Trading Trump

The results of this week’s US election went widely unanticipated by polls and markets. Now that Trump is switching from candidate mode to presidential mode, many questions remain surrounding the composition of the Trump administration and what that could mean for policy with Republican control over the presidency and both houses of Congress over at least the next two years.

Focusing on trade policy, Trump made numerous remarks on the campaign trail about closing US borders to imports: particularly renegotiating key agreements currently in force and engaging in economic warfare with China. It is fairly likely that most of this will be chalked up as cheap talk. Renegotiating existing agreements is extremely difficult and rarely leads to significant changes (partly down to the two-level game described in the previous post). There may be increased use of temporary safeguards to restrict import competition in some (politically important) declining industries, but a more vigorous fiscal policy would be more effective in either assisting or economically relocating those losing out from trade. Similarly, there’s little to be done with China over trade-related issues that would not lead directly to retaliation. There’s a lack of evidence of ongoing currency manipulation, but China’s industrial policy may run afoul of WTO standards on some goods, allowing for the use of temporary measures. Across the board, any move to protection will negatively impact Trumps core supporters first, through higher consumer prices.

The remaining question is what this would mean for agreements currently in the works. Given the lack of enthusiasm in Congress prior to the election over the TPP, it’s not likely that there will be any change in the very low probability that the US signs the agreement in the near future. TTIP faces a similarly bleak future, complicated significantly by uncertainty surrounding Brexit. 

Trading Trump