Speculations are in order as the world’s superpower is set to decide the face of its country for the next four years. In these unprecedented times of an ongoing pandemic, despite a call for delay by Trump, the United States of America is steadfast in preserving its democratic values. The elections are scheduled to proceed as always on Tuesday after the first Monday of November, which is 3 November 2020. Owing to Covid fears, early voting figures stand at 52 million as of 23 October, 10 days before the election day which already exceeds the total early vote number of 47.2 million in 2016 elections. In the face of over 2 lakh Covid caused deaths in the country, millions of Americans are still expected to turn out to cast their vote on the election day as the future of America is on the line. The world is watching anxiously as the US hegemony shapes the political and economic position of countries worldwide.
Due to a de-globalization and protectionist sentiment, the international economy had been weakening even before the inception of Covid. In 2019, the world merchandise trade in volume fell by 0.1% after a 2.8% increase in 2018. Furthermore, this decline was striking when compared to the 2.3% average increase since the global financial crisis of 2008-09. While trade in commercial services increased by 2.1% in 2019, the figure is disappointing when compared to the 8.4% rise in 2018. Covid has been a catalyst to this declining trend as trade is expected to shrink by around one-fifth and FDI flows by up to 40% in 2020 as per the UNCTAD report. The US was the largest importer(13.4%) and second-largest exporter(8.7%) of merchandise trade as well as the largest importer(9.8%) and exporter(14.1%) of commercial services in the world in 2019. Given that the US is the largest trader in the international economy, it is unquestionable that the trade policy of the elected President will have significant implications for the global trade reboot in economic recovery.
Anatomising American Trade Position
-$576,865 million: that was the US balance of Payment in 2019. Further decomposition of this figure shows that while the US is a net exporter of services with a trade surplus of $287.4 billion, the country fails massively in merchandise trade with a deficit of $864.3 billion. China, Mexico, and Canada are the top three trading partners of the country with China and Canada being the top import and export destinations respectively. While Canada and Mexico are signatories to a Free Trade Agreement in North America with the USA, China has emerged as a top manufacturing exporter to the world. The deficit of the US against China has been on the rise since the latter’s accession to WTO in 2001. Between 2001 and 2007, 16% of the observed decline in US manufacturing employment can be attributed to the China shock. Besides China, the US has a trade deficit with Mexico, Japan, and Germany among others while it enjoys a surplus against countries like UAE, United Kingdom, Netherlands, and Belgium. In services, while Travel(22%), financial services(15.5%), and charges for use of the intellectual property(13.4%) are top categories, top import categories comprise of Travel(22.8%), Transport(18.2%), and other business services(19.3%). Industrial supplies(32%) and capital goods(33.1%) are the main export end-use categories in merchandise trade with top import categories being capital goods(26.9%) and consumer goods(25.9%). The US, which last saw a positive BOP in 1975 has struggled thereafter as the rising US trade deficit has been a growing topic in political debate.
“America First!”: Trump and Tariffs for a second term?
Regarding NAFTA as “the worst trade deal”, China’s accession to WTO enabler of “greatest job theft in the history of America” and the Trans-Pacific Partnership as a “deathblow for American manufacturing”, Trump in his 2016 campaign promised to put America first in trade by renegotiating trade agreements and slapping tariffs on countries taking advantage of Americans. Three days after being sworn-in, Trump withdrew from the Trans-Pacific Partnership which was a proposed free trade agreement with 11 other Pacific Rim nations. The move was criticized to put America in a disadvantaged position as the other 11 countries went on to sign another trade deal. Since taking office, Trump’s protectionism raged a trade war, not only with China but also with some of the US’s trusted allies. On January 22, 2018, Trump imposed safeguard tariffs on solar panels and washing machines which resulted in both China and South Korea filing WTO disputes against the same. On 1 March 2018, the Trump Administration further announced tariffs of 25% on steel and 10% on aluminum that covered only 6% Chinese imports while hurting $48 billion imports from allies such as Canada, EU, Mexico, and South Korea. As some countries were exempted and others included in the battle later, there was retaliatory action from countries such as China, the EU, and Canada. Reports suggested that these tariffs though helping job creation will make steel users pay $650,000 for each job created. The US-China Trade war that was incited by these tariffs is still ongoing but it has been mildly deterred by the US-China phase 1 deal which came into effect on 14 February 2020. The deal necessitates China to increase US imports and the US to modify tariffs. Furthermore, on January 29, 2020, President Trump also replaced NAFTA with the United States–Mexico–Canada Agreement (USMCA) claiming it to be a fairer trade deal that will create more manufacturing jobs and prevent labor violations, especially in Mexico. During Trump’s Presidency while the deficit against China increased by 12.6% in 2018, after tariff impositions it reduced by 18.9% in 2019. The US deficit as a whole increased by 12.8% in 2018 and decreased by 0.52% in 2019. Trump’s trade policy is expected to continue on a protectionist stance if he resumes office for a second term. China will continue to be in focus as along with monitoring China’s compliance with the Phase one agreement, the Administration will also negotiate Phase Two of the trade deal. Needless to say, if reelected, the Tariff Man will strike again.
Trade Cooperation: Bidding on Biden
Like his Republican counterpart, Biden is also keen on bringing back jobs with his economic plan to promote “ Buy American”. While tariffs may not be at the forefront of his policy, Biden is still devoted to reducing import dependence through greater investment in manufacturing production and technology. He has called Trump’s manufacturing strategy “trickle-down economics” and criticized Trump’s trade strategy as one benefiting multinational banks over US workers. While Biden has claimed that Trump has been “weak” and “chaotic” in trade with China, emphasizing how it contributed to the decline in American manufacturing exports, he has not outright commented on withdrawing tariffs if he is elected. He will likely keep China’s tariffs in place. Biden might not be the Tariff Man that Trump is, he has stated that he is not afraid to use them but only when it is strategically beneficial and not to “fake toughness” like his Republican counterpart. His approach in dealing with China will also aim to rally the allies which seem to be missing for the Trump Administration. Furthermore, quite differently from the current Administration, Biden’s trade strategy also claims to include carbon adjustment fees against countries failing to meet climate and environmental obligations.
While both candidates claim a Pro-American-worker trade policy, their approaches to achieve the target varies. The outcome of elections will determine whether the Trade Policy of the US will be guided by Trump’s aggressive protectionism or Biden’s investment-driven and allies support approach. In a crisis struck world economy, the next President of the world superpower will ultimately have a big role to play. President Franklin D Roosevelt once said “ Economic diseases are highly communicable. It follows therefore that the economic health of every country is a proper matter of concern to all its neighbors, near or distant.”
Shalu is a second-year Master’s student at Ashoka University.