Many economists believe that the future of some key international trade pacts such as the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP) is in doubt.
Also in doubt is the fate of the Transatlantic Trade and Investment Partnership (TTIP) trade deal, for which the European Union (EU) and US officials have been negotiating for more than three years now.
A pillar of US president-elect Donald Trump’s election campaign was his scorn for the cross-border trade pacts, who declared during electioneering that he would either pull out of, or renegotiate, these agreements.
Trump’s comments during the campaign raised fears about trade wars, as the president-elect railed against various free trade deals and at times threatened to slap a 45% tariff on Chinese imports and a 35% tariff on some Mexican imports.
While an extreme move is unlikely to have support in the US Congress, Doug Porter, an economist noted that the president can impose temporary tariffs of up to 15% to address large current account deficits without Congressional approval. China and Mexico are said to account for over half of the US trade deficit.
NAFTA, which was signed in by president Bill Clinton in 1994, covers 530mn consumers in Canada, the United States and Mexico. According to accord regulations, the US must give its partners’ six-months’ notice before pulling out of it.
As for the TPP, though it was signed by President Barack Obama, it must still be ratified by Congress, something that has not yet happened and which may make withdrawal easier.
Market analysts say inevitable consequences will follow if Trump keeps his protectionist promises such as tariff on Chinese on Mexican products. Retaliation from abroad may result in American products becoming costlier in global markets. This may further diminish the American market share in global markets and consequently lead to many job losses in the US.
On the other hand, Trump’s campaign argue that his economic and trade plan would be based on creating jobs in the US and overturning big companies’ tendency to outsource jobs to other countries as part of the globalisation process.
He has also committed himself to a large increase in infrastructure projects and a cut in both corporate and high income earner’s federal income taxes.
Trump’s plan to cut taxes could boost consumer spending and the reduction of corporate taxes from 35% to 15% could attract multinationals.
However, the proposed cuts would reduce tax revenue by more than $6tn over the next decade, a huge burden given his plan to increase defence spending and maintain ‘Social Security’ and ‘Medicare’ levels in the US.
Trump has long argued that international trade deals hurt US workers and his country’s competitiveness, but it is not yet clear as to what extent Trump the president will resemble Trump the campaigner.
