Trade Winds — A Four-Part Series On Shifting Attitudes Toward Trade Agreements
Part 3: Rising Protectionism Among Businesses Requires Revisiting Trade Policy
This article was originally published on December 12, 2016 in Global Trade Magazine
On November 10, only two days after the election of Donald Trump to the United States presidency, Canadian Prime Minister Justin Trudeau remarked that he would be willing to discuss changes to the North American Free Trade Agreement (NAFTA).
The Canadian leader’s comments were in response to consistent declarations by the president-elect that NAFTA was a “disaster,” “defective” and “the worst trade deal ever” and needed to be renegotiated.
NAFTA isn’t the only free trade agreement (FTA) that has been the target of the president-elect’s criticism. The 12-nation Trans-Pacific Partnership (TPP), which would cement America’s economic ties with the economies of Asia and challenge the emergence of China as a regional hegemon, has also been called out by Trump as a bad deal for the U.S.
Many commentators have suggested the protectionist sentiment of Trump’s campaign was convenient political posturing. Only time will tell if that’s true. What we know for certain, however, is that those protectionist politics are reflective of a groundswell of resistance to trade activity and a resurrection of the Buy America movement. That groundswell has been incorrectly associated exclusively with disenfranchised workers in the country’s Rust Belt, who have seen a reduction in once abundant and lucrative production-line jobs. It is not only they who are growing resistant to globalization.
According to recent research conducted by Livingston International, protectionist sentiment among businesses in the U.S. is more than triple that of Canada with 27.3 percent of non-global American businesses stating they prefer to buy and sell locally, versus 8.4 percent in Canada.
Even more revealing are the sentiments harbored by U.S. businesses that do actively engage in free trade, with two-thirds stating the free trade agreements the U.S. has entered into have not had any noticeable impact on their businesses’ ability to compete. Those views are particularly pronounced among small businesses in the U.S. where almost half (45.9 percent) believe FTAs will not have any noticeable impact on their ability to compete, versus one-third of medium and large businesses.
To dismiss these views as being a short-term aberration or simply irrelevant would be irresponsible. They are indicative of a growing global movement of trade protectionism that was the source of discontentment that led to the UK’s Brexit and nearly prevented the signing of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union; a deal that was seven years in the making.
It would be equally irresponsible to suggest all FTAs are universally advantageous. Each agreement is unique and results in some industries winning and others losing. The organizations and workers disaffected by past and current agreements have grown reasonably resistant to the ill effects of global trade on their success.
The reality, however, is that the trade genie is not going to be put back into its bottle. The United States is only five percent of the world’s population—a world population and economy that is increasingly interconnected through global supply chains, regional trade blocs, and capital markets. To effectively compete with the other 95 percent of the world, America’s economy will need to trade with other markets and often through trade agreements that can reduce costs but sometimes add regulatory complexities.
To take the president-elect at his word, the U.S. will be embarking on a four-year odyssey of making existing trade agreements more advantageous. If there is a remedy to heal the disenfranchised, renegotiating better terms for existing FTAs may just be it. One alternative—scrapping the agreements altogether—is simply not viable if America is to continue to engage in global commerce and maintain its economic leadership. The other alternative—the status quo—may only add to the groundswell of protectionism and, in turn, a move toward isolationism.
Given the prominence of trade issues within the president-elect’s campaign platform and the zeal with which he campaigned on those issues, it is reasonable to predict that significant changes await those organizations that have made trade integral to their business model. It is foreseeable that businesses may need to continue to navigate the complexities of global trade within the framework of a new trade regimen. Successfully adapting will require careful planning and engagement with trade services partners to better understand what prospective changes might mean to the unique circumstances of each individual business organization.
The next four years will be critical to the evolution of America’s approach to diplomacy and multilateralism. All eyes will be on Washington as the new White House administration finds what many of its constituents have long yearned for—an approach to trade that is as moderate as it advantageous. The only question is exactly what that might look like.