(What’s Left of) Our Economy: It’s “Big Week” on Trade

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100-day China plan, Canada, China, environmental standards, G20, Gary Cohn, H.R. McMaster, James Mathis, labor standards, Mar-a-Lago summit, Mexico, NAFTA, North American Free Trade Agreement, North Korea, Robert Lighthizer, rules of origin, steel, Steve Mnuchin, tairffs, Trade, Trump, Wilbur Ross, Xi JInPing, {What's Left of) Our Economy

During World War II, the United States and the United Kingdom launched a massive multi-day strategic bombing campaign against Nazi Germany called “Big Week.” The stakes are considerably less apocalyptic, but yesterday began a period for U.S. trade policy that qualifies as a big week, too. Here’s why, and what to look for.

First, yesterday marked the deadline for the 100-day plan announced at the summit between President Trump and his Chinese counterpart Xi Jinping to start bringing down America’s immense trade deficit with the People’s Republic. Some near-term deals were announced in May, and the Chinese seem to be playing along, to at least some extent. But even the American offshoring lobby, which has greatly soured on China since its full-court-press lobbying campaign convinced Washington to expand U.S.-China trade exponentially, has been complaining that agreements of this scope are way too small to solve their own problems with Beijing in the Chinese market. These deals have even less potential to stop most of the damage still being inflicted on the American domestic economy from wide-ranging predatory Chinese economic practices.

The results are due to be announced this week – and may be delayed to take into account whatever can be accomplished by a new high-level economics dialogue that will hold its first session in Washington this week. Will they produce some big wins for the administration and the domestic economy? As I see it, reasons for pessimism outweigh reasons for optimism.

The former include the president’s continuing statements about the threat posed by China’s imports (in this case, of steel), and the awareness demonstrated by his campaign of how varied and unconventional (meaning they went far beyond tariffs and quotas) China’s trade and trade-related transgressions have been. Among the reasons for pessimism, though, are intra-administration divisions that entail both economic issues (with the administration’s economic populists arrayed against what’s been called the pro-free trade “Goldman Sachs” gang comprised of top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin) and security issues (pitting the populists against traditional foreign policy thinkers like national security adviser H.R. McMaster and Defense Secretary James Mattis, who would sympathize with notions like the claim that China should be courted to enlist its help in sitting on North Korea). In addition, the kinds of staffing woes still dogging the administration typically make sharp departures from a policy status quo difficult to engineer.

In fairness, Commerce Secretary Wilbur Ross, who has forthrightly described the China economic challenge, acknowledged when announcing the 100-day trade plan’s first results that three months worth of talks couldn’t possibly be a game-changer precisely because China’s mercantilism was so pervasive. But in so doing, he unintentionally made the argument – which I support for U.S. trade policy generally – for dispensing with talks altogether and capitalizing on China’s urgent need to export to the United States by addressing this issue unilaterally.

Certainly, this kind of course change would be much more consistent with the president’s numerous campaign statements emphasizing the destructive effect of Chinese predation on America’s economy and working class. It’s also the kind of strategy you’d expect from a chief executive whose non-trade agenda is almost completely stalled in Congress, who’s under intense political pressure, and who could badly use a big economic win in order to prevent major Congressional losses in the next off-year elections – whose campaign cycle will be here before he knows it.

Another big (self-imposed) administration deadline falls today. It marks the date by which the White House said it would submit its detailed plan to renegotiate NAFTA – the North American Free Trade Agreement. In May, U.S. Trade Representative Robert Lighthizer sent Congressional leaders a brief letter alluding generally to some objectives, but by tomorrow he needs to fill in critical details. Many might have been contained in a draft letter released March 30, and that plan looked pretty impressive. The big question of course is which ones will wind up surviving – and whether the administration is open to other ideas.

As I’ve written, the most important issue concerns the treatment of “rules of origin” – the provisions of NAFTA aimed at ensuring that any goods sold in the three signatory countries (the United States, Canada, and Mexico) are overwhelmingly made in some combination of those countries. The deal that’s currently in place specifies North American content levels that need to be met to qualify for duty-free treatment inside the free trade zone. But the tariff penalties for goods not meeting these standards aren’t nearly high enough to achieve the goal of increasing the entire region’s competitiveness.

The March 30 letter suggested that the administration would seek origin rules that promote U.S. production and jobs more effectively, but it didn’t say how. If much higher external tariffs aren’t proposed in the plan due today, it’s doubtful that any reforms will result in non-NAFTA countries to make more of their products in any of the countries inside the NAFTA zone. Moreover, it’s of course going to be easier for Washington to persuade Canada and Mexico to go along if it re-emphasizes what President Trump has been saying since his meeting last summer, before the election, with his Mexican counterpart: NAFTA should aim to boost the competitiveness of all three countries.

