In the midst of the coronavirus pandemic that’s wreaking havoc on the United States and the world, trade issues might not seem to be of upmost importance.
But as the presidential election draws near, experts on a Flexport webinar, “The State of Trade: What Comes Next? The Looming Election and the Politics of Trade,” discussed why certain trade issues might just make a difference.
“It’s a political season, so we want to talk about what politics means for trade and what trade means for politics,” Phil Levy, chief economist at Flexport, said. “There’s a conventional wisdom, which is that trade is not a huge issue in elections. You say it to appeal to certain groups, but it doesn’t matter that much to them.”
What history shows
However, he said there have been recent times where trade issues crept into the fore. This included then-Vice President Joe Biden’s decision not to run in 2016 over the thorny issue of the Transpacific Partnership (TPP) because former Secretary of State Hillary Clinton came out against it when she became a candidate, but then-President Barack Obama had championed the trade deal.
Then there was the midterm election in 2018, at which point the country was already embroiled in a trade war with China. It was just getting rolling, Levy noted, and a study showed that the tariffs both countries imposed “actually influenced the way people voted” and resulted in a loss of seats for Republican candidates.
“I think all of this shows…that there is certainly an intense, but small share of the electorate that does care about trade,” Scott Lincicome, senior fellow in economic studies at the Cato Institute, said. “Typically, at least pre-2018, that leaned more protectionist…in order to cater to that small but intense minority. And because they know that most people don’t care and don’t vote on the issue, they think they can get away with it.”
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Historically, trade tends to be a “top down, rather than a bottom up, issue for the majority of the electorate,” Lincicome said.
“As Trump rose to power in 2015 and 2016, you saw Republicans who used to be pro trade suddenly become anti-trade and you used to have Democrats in the last few years who used to be anti-trade are now suddenly very pro trade,” he said. “I would argue that much of these opinions reflects not some strongly held view on trade policy, but instead, signaling from political leadership.”
Michael J. Smart, managing director at Rock Creek Global Advisors, said he thinks trade is an issue that politicians have been able to use effectively to their advantage.
“Geography matters and Trump’s positioning and campaign rhetoric on trade in 2016 paid dividends in the industrial Midwest across Pennsylvania, Ohio, Michigan, Wisconsin, areas that have been most sensitive to import competition, particularly from China,” Smart said. “So yes, does trade matter. The other thing I would say is that politicians have been able to use very specific issues within trade policy to rally important stakeholders. It’s certainly been the case with unions who exercise a lot of influence on the Democratic side, both [with] mobilization and fundraising, but also a lot of folks in the NGO community who have seized on particular labor or environmental issues.”
On China and protectionism
Smart felt that there is agreement on China and the economic, commercial trade and investment-related challenges posed by the Chinese market.
“I think there’s a tremendous amount of bipartisan agreement, whether you’re talking about industrial subsidies, favoritism of state-owned enterprises, relatively high tariffs, theft of intellectual property rights, the diagnosis of the problem is very similar,” he said. “So, whether you have a second Trump term, or a first Biden term, after Nov. 3, I think the objectives will remain quite similar.”
He said the other area of agreement he sees is in buy-American requirements. Trump ran on such policies and sentiments, he noted, even if he hasn’t always followed through.
“In some of Biden’s initial statements, you also see a fair amount of sympathy for the idea that whatever we spend on procurement using taxpayer dollars should be spent in the United States,” Smart said.
As for areas of disagreement, he cited Europe as an example, noting that Trump has gone after the European Union on a number of fronts.
“I don’t think that Biden would do that to the same degree and that’s not how he’s talking on the campaign trail,” he said. “I would also say that he would be more inclined to embrace the idea of a multilateral trading system and solving issues at the WTO.
“During the course of the campaign you’ll also hear the Biden folks talk about things that we need to do at home, kind of an affirmative offensive agenda, to make the United States more competitive globally,” Smart added. “Whereas, I think on the Trump campaign, you hear more about how we are defending against the unfair practices of other countries.”
For his part, Lincicome said on the global stage, “the Trump administration is far more unilateralist, although they have made some overtures to the EU and Canada, but let’s face it, it’s very difficult to have any sort of agreement there when you’re also at the same time hitting your close allies with national security terrorists.”
On the other hand, he said, “I think the Democrats are going to try to play footsie with Trump’s trade war,” claiming that the trade war has failed, but they don’t want to take a position on the tariffs in particular and on removing them. Instead, Lincicome believe it will be “open to the imagination about how they would prosecute these trade conflicts better.”
Local or national
Levy asked Lincicome and Smart whether they thought trade issues were going to be a national or battleground debate, narrowly targeting the Blue Wall states of the industrial Midwest.
“I think the Trump campaign will make the argument nationally, but I think it’s going to resonate the most in the industrial Midwest, just as it did in 2016,” Smart said.
He said from Trump’s perspective, Biden supported the three most important agreements: the North American Free Trade Agreement, permanent normal trade relations with China when they came into the WTO, and TPP when he was vice president.
“I think that you could bet on the Trump campaign using those three issues, together with a soft-on-China message that he hopes will resonate with voters in those states, particularly, that have been impacted by competition from China,” Smart said.
Lincicome noted, however, that the Republicans did try this a bit in 2018 “and it wasn’t very successful.”
“I do wonder how effective this will be, particularly given that Biden and the Democrats seem all too willing to be very tough on China and to be economic nationalists in a lot of other ways,” he said. “The Democrats are going to say the China deal is a massive failure, and that China, basically, pulled one over on Trump, and that he sacrificed all of these important issues, particularly on human rights, in order to get some additional soybean sales that didn’t even materialize in the first place. And my guess is that that will be a very prominent part of their pushback against the idea that Trump is strong on China and Biden is weak.”
Probably most important are the tariffs that came during the U.S.-China trade war, which Lincicome doesn’t see going away.