number of other Asian countries plus New Zealand. It's a much more restrictive agreement. It applies only to trade in goods but they are going to have their own arrangement with a great many countries, although some of them are quite small.
So you have the United States, which is not part of any of these agreements, and my guess is it will suffer economically from it. I think it will suffer even more diplomatically or in terms of soft power. Not being part of the TPP will be regarded quite negatively by the countries who are joining since it was the United States that took the lead in getting it going.
Q: What do you think of the concerns that the TPP-11 will increase prices for drugs in developing countries?
Whitman: Originally, there was concern that the intellectual property provisions would make drugs more expensive in developing countries. But under rising pressure, that agreement was somewhat amended to make it more favorable to developing countries, and I honestly don't know what's going to happen from this one. The devil is in the details.