Trump, Trade, and Ireland

A month into the Brave New World of post-election America, businesses in Ireland (and indeed the world over) remain trepidatious about what a President Donald Trump means for the world’s economy, especially where trade is concerned. Concerns over radical change are not entirely unfounded. This is, after all, the man who claimed that NAFTA has cost the U.S. half its manufacturing base, that he will extort payment for a border wall from the Mexican state, that Japan is a currency manipulator, and that those charged with U.S. trade policy to date (designing NAFTA, the WTO, and a myriad of other free trade agreements) are “stupid”. Faced with a U.S. president whose bellicose rhetoric has suggested policy bordering on outright protectionism, many are bracing for a far less trade-friendly environment over the next 4-8 years. In contemplating this, it is important to remember that the U.S. government is hardly a monolith even when—as it stands today—a single party controls all the levers thereof. The trade policies of House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, and President-elect Donald Trump are far from united in their visions for America, and looking toward the future, the ideas of each will heavily influence U.S. decision-making in this area.

House Speaker Paul Ryan

Rated as 67% in favour of free trade by the Cato Institute (A Washington-based libertarian think-tank), Speaker Ryan does not appear by any means to be an opponent of free trade. Indeed, he has spoken out from time to time against President-elect Trump’s more aggressive positions on the subject. His caucus members as whole share similar sentiments:  79% of them voted to extend President Obama’s authority to negotiate trade agreements such as the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership (TTIP). As such, serious protectionism, if effected, will likely not originate from the House. What does seem likely, however, is ‘pro-export’ tax reform.

Among the myriad of proposals in the Speaker’s tax plan, the most relevant to trade is the institution of a “destination-basis” tax system designed to counter the effects of foreign VATs, which some see as discriminating against imports and favouring exports. In Ireland, for example, a zero rate of VAT is applied to exports, while normal rates are applied to imports. As the United States has no VAT or national sales tax, this is perceived to place American exports at a disadvantage. As such, Speaker Ryan and his party have laid out a proposal taxing imports but excluding exports, essentially imposing a VAT on products brought into the United States. While the effectiveness of such a measure (and indeed its compliance with WTO rules) is disputed, it seems likely to sail through Congress, and will have a significant impact on those EU companies doing business with the United States.

Senate Majority Leader Mitch McConnell

Even more established as a proponent of free trade, Majority Leader McConnell receives top marks from the Cato Institute, rated at 92% in favour of unfettered commerce. As a general rule, his personal record suggests an opposition to restrictions on trade other than those designed to gain leverage over foreign regimes such as the Apartheid government of South Africa or Burma’s military junta. Like the majority of the House, McConnell’s caucus remains largely in favour of free trade, and has made few noises suggestive of bucking the status quo other than through the adoption of tax reform (which will largely be crafted by their counterparts in the House). As is the case with the House, the EU has little to fear from the Senate in terms of radical policy shifts. Those, if they come, will be handed down from on-high.

President-elect Donald Trump

To try and project the actions and opinions of the President-elect is—to say the least—a challenge. Having no history in office upon which to base assumptions, and a rhetorical past showing little in the way of consistent ideology, we can only see in broad strokes what a President Trump will do for U.S. trade with Europe. From the man himself, we’ve heard conflicting statements on the subject, but consistent condemnation of the TPP (expected to be dissolved), and largely negative attitudes towards NAFTA and TTIP (talks look to be suspended indefinitely). Beyond this, we can draw some conclusions from the man tapped to head the Department of Commerce: Wilbur Ross. Known for restructuring failing companies in the Midwest, Ross has long been a proponent of more nationalistic trade policy, encouraging drastic cuts in U.S. corporate taxation and the possible imposition of tariffs on Chinese goods. The latter of these proposals is (hopefully) little more than campaign bluster—to impose tariffs would likely mean to leave the WTO—and Ross’s conciliatory tone since the election has suggested that he is not intent on burning down the cornerstone of international trade. This said, his rhetoric—even softer as it is today—suggests a willingness to push hard against established trade deals, and to throw the United States’ weight around in a way that the Obama administration has been reluctant to do.

Of those agreements already in place, the President has the authority to re-negotiate (or, indeed, withdraw entirely from) them largely of his own volition. NAFTA, for example, looks likely to be re-litigated, with Mexico and Canada already preparing their negotiating positions. Assuming that such negotiations do not result in the undermining of the agreement itself through the introduction of new tariffs, results could include a conclusion to the U.S.-Canada softwood dispute (the United States opposes imports of lumber harvested from Canada’s federal lands), and stronger labour/environmental regulations for Mexico to increase the ability of U.S./Canada labour to compete therewith. The President-elect himself has given no suggestion of what he might be willing to give in exchange for concessions here (or whether he might resort to economic threats to extract them). Any changes to the agreement would have reverberating effects on

Caution, Not Panic

Ireland and the EU as a whole are right to view with caution a United States intent on economic nationalism; President-elect Trump and Mr. Ross do seem to be harbingers of major policy change, and they will be less open to regulatory compromise should the EU seek to re-open trade negotiations. Both of them, however, are subject to the moderating influence of a staunchly pro-trade Republican Congress that has strong incentives to keep export-oriented constituencies happy. In the short-term, at least, the most likely scenario for trade with the United States is likely to include tax policy reform and a re-negotiated NAFTA, but nothing to merit too much anxiety on our side of the Atlantic (yet).

 

Ryan O’Regan
International Trade Associate