The trade war didn’t happen. Prepare for a few skirmishes.
It was high on many observers’ lists of things that could go badly wrong in 2017. Buying and selling of goods and services across borders not only increased last year, but also grew more than anticipated. This year may test whether that’s a durable trend or just an accident that flew in the face of politics.
Part of the thanks goes to a more vigorous global economic expansion. The resilience of the international system should also get its due: Supply chains that snake around the globe took decades to build up and aren’t just going to go away overnight because of a few tweets from you-know-who. Broad forces at work are bigger than one man.
This again makes me wonder whether politics, an arena where many journalists feel the most comfort, is overrated in its ability to influence underlying economic currents. Call me an economic determinist; the world hasn’t ended despite geopolitical ructions left and right.
That doesn’t mean there aren’t flashpoints that may become a very big deal if the economic and market environment shifts. And it doesn’t mean that the trade map isn’t being refigured.
Some quick words on the second point. The Japan-EU free trade pact, endorsed by leaders in July, aims to eliminate almost all tariffs between the two partners. Eleven nations left at the Trans-Pacific Partnership altar by Donald Trump are pressing ahead with their own version sans the US. Moves are afoot to tie the economies of Indo-China and Myanmar more closely to China.
Globalization may be changing its complexion, but it isn’t dead. It’s a mistake to conflate giant multilateral trade deals, as we have come to understand them, with global trade. Major dealings can exist without those major deals.
Let’s get to North American Free Trade Agreement, a looming mini-crisis. It’s foreseeable that negotiations won’t get any momentum until Trump announces his intention to withdraw from the decadesold deal. Whoa! Hold on. Aren’t the parties renegotiating, not quitting? Didn’t the US, Canada and Mexico dodge a bullet when farm-state Republicans explained to Trump the damage that ending the accord would wreak on parts of the country colored deep red?
Yes, but the talks are going nowhere. The last round, outside Washington, didn’t even have a ministerial presence. Politicians have a way of smelling a carcass. Things could get direction by March, when discussions may take a hiatus through Mexico’s presidential election on July 1. It may prove too tempting an opportunity for Trump to say he’s out.
You can almost see the tweet now: “Mexico and Canada aren’t taking the US seriously. I said when I was elected that I would always PUT AMERICA FIRST!!”
There’s more to pulling out than a tweet, of course. Withdrawal requires six months’ notice to Mexico and Canada. So the new Mexican president would have three months to come to terms. Critically, it would also give those same farm-belt Republicans and the lobbying might of K Street time to fully jump in and shape outcomes. Same goes for powerful lobbies to the north and south. At any point in the process, the administration could reverse itself.
And let’s not forget the courts. Instant filings against Trump’s travel bans may be a blueprint here. “Out” of NAFTA wouldn’t necessarily mean out. It may even lead to “in.” As an aside, Congress, in its deliberative greatness, may push to keep underlying tariff levels unchanged.
It’s unclear how much scope the president has to act alone. Nafta’s implementing legislation would remain on the books unless Congress repeals it. And Congress has broad constitutional authority over trade.
In the meantime, in the real world, stuff keeps getting loaded into trains, cars, trucks, ships and cargo planes. My Bloomberg colleagues Enda Curran and Andrew Mayeda reported the International Monetary Fund’s projections that the volume of trade in goods and services would rise 4.2 percent this year, up from 2.4 percent in 2016.
By Daniel Moss
Daniel Moss writes and edits articles on economics for Bloomberg View. -- Ed.