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Trump and Reagan: Whose trade policy wins?

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By Michael R Czinkota

After signing the United States - Mexico - Canada agreement and Phase 1 of the China trade deal, U.S. President Donald Trump has now moved his international trade focus onto one of the closest U.S. allies, the European Union. During the World Economic Forum in Davos, Switzerland, he proposed tariffs on auto imports from the EU, on wines, cheese, yogurt, and handbags from France, and on whiskies from Ireland. 

The international trade policy efforts by Trump are remindful of President Ronald Reagan. Both presidents are stars of the Republican party and very frowned upon by Democrats. Trump and Reagan were focused on reducing the U.S. trade deficit and increasing the global competitiveness of U.S. industry.  A look onto the past will provide a better understanding on whether Trump’s bold approach to trade policy wins over Reagan’s more sedate procedures. 

The 1980s

The U.S. trade deficit was significant and growing precipitously. In the early Reagan years, it averaged $30 billion and reached $123 billion by late 1984. 

Reagan’s preference for free trade contributed to the administration’s initial lassitude on this deficit. Gradually, however, calls for protectionism emerged. Examples were the U.S. automotive and footwear industries. Even clothespins were considered by some worthy of protection against foreign imports. In response, Reagan signed the Trade and Tariff Act of 1984 to reduce unfair global trade practices. There were also additional efforts to increase exports. Reagan announced bilateral trade agreements with Israel, and later with Canada. New rules were implemented to ease U.S. trade with China, yet the trade deficit continued to rise and reached $148 billion in 1985. 

The final, major trade legislation of the Reagan administration was the Omnibus and Competitiveness Act of 1988, which authorized negotiations in the General Agreement on Tariffs and Trade (GATT) and required the U.S. Trade Representative to take aggressive corrective action against countries that had large trade surpluses with the U.S.

The end of the Reagan years coincided with a sharp rise in globalization forces. The emergence of new technologies in transportation, communications, and information dramatically lowered the costs of international business and marked a rise of worldwide competition.

Trade policy after 2016

Similar to Reagan, Trump has focused on fair trade. Some consider his approach more aggressive and populist. Trump ignited a new fervor in international trade policy. His tariffs have been imposed rapidly and often with little debate. His style has managed to concentrate the focus of trade partners. The constantly hammered message says: trade is now important to the U.S. 

Trump has argued consistently that the U.S. has been ignored or treated unfairly for decades in trade related matters. He has pushed an “America First” policy with no more ongoing global support from the U.S. He renegotiated the North American Free Trade Agreement (NAFTA), withdrew from the Trans-Pacific Partnership (TPP), as well as criticized major companies such as Carrier, Ford and Mondelez – for selecting their production location without patriotic consideration. 

Trump tariffs of 2018 covered about $304 billion of imports into the U.S. Together with other forms of protection, they have had limited effects on the U.S. trade deficit. Some countries filed formal complaints against the U.S. with the World Trade Organization (WTO).  Trump responded by threatening corrective measures against the WTO if U.S. interests were not considered.

Comparing Reagan and Trump

Reagan’s policy endeavors were initially quite modest but became more assertive over time. Efforts sought to reduce the growing U.S. trade deficit with Japan and bolster American industrial exports. Trump’s trade deficit is significantly larger both in real and relative terms. Trump’s policy uses more harsh, aggressive, and clear approaches stating his expectations and demands, as well as reflecting the consequences of nonconformity.

Efforts by both the Reagan and Trump administrations to “level the playing field” have met with insufficient success. The powers of China and emerging markets are rising. American influence around the world should not become precarious. The time is right for further enlightened action on international trade. Countries need to understand the drivers of U.S. policy, which requires embracement of new approaches, new linkages, and new leadership directions for an entirely new era. 

Professor Michael Czinkota teaches international marketing and business at Georgetown University. His most recent book is In Search for the Soul of International Business, 2019. He served as Deputy Assistant Secretary in the U.S. Department of Commerce in the Reagan and Bush Administrations. 

© Japan Today

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American influence around the world should not become precarious. The time is right for further enlightened action on international trade. Countries need to understand the drivers of U.S. policy, which requires embracement of new approaches, new linkages, and new leadership directions for an entirely new era. 

Why do other countries have to understand the drivers of US policy, when said drivers don't even understand it themselves?

0 ( +0 / -0 )

I remember an expression from my days in computer programming: GIGO. It stands for "Garbage in, garbage out." One can apply that expression to people as well. Just as computers are only as good as the information put into them, so are the thought processes of people. Those who fill their heads with misinformation cannot be expected to think logically.

2 ( +2 / -0 )

Due to his ignorance and prejudices, Trump's trade policies have been a disaster. 

OMG, 1glenn, you really have to have your head buried in the sand to say something like that.

Sure, some U.S. companies have been negatively impacted by Trump's tariffs / trade policies, but you have to look at the overall picture:

From RealClearPolitics:

Jobs – The stunning recent news on employment proves, more than any other metric, the efficacy of President Trump’s growth doctrine of economic nationalism and the diffusion of power. Defying globalist skeptics from Wall Street, academia, and the corporate media, payrolls surged in America in 2019. The most recent jobs report revealed a plethora of records and extended the wage-growth winning streak to 16 straight months above a 3% pace, a mark seen only three months total during the sluggish Obama years. In addition, the fastest wage gains now flow to those groups that formerly lagged badly in the slow-growth recovery following the Great Recession. For example, the lowest 10% of earners saw income grow at an astounding 7% rate over the last year. Similarly, those without a high school diploma welcomed 9% wage acceleration in 2019.

From The Washington Examiner:

4 million new jobs have been created since the election, and more than 3.5 million since Trump took office.

More Americans are employed now than ever before in our history.

Jobless claims at lowest level in nearly five decades.

The economy has achieved the longest positive job-growth streak on record.

Job openings are at an all-time high and outnumber job seekers for the first time on record.

Unemployment claims at 50 year low

African-American, Hispanic, and Asian-American unemployment rates have all recently reached record lows.

Women’s unemployment recently at lowest rate in nearly 65 years.

Unemployment rate for Americans without a high school diploma recently reached a record low.

Rate for disabled Americans recently hit a record low.

Blue-collar jobs recently grew at the fastest rate in more than three decades.

Last year, job satisfaction among American workers hit its highest level since 2005.

Nearly two-thirds of Americans rate now as a good time to find a quality job.

Optimism about the availability of good jobs has grown by 25 percent.

Added more than 400,000 manufacturing jobs since the election.

Manufacturing employment is growing at its fastest pace in more than two decades.

100,000 new jobs supporting the production & transport of oil & natural gas.

This is NOT a disaster.

-2 ( +0 / -2 )

Due to his ignorance and prejudices, Trump's trade policies have been a disaster. His trade wars have been a lose-lose proposition; bad for everyone involved. Thousands of American farmers have gone bankrupt. Harley Davidson and Tesla have been forced to set up manufacturing plants overseas, in order to avoid the reciprocal tariffs placed on American manufactured goods. The trade deficits under Trump are the largest they have ever been. Incompetence and corruption do not qualify one to be President.

1 ( +2 / -1 )

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