Just before the end of his first week at the White House, the new US president, Donald Trump signed the withdrawal of his country from the Trans-Pacific Partnership Agreement, signalling the beginning of an unorthodox era for the international trade politics of USA. He stated that will take all appropriate decisions in order for the United States to start producing domestically any kind of products (intermediate or final ones) needed. He stated that the US will soon proceed to the renegotiation or withdrawal from North American Free Trade Agreement (NAFTA). These moves have already produced a vast number of analyses (for or against), by the international and American press. Several major potential impacts can be demonstrated based on the theoretical and empirical analysis of the economics of international trade.
First of all, the external trade of USA, according to 2012 figures, is mainly directed towards the major European markets (Germany, UK and France), Mexico (third largest export destination) and China (second largest export destination), countries with which the US president has created conditions for a trade dispute. Foreign leaders of the aforementioned countries are well aware of these figures and, at this stage, what they are trying to convey to the new US president through “cautious” statements is that his country will suffer too from the introduction of restrictions on international trade.
Additionally, a substantial proportion of US exports go to Europe, including through two major European ports, that of Rotterdam in Netherlands and Antwerp in Belgium, i.e. where the heart of the European Union is. This means that the European Union is able (in case US imposes any kind of taxation to European exports) to introduce similar barriers for the American products exported not only for European markets, but for many destinations in the world as well.
In the American continent, increased trade with Mexico and Canada (largest export destination of the US in 2012) is largely due to NAFTA which the US will soon require a revision, or a full withdrawal. In this case, the USA will have to take into account levies on US exports, a potential burden which will reduce their competitiveness and allow other countries, such as Germany, China or South Korea (just to mention some nations that base their entire development process on exports) to find a suitable environment for strengthening their trade position in the “yard” of USA, that will likely cause a respective drop in US exports.
Following the US withdrawal from the Trans-Pacific Partnership Agreement, numerous analyses have been produced arguing that China is well placed to fill the gap that the US leaves. Furthermore, many of the US produced industrial products will become more expensive as 60% of imports from Mexico and Canada are raw materials for their production.
Another point for consideration is the possible generation of distortion conditions in the US international trade (imports and exports) which will have, at least in the medium term, a negative impact both on American’s consumer choices, and their income, as well as to the productive capacity of the country. Without even knowing the extent and degree of possible interventionist moves by the US government, American consumers could be affected by the price increases in imported products for which the country has no production competitive advantage due the low salaries in the places where these commodities are produced or assembled (e.g. clothing or food, but also industrial products such as American research, development and designed mobile phones – see for example iPhone). This will inevitably lead American consumers to restrict their consumption choices and cause a reduction to their incomes (as they will have to pay more money to buy the same products, whether domestically produced or imported).
Much more can be written about the consequences of the potential distortion of international trade, even if this country is the USA, which since the 1940s are the major producer of global economic growth. In this piece, however, I have focused on some direct negative consequences for the American citizens and businesses, because if these political acts were taking place ten or twenty years earlier, the United States would certainly be in a much more advantageous position. But now there are numerous countries like China, South Korea, Australia and the majority of EU (individually and as a whole) which have created solid operating bases with few or no intrusive rules on international trade, and highly competitive products to the USA (mobile phones, computers, televisions, cars, clothes, just to mention a few) that are ready to cover markets from which the US will withdraw commercially.
Nevertheless, developments in the next months or years will provide valuable empirical material in many academics to “control” economic theories, in a real environment. As for our daily lives, will hopefully prevail prudence and logic because, economically and politically, our world is not yet ready to manage a major US retreat from world events
Dr Lavrentios Vasiliadis