The brief May 18 Lighthizer letter also suggested obliquely the need to change NAFTA’s dispute-resolution procedures, and the March 30 draft discussed the issue at greater length. But even its recommendations to strengthen America’s authority both to respond to import surges from its NAFTA partners (called “safeguards”) and to apply its own Buy American government procurement rules to intra-NAFTA trade may not go far enough.

As I’ve explained, the fundamental problem is that the current dispute-resolution process treats the three NAFTA countries as legal equals, even though the U.S. market is nearly 90 percent of the total NAFTA market, and clearly remains the most valuable prize for all three signatories. Without closing or somehow changing acceptably, the yawning gap between the NAFTA legal regime and the economic facts on the ground, it’s hard to imagine the system serving U.S. interest on net.

At this point, you might be wondering why I haven’t mentioned NAFTA’s labor and environmental provisions. The reason? Although they’ve been major objectives of Democratic party and other left-of-center NAFTA and broader trade policy critics, as with their counterparts in the Trans-Pacific Partnership (TPP) deal, they’re largely unenforceable. As I’ve asked before, how many American bureaucrats will be needed to run around how many factories in a signatory country (in this case, Mexico) to ensure that companies aren’t abusing workers or dumping sewage into nearby streams? With more effective rules of origin, however, producers in Mexico will feel less pressure to remain competitive versus rivals in China and elsewhere in Asia by offering the worst possible working conditions and ignoring environmental considerations completely.

Finally, there’s the steel tariff issue. The administration has delayed announcing its decision to impose national security-related tariffs on U.S. steel imports, but is expected to reveal its intentions this week. For what it’s worth, the president sounds determined to approve some levies on some countries’ steel. The main question is who the main targets will be. It will also be crucial to see whether and how prominently the announcement emphasizes the need to deal decisively with the underlying problem – the ocean of subsidized steel from China that has flooded and distorted world markets in recent years.

At the same time, there’s a reason for Mr. Trump to punt – or to punt for the most part: At their summit earlier this month in Hamburg, Germany, the leaders of the world’s twenty largest economies (the “G20”) agreed to require an international commission on the subject to deliver a report by November containing “concrete policy solutions that reduce excess steel capacity.” Postponing unilateral action until this mandate is fulfilled could prove a tempting option for a president who doesn’t exactly need to come under fire from new fronts.

Moreover, if the commission’s ideas don’t pass U.S. muster, Mr. Trump would be in a much stronger position to slap the tariffs on everyone, and vow to maintain or even increase them until meaningful, concrete agreements are reached.

President Trump has been sending surprisingly (at least to me) mixed signals on trade since his Inauguration Day two-step – killing the TPP but refraining from labeling China a currency manipulator. Big Week in trade isn’t likely to clarify the picture fully, but we’re bound to know more at its end than we do here at the beginning.

Our So-Called Foreign Policy: Who are the Real “Hot Heads”?

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alliances, allies, America First, Asia, China, Cold War, establishment, Europe, foreign policy, foreign policy establishment, globalism, H.R. McMaster, internationalism, interventionism, Jim Mattis, Jonathan Stevenson, national security adviser, NATO, NATO expansion, North Korea, Obama, Our So-Called Foreign Policy, Populism, Russia, Stephen K. Bannon, The New York Times, Trump, U.S. military, Vietnam

The Mainstream Media remain useful as a mouthpiece for an American political establishment that retains all too much power to frustrate Trump-ian – and other populist – impulses. So it’s vitally important to identify and evaluate emerging narratives they’re trying to propagate. And one that’s been especially prominent – and pernicious – is the habit of dividing the president’s top aides into the voices of reason (my term) and the “hot-heads.” A great example of this habit and the dangers it can foster, is Jonathan Stevenson’s February 21 New York Times column on President Trump’s appointment of Lt. Gen. H.R. McMaster as his new White House national security adviser.

According to Stevenson – a national security veteran of the Obama administration – McMaster is a welcome addition to the voices of reason. In particular, his selection is portrayed as combining with that of former general Jim Mattis as Defense Secretary to strengthen a firewall against the “hot heads” (Stevenson’s term) that also have Mr. Trump’s ear.

