Andrew Hudson
The results are in but they are not the results that most had anticipated, leaving us with a Trump Presidency from 20 January 2017. No doubt that the political commentators will be sifting through the results for some time to attempt to find the true reasons for the outcome. It does appear that a large block of US voters felt so alienated by the idea that Clinton would be another version of the same leaders who had abandoned them to overseas and local ‘minority’ interests that they moved to someone who offered something different and a return to ‘middle ground’ issues. In that sense, it has a similarity to the vote in favour of Brexit and even has a resonance to some of the shift to independents in our Senate. Like Brexit though there is nothing clear on what the ‘something different’ may constitute. Which, in many respects becomes the ultimate disruptor.
There’s probably an argument that not even the Trump camp has properly thought out the agenda.
In any event with the outcome clear it comes to us to try and work out what could be the impact for the trade agenda from a Trump administration. At the start it is reasonable to say that there is some uncertainty as to the exact nature of the agenda given that there has been no substantive policy released. Based on those comments which have been made and, assuming that policies will follow those comments, then the consequences could include the following.
- The prospects of the TPP being passed in the ‘lame duck’ session of Congress in the US have plummeted (as a ‘dead duck’), unless in a response to the election, the existing Congress decides to pass the TPP, whether for spite or other reasons. However, that may take more courage and resolve than an end of term Congress could muster in face of an apparently overwhelming vote against the current regime. Even then, there is the risk that a Trump administration would seek to withdraw the US membership of the TPP. There could be a similar outcome for the proposed US and EU FTA
- Regardless of the evidence of the benefits of free trade, there appears to be little love for the free trade (or freer trade) agenda on the basis that it is perceived as being contrary to the interests of the US, its citizens, its industries and employment prospects. Whatever we think, there is a strong argument that this drove the sentiment of the electorate and their votes. That could lead to the US to reduce (or withdraw altogether) its engagement at the WTO and WCO and seek to reverse membership of other FTAs such as NAFTA. After all, the President – elect had threatened to ‘rip up’ NAFTA.
- There has been the threat of the imposition of a 45% duty on goods imported into the US from China. Of course, that would be contrary to any number of international agreements to which the US is currently a party and would also be contrary to the whole ‘trade facilitation’ agenda, whether through the WTO Trade Facilitation Agenda or otherwise. More immediately, it could be the basis for a trade ‘war’ with China, would add to inflation in the US and possibly reduce GDP in China by 1%. None of which are cheerful outcomes especially when there is little evidence that the moves would actually assist the US economy or create jobs.
- There would be additional resources to US government agencies to support additional anti – dumping and countervailing actions together with additional changes to regulation along protectionist lines. That will no doubt feed through to changes in the USTR office, if not at the very top, at least at the middle levels influenced by the new administration.
- There is some doubt that the result will change US consumption, which will still be driven by the reliance on overseas markets for less expensive, reliable and vital consumer goods. Would a Trump agenda close the door to cheaper Korean and Japanese cars and exclude access to smart phones and TVs made in Asia?
In the face of this, the rest of the world may drift away from the US as it loses its relevance in terms of global economic influence. That gives the impression of an ‘isolationist’ US merely looking to its own interests. It didn’t work that well for the US and the world economy in the 20’s and 30’s but at least the world economy is less reliant on the US now and has managed to develop and integrate more thoroughly.
The issue is whether that causes a realignment of global trade leadership away from the traditional US dominance towards leadership by China and, potentially, other countries still engaged in free trade such as Canada and other TPP parties Those parties (including Australia) may now seek to drive separate FTAs based on TPP commitments or re – convene towards TPP 2.0 excluding the US and incorporating other countries who have been in line waiting to join the TPP such as Korea and Indonesia. It would also go some way to encouraging parties to the RCEP to galvanise their efforts to complete a substantive deal which leaves the US out to manage its new reality. Yes, the US has a significant place in the world economy but I think that with good will and good planning the rest of the world would be able to manage to develop a revised trade agenda on its own.
There is a cliché that with great crisis comes great opportunity. Our Foreign Affairs Minister was interviewed on the Trump election success and said that our Government had plans in place to deal with either US election result. Similarly, I have total confidence that our trade negotiators at DFAT and their counterparts around the region and around the world would have a closely guarded ‘Plan B’ to action if Trump was successful and the US (as threatened) withdrew from the trade agenda to bolster its local industry. It’s not ideal as the aim has always been global multilateral improvements but that it always subject to political well and domestic judgement. Based on comments to date the US seems resolved to take an agenda focused on its own interests to the exclusion of others (except, perhaps Russia). That still leaves open a significant agenda to advance the international trade agenda – hopefully the other major trading countries maintain their agendas and efforts which would advance the interests of those parties.
It’s a new day and a different day for international trade and it’s up to other nations to resume and improve the world trade agenda even if the US reverts to neo-isolationism.
Andrew Hudson is a partner at Gadens Lawyers.