Reality Will Curb Trump’s Protectionist Fantasies

By Daniel J. Ikenson of Cato.

"I said there was no way Trump would last through the early primaries.  I belittled the prospect of Trump even attending the convention, much less accepting the Republican nomination.  And I was cavalier in my certainty that Trump would be making a concession speech early Tuesday night.  In other words, by Washington’s standards, I have established credibility on the subject. 

So you should feel reassured that I am less bearish about the direction of President Trump’s trade policy than I probably should be given candidate Trump’s bellicose campaign rhetoric.

The trade policies Trump outlined in broad strokes on the campaign trail would – to put it mildly – devastate the economy.  For example, Trump has said he would:

• impose duties on 35 percent on imports from Mexico and 45 percent on imports from China;
• impose special taxes on U.S. companies that incorporate foreign components or labor into their production or assembly operations;
• tear up the North American Free Trade Agreement – or at least renegotiate what he calls “the worst trade deal ever negotiated,” and abandon the Trans-Pacific Partnership, which he calls a “rape of our country”; 
• declare China a currency manipulator and impose countervailing duties to mitigate the export price advantages that practice allegedly bestows;
• use tax policy, protectionism, and the threat of more protectionism to compel China, Mexico, and all of the other countries with whom the United States runs bilateral trade deficits to buy more from U.S. producers and sell less to U.S. consumers in order to achieve a state of balanced trade;
• tax manufacturing companies that lay off workers.

The list of angry, knee-jerk, foolish ideas goes on and on. If you take candidate Trump at his word, U.S. trade policy is going to be an unmitigated disaster.

That kind of hot-headed hyperventilation arguably has a place on the campaign trail. It is a coveted perquisite of the opposition candidate – the outsider – to spew venom about the status quo. But those kinds of populist fantasies rarely translate into prudent policy.

Two things constrain Trump.  The first is Congress, which really does have constitutional authority to regulate foreign commerce.  Yes, the Peterson Institute issued a paper a few months ago documenting all of the laws under which the president has been given authority to raise trade barriers. But in almost every case there are statutory thresholds that must be surpassed or judicial review to restrain autocratic impulses. (Here’s a response from a legal scholar.) The president does have more discretion – and thus greater liberty (to co-opt a good word) to act unilaterally – if he invokes his authority on national security grounds under specific national security statutes.

Prompted in part by the specter of a Trump presidency, there is a debate emerging over whether, where, and to what extent the president has been given statutory authority to act unilaterally on trade matters. Cato colleagues Scott Lincicome and Simon Lester (both lawyers) have noted some troubling ambiguities in the language of various, relevant statutes. Of growing concern is the question of treaty withdrawal.

Without the consent of Congress, the president is authorized to withdraw the United States from NAFTA – that is not really in doubt.  The question, however, is whether congressional authorization is required to raise tariffs on Mexico and Canada back up to their non-preferential rates – and to undo the other liberalizing provisions.  If so, a withdrawal from NAFTA would have no real impact unless Congress was also on board.

But, as Scott and Simon have noted, there are clauses in the implementing legislation for U.S. trade agreements that might be interpreted as meaning that withdrawal from a treaty nullifies it terms as articulated and effectuated in U.S. law. (Expect more from one or both of them soon.) Different interpretations of the meaning of those clauses could provoke a constitutional crisis if Trump, for example, instructed U.S. Customs officials to assess duties at the higher rates without Congress first changing the relevant laws. If this happens, Congress could file suit against the president, and that is a potential tinderbox.

If the separation of powers doctrine strikes Trump as too quaint, and he wished to push to expand his authority in the trade realm, there is a second constraint that should work: Reality.

Frankly, asserting presidential authority to impose, say, a 45 percent duty on all imports from China would be laborious and resource-consuming. The president would have little bandwidth for much else. And more to the point: Does Trump really want to destroy the U.S. and global economies?  If he’s the Manchurian Candidate, perhaps.  Otherwise, I imagine he wants his policies to succeed.  He wants to be beloved – actually, worshipped.  For that to be within the realm of possibilities, his economic policies cannot fail. They must spur real economic growth.

But it wouldn’t take very long – days, weeks – for the policies bellowed on the campaign trail and populating the first draft of the “First 100 Days” documents to spawn a mass exodus of capital and the ditching of plans to send more foreign direct investment to the U.S.  The negative economic results would begin to show up in the statistics within one quarter.

I suspect Trump will continue to talk tough, but we can bank on his hubris and vainglory being better fortified by economic policies that history will judge kindly.  Implementation of any of his protectionist ideas, I believe, will be more cosmetic than functional.

There may be a rocky first year beset by rising trade tensions, especially with China, but also the possibility of course correction before too much damage is done.  Regardless, we all have our work cut out for us."