ACCORDING to a document crafted by the Trump administration, a model trade agreement has 24 elements. Second on the list is “trade-deficit reduction”, giving a hint as to why Mr Trump wants to review America’s existing agreements. In January Sean Spicer, his press secretary, said the administration would “re-examine all of the current trade deals.” A presidential order to do just that is reported to be in the offing.
America boasts 14 bilateral and regional free-trade agreements (FTAs). Mr Trump seems to blame these agreements for America’s large trade deficit. Most economists disagree, seeing it as reflecting macroeconomic imbalances. The FTAs are in any case with countries representing just two-fifths of America’s two-way trade in goods, and less than 10% of its goods-trade deficit (see chart). Most (77%) of America’s deficit stems from trade with China, the European Union and Japan. None has an American FTA.
A focus on trade deficits means that tiddly deals such as those with Jordan and Oman will not face much heat. NAFTA (an agreement with Mexico and Canada), and KORUS (South Korea), will face more scrutiny because of chunky American deficits with these countries. Israel is the next biggest trade-deficit offender. But Mr Trump seems unlikely to attack that FTA, America’s oldest.
A review of trade deals is hardly revolutionary. More recent ones, like KORUS, have committees dedicated to monitoring them. And both the Mexican and the Canadian governments have accepted that NAFTA should be updated for things like e-commerce. They saw the Trans-Pacific Partnership, agreed to in 2016 by the NAFTA three and nine other Pacific Rim countries (and jettisoned by Mr Trump), as part of that process.
Last year geeks at the United States International Trade Commission (USITC) published a 373-page, evidence-based assessment of America’s trade deals. It found that they were positive, but not transformative, raising GDP by 0.2% in 2012 and, in 2014, saving consumers $13bn through lower tariffs. Also, the USITC estimates that each of America’s trade deals has tended to improve the bilateral trade balance. Without NAFTA, the USITC estimates that the goods deficits with Canada and Mexico would be larger by around 3% of total bilateral trade. Trade deals tend to slash other countries’ tariffs more than American ones.
So it is unclear how poring over trade deals will achieve Mr Trump’s goal of squashing the trade deficit. Others have a different worry. Trade agreements are supposed to be win-win. Concessions must be sold domestically. As Michael Froman, Barack Obama’s trade representative, notes, “other countries have politics, too.”