President Donald Trump’s campaign vow to renegotiate trade deals that he blamed for gutting U.S. factories and shipping good-paying jobs overseas has reopened debate about who benefits from global commerce.
Free trade isn’t free because of other kinds of bureaucratic hurdles that add costs and hinder the cross-border flow of goods, according to Ethan Harris, head global economist at Bank of America Merrill Lynch.
“Truly free and fair trade also requires regulating more subtle, behind-the-scenes policies that discourage imports and encourage exports,” he said in a January 27 report obtained by Newsmax Finance.
One of Trump’s first executive orders was to withdraw from the Trans Pacific Partnership that the Obama administration had negotiated with a dozen Asian countries except China. Trump criticized the trade agreement during the presidential campaign for putting U.S. workers at a disadvantage.
Trump also is a staunch critic of the North American Free Trade Agreement approved by the Clinton administration. A White House spokesperson this week said the U.S. may impose a 20 percent tax on Mexican imports to pay for a border wall between the countries.
The biggest enemies to free trade are Non-Tariff Measures that countries use to put foreign competitors at a disadvantage, according to research cited by BofA’s Harris.
One survey found a “laundry list of complaints” among businesses that were forced to deal with red tape like “technical requirements,” “conformity assessments,” “quality control measures,” “charge, taxes and price control measures” and “rules of origin.”
Businesses can face paralyzing uncertainty from bureaucrats who set standards that “are designed, applied or enforced in a non-transparent or arbitrary manner that disadvantages foreign producers,” according to an OECD study in 2005.
Confronting China
Harris says the Non-Tariff Measures will be a focal point in negotiations between the U.S. and China, the world’s two biggest economies.
“With the Trump administration still building up its trade team it could take some time before specific demands are made,” Harris said.
While Trump has backed off from his threat to declare that China is a currency manipulator, major points of friction involve China’s alleged “dumping” of industrial materials onto world markets as the country’s overbuilt factories can’t find enough buyers.
The Obama administration filed a complaint with the World Trade Organization alleging that China was subsidizing its aluminum industry.
Meanwhile, the U.S. has labeling, health and environmental standards among other measures that weaken imports, Harris said.
“Taxpayer support to financial and auto companies during the crisis can be seen as a form of local favoritism,” he said. “Trump’s criticism of companies that move jobs to Mexico can be viewed as a non-tariff barrier.”
U.S. goods and services trade with China totaled an estimated $659.4 billion in 2015, according to the U.S. Trade Representative. Exports were $161.6 billion; imports were $497.8 billion.
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