Part of the reason Stevenson likes McMaster and Mattis et al is that he believes they will oppose “pointlessly disrupting” strategies and positions that he and many other establishment-arians (on both sides of the aisle) view as successes, or the best possible approaches – like the “One China” policy, the Iran nuclear deal, and immigration initiatives that seek to admit more refugees and other newcomers from the Middle East in hopes of winning hearts and minds in the Islamic world. I personally don’t agree with the Stevensonian/establishment view, but reasonable people can legitimately differ on these matters.

What’s much less reasonable, and genuinely dangerous, is Stevenson’s other reason for liking the world’s McMasters and Mattis’, and disliking its Stephen K. Bannon – the Trump aide who he and so many others view as a quintessential extremist and populist hot head. As the author sees it, McMaster is one of the national security professionals who will help make sure that American diplomacy won’t be unduly influenced by Trump-ists like Bannon. These ostensibly shallow, narrow-minded politicos supposedly see foreign policymaking not as an exercise in advancing and safeguarding the country’s most critical interests, but simply as a means of boosting or protecting a president’s popularity.

Although foreign policy can never be entirely separated from domestic politics – and in a democracy, shouldn’t be so separated – over-politicization can of course produce disaster. But Stevenson’s main historical example (the gradual escalation of the Vietnam War), and his analysis of the Trump administration, get literally everything important wrong. For example, two of his leading Vietnam villains (and those of Gen. McMaster) are then Defense Secretary Robert S. McNamara and then national security adviser McGeorge Bundy. But far from being politicians who had any experience with the electoral process, or any apparent interest, they were quintessential establishment mandarins. In fact, it was their catastrophic advice that (rightly) turned “the best and the brightest” into a term of contempt.

The substance of their advice – chiefly, the championing of gradual escalation – can be faulted, too. But as Stevenson glosses over, this strategy enjoyed wide backing in the military, and not only among a group of military chiefs who McMaster and Stevenson dismiss as “inordinately politicized.”

Much more important, however, the fundamental mistake behind the Vietnam disaster was not the specific set of military tactics chosen, but the strategic decision to intervene militarily in the first place. And this choice reflected the strong internationalist consensus across the foreign policy establishment that, in the face of the Cold War community threat, every square inch of the globe had to be treated as a vital American interest, whether it held any specific geopolitical or economic significance to the United States or not.

Now fast forward to the present. Who’s more likely to embroil the United States into a needless military conflict that could spiral into a complete debacle? Mere “politicos” like Bannon – and his boss – who have complained (most recently in the Inaugural Address) that America has too often “defended other nations’ borders while refusing to defend our own”? Has “spent trillions of dollars overseas while America’s infrastructure has fallen into disrepair and decay”?

Is a new Vietnam really what can be expected from a president who has declared, “We will seek friendship and goodwill with the nations of the world – but we do so with the understanding that it is the right of all nations to put their own interests first.

“We do not seek to impose our way of life on anyone, but rather to let it shine as an example for everyone to follow”?

For my money, I’d bet on the genuinely reckless foreign policy moves being advocated by figures from an establishment that, in the wake of Mr. Trump’s election, is doubling down on its support for internationalism – and therefore for the indiscriminate interventionism that logically follows from it. Indeed, lately this allegiance to internationalism has even blinded the establishment to rapidly mounting dangers from the pillars of post-World War II foreign policy – America’s security relationships with Europe and Asia.

In the former region, a completely unnecessary expansion of the North Atlantic Treaty Organization (NATO) to include former Soviet republics and other nearby countries has committed the United States to protect lands that can be defended only by he threat of using nuclear weapons even though they have never been viewed as vital interests. In the process, of course, this NATO expansion has triggered a military and paramilitary reaction by Russia that has all of Europe on edge.

In Asia, America’s two likeliest adversaries – China and North Korea – are rapidly becoming capable of offsetting the nuclear weapons edge that has enabled Washington to protect countries like Japan and South Korea with little risk to the U.S. homeland. Ever more powerful nuclear forces now mean that Beijing and Pyongyang can use the credible threat of destroying American cities to deter U.S. military responses to any aggression they undertake.  (See this post for more detail – and for powerful evidence that Mr. Trump recognizes both problems.)

Indeed, in this respect, erring on the side of caution would involve President Trump siding with the America Firsters like Bannon – whatever short-term disruption their recommendations would bring – against the McMaster portrayed by Stevenson, and other establishmentarians he comfortingly but misleadingly labels as guardians of policy “stability.” That’s the last result that Washington will get from defining or simply wishing away lessons that have stared the nation and its leaders in the face for decades.