Trump’s trade agenda: Turn the page, fix the old, negotiate the new

Our president has been in different company this past week, and it shows. In his debut State of the Union address Tuesday, Donald Trump sounded forward-looking on America and the global economy. 

While some may have been merely hoping to limit further damage to our trading relations, we may have an opportunity for a fresh start.

{mosads}Over the past week in Davos at the World Economic Forum, he indicated there is a “good chance” of updating the North American Free Trade Agreement (NAFTA), promised a big and exciting trade deal with the United Kingdom and said he would even consider rejoining our friends in the Trans-Pacific Partnership (TPP). 

This is a stark yet welcome pivot from his tone just one year ago. I watched the inauguration again to get the full contrast: “This American carnage stops right here, and right now,” Trump shouted from the podium.

The signs at the time were clear. We were pulling out of NAFTA, the TPP and maybe even the World Trade Organization (WTO). The trade laws, rules and regulations Americans had been living by were all horrible. Listening to him, it seemed amazing we had even survived as long as we had. 

Fast forward to today:

The U.S. economy is looking strong on nearly all fronts, unless bad decisions or geopolitics get in the way. Presidents have little to do with the ebbs and flows of economic cycles, but regulatory reforms and the tax overhaul in Trump’s first year have added to the momentum.

Trump has the opportunity to ride this wave of economic growth — maybe even make it last longer. 

There are plenty of opportunities to exploit. The post-war trading system has certainly served our national interests, but few would disagree that modernization is necessary. Here are three avenues:

First, NAFTA does need to be updated, especially on digital trade and ecommerce. When the trade agreement was signed in 1995, a new company called Amazon was going public. A lot has changed since then.

Digital platforms combined with financial technologies are a springboard for firms — especially small ones — to the global economy. But American businesses still face barriers at the border that our governments need to tear down.

The de minimis threshold, the amount under which shipments can enter a country duty free, should be raised to help small businesses benefit from globalization.

Canada is holding out for fear of competition to their brick-and-mortar shops, but data suggest Canadian retailers will hold their own and even thrive. Over 99 percent of Canadian businesses on eBay’s online e-marketplace are exporters (compared to only 10 percent nationwide). It is time to unleash our own smaller retail firms and let them compete globally. The United States should insist on this update.

Second, our trading system needs retooling to address state-owned enterprises. The WTO is probably not able to foster multilateral agreement on this yet. The TPP is the best way to rein it in. China’s state interference with commerce, for instance, can lead to perverse incentives and an inevitable misallocation of resources.

Yan Chunlin, vice president for government affairs at International Paper Asia, describes how local governments across China have encouraged massive investment in the paper, steel and cement sectors with hastily approved projects for state-owned enterprises.

Excessively cheap and easy access to capital for government-chosen priority sectors and state ownership of large chunks of the economy creates all kinds of problems. Government-initiated projects can quickly turn into large scale productions without the type of intense scrutiny that private investors should provide.

Owing to the country’s sheer size, this leads to enormous overproduction, which can send painful ripple effects across the global economy. 

These ripple effects have been much larger than what policymakers apparently expected when negotiating China’s WTO accession. Better rules on state interference would allow the United States and others to deal with the source of the problem, instead of shooting ourselves in the foot with import taxes disguised as trade remedies. 

Third, the United Kingdom is about to go it alone as they exit the European Union. This is Trump’s opportunity for a state-of-the-art deal with this historic and natural ally. 

Turn the page. Fix the old. Negotiate the new. 

Christine McDaniel, a former senior economist with the White House Council of Economic Advisers and deputy assistant Treasury secretary, is a senior research fellow with the Mercatus Center at George Mason University.