11◼ REMARKS Bloomberg Businessweek January 27, 2020PHOTO
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Trump’s approach. Now, Trump is focusing on Europe.
Ireland’s Phil Hogan, the European Union’s new trade com-
missioner, complained on a visit to Washington on Jan. 13-
that Trump is “obsessed” with the U.S. deficit in goods trade
with the EU. He said Trump’s agenda has helped bring about
“a high-pressure crisis moment for the international trading
system.” (Perhaps realizing he wasn’t getting off to a good
start with the readily angered U.S. president, Hogan later
praised the “cooperative spirit” of the American side.)
Where Trump gets his way, trade is gradually becoming
more managed than free. Free trade is about tearing down
barriers, then letting private parties decide what and how
much to buy from each other. Managed trade is about gov-
ernment negotiators setting goals or even quotas for pur-
chases of specific products. It’s about cutting mercantilist
deals rather than following rules.
The “phase one” deal with China that Trump signed
this month, with its commitment by China to buy $200 bil-
lion worth of U.S. products, is managed trade, says Gary
Clyde Hufbauer, a nonresident senior fellow of the Peterson
Institute for International Economics. It even has a classi-
fied list specifying what products China must buy and in
what volumes.
“The Chinese commitment represents a worrisome and
radical change in US policy and conveys a troubling mes-
sage to the rest of the world,” Hufbauer wrote in a Jan.
article on the Peterson Institute’s website. “The US Trade
Representative dipped its toe into managed trade with the
US-Mexico-Canada Agreement, by setting complicated ‘rules
of origin’ and quotas governing the content of imported auto-
mobiles getting trade preferences,” Hufbauer added. “But the
new US-China agreement is complete immersion. Price sig-
nals are out, quantitative commitments are in.”
It’snothappeningeverywhere.TheEUenteredan“eco-
nomicpartnershipagreement”withJapana yearago.China
cuttariffsonmorethan 800 productsonJan.1. But because
Trump is president of the most powerful country, with the
biggest domestic market, his approach is reshaping the
world trading system. The effects may endure even after
heleavesoffice.
TheebbingofAmerica’sfree-tradetideshouldn’tcome
asasurprise: The broad-based liberalization of trade that
FDR helped kick off in 1934 is an outlier in world history,
and incomplete at that. High tariffs were once a key source
of government revenue around the world. Even today, tariffs
are frequently justified as a way to protect infant industries
or militarily sensitive sectors. Businesses favor high tariffs,
“voluntary” restraints on imports, and hard-to-detect non-
tariff barriers because they can earn higher profits when pro-
tected from foreign competition. “Free trade turns out to be
something that helps a rising great power, until it doesn’t, and
which most countries claim to practice while trying to sub-
vert its principles as much as possible,” Bloomberg Opinion
columnist Pankaj Mishra wrote in December.
The command-and-control nature of managed trade● The recent decades of U.S.-led
trade liberalization are over. Say hello
to managed trade● By Peter Coy
At age 85, Jagdish Bhagwati has defended free trade for
decades. The professor of economics and law at Columbia
University even wrote a 2004 book called In Defense of
Globalization. He doesn’t like the way things have gone lately.
“My worry is basically that around the world, there are very
different reasons why people are beginning to despair about
free trade,” he says.
As economists such as Bhagwati never tire of saying,
international trade lowers prices and increases variety by
allowing producers in different nations to specialize in what
they do best. It promotes productivity and innovation. The
entry of China and India into the world trading system has
lifted hundreds of millions of people from destitution.
But free trade has always faced a chorus of critics ranging
from labor unions to environmentalists to national security
types, from powerful corporations to those suspicious of pow-
erful corporations. And now some of the players that worked
hardest to counter those forces and make trade freer—such
as the U.S. government—are themselves turning cool to it.
Trade in goods and services as a share of world gross domes-
tic product has flattened out in the past several years after
decades of increasing, according to data collected by the World
Trade Organization. Trade in goods alone has been falling since
around 2010 as a share of world GDP, perhaps because of a par-
tial unraveling of global supply chains, according to an analysis
byHyunSongShin,economicadviserandheadofresearchat
theBankforInternationalSettlements.Tradepolicyis a factor:
“Iwouldn’tsaymultilateralismis onlifesupport,butit’stime
forthemajorpartnerstoreinvestenergyintheglobaltrading
system, rather than build up walls, before it’s too late,” says
Myron Brilliant, executive vice president and head of interna-
tional affairs for the U.S. Chamber of Commerce.
Ever since President Franklin Roosevelt signed the
Reciprocal Trade Agreements Act in 1934, American presi-
dents have, with only a few exceptions, led the world in trying
to make trade between countries freer and more rules-based.
They helped launch the General Agreement on Tariffs and
Trade in 1947 and its successor, the WTO, in 1995.
President Trump is approaching things differently. He
views trade through the lens of national security. He’s an
avowed nationalist, not a globalist. He feels he has more lever-
age pursuing bilateral trade deals than multilateral ones. He’s
unhappy when the U.S. runs a trade deficit with a trading
partner. And he loves tariffs—because “otherwise we have no
cards to negotiate with,” as he said on Jan. 15.
Mexico, Canada, Japan, and China have had a taste of