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Why the politics of trade are getting harder for Donald Trump

Donald Trump mastered the ugly politics of trade during last year’s campaign and it helped him eke out a narrow victory in the Rust Belt states that made the difference. Yet the billionaire dealmaker is these days learning those same politics are far more complicated for American presidents once they enter the Oval Office.

The evidence lies in two of Mr Trump’s major trade initiatives: his attempt to renegotiate the North American Free Trade Agreement; and the plans to erect new trade barriers to protect the US steel industry that he is carrying to this week’s G20 summit in Hamburg.

Let’s start with steel. For weeks now, Mr Trump has been promising to crack down on steel imports, arguing that US national security is at stake and that new protections from dumped foreign steel are the answer.

The president and the economic nationalists in his administration seem non-plussed by the idea that this might set off a trade war with not only China but allies in Germany, Japan and South Korea. But the move also has at least briefly stalled thanks to the emergence of domestic opponents and resistance from economic pragmatists in the administration.

There is no doubt that a move to impose new quotas or tariffs on steel imports would be cheered by much of Mr Trump’s “America First” base and lead to plenty of flag waving in the short term. 

His political problem, however, is that every steel mill — and clutch of votes — that would benefit economically from a new tariff on imports exists in an economy that contains dozens of other factories — and thousands of voters — which will be hurt by the resulting higher cost of an important input.

Then there are the millions of consumers who will in theory have to pay more for everything from cars to fidget spinners (steel ball bearings make them work, as my 12-year-old son will tell you).

Feeding them all are politically savvy farmers who fear their export crops will be the first target for retaliation in a trade war. Saving a steel mill near Cleveland may help you politically in industrial Ohio but it will equally hurt you in agricultural Iowa or Nebraska if it ends up causing China to block imports of American soya beans.

The political knot presented by Nafta is arguably even more awkward to untie.

Nafta was politically toxic in many manufacturing-dependent states long before Mr Trump went to work lambasting it during last year’s campaign as part of his bid to win over the blue collar vote in places such as Ohio and Indiana. And it is arguably even more poisonous politically now.

But with his bid to renegotiate it and extract a “fair” deal for American workers, Mr Trump is taking political ownership of Nafta. Worse, he is in the position of having both over-promised potential results and opened a Pandora’s Box of demands from industry. Moreover, he has done that from a much weaker negotiating position than he projected during the campaign.

As advisers pointed out to the president in April when he was mulling a withdrawal, pulling the US out of Nafta would be likely to drive the US into recession and hit his own supporters particularly hard. By opting to renegotiate instead, Mr Trump exposed his own trump card as a bluff to Canada and Mexico before negotiations had even started.

Domestically it is also unclear how Mr Trump can live up politically to his promises.

The jobs at auto and other plants that the president has promised to bring back from Mexico are unlikely to ever return. As Ford demonstrated recently, they are more likely to go to China, or to robots. 

The quickest and most likely result from any Nafta negotiation — if it ever concludes successfully — is a “modernisation” of the pact. It might tinker with some of Nafta’s old production rules and address the issue of currency manipulation. Almost everyone agrees it would append new digital, environmental and labour chapters that would look a lot like the ones Barack Obama extracted during the Trans-Pacific Partnership negotiations that included Canada and Mexico.

Mr Trump’s political problem is that one of his first moves as president was to pull the US out of the TPP, and absorbing parts of one vilified deal into another is hardly the sort of move populist re-election dreams are made of. Moreover, there will be little he can offer as a victory to his base in any such deal, and he may one day have to get a renegotiated Nafta through a Congress.

For what might happen there, look to what is happening now with healthcare. Republicans’ muddled efforts to repeal and replace Obamacare have created an even less popular political target: Trumpcare. If a renegotiated Nafta ever came to Congress, it would quickly become the “North American Free Trump Agreement” and a weapon Democrats could wield for many political cycles to come.

There’s a simple lesson in all that for populists everywhere. Vilifying trade is easy politics. Making it work is hard.

Follow Shawn Donnan on Twitter: @sdonnan

Chart of the week

Here’s a counter-intuitive thought: Is Donald Trump causing the rest of the G20 to become less protectionist? According to the latest report from the Global Trade Alert, an academic enterprise that has been monitoring protectionism since the 2008 crisis that may well be the case. In the first six months of this year G20 countries took 435 actions hurting the commercial interests of other leading economies. That was down from more than 800 in the first six months of 2016.

Further reading

From the FT (visit ft.com/trade, our new hub for global trade coverage):

● Gillian Tett thinks Donald Trump’s steel crack down would do little for American workers. 

● “The administration should reverse course forthwith.” The FT’s editorial board weighs in on Mr Trump’s steel plans.

● The EU and Japan appear likely to strike a political agreement on a trade deal at a summit in Brussels on Thursday. 

From our colleagues elsewhere: 

● What happened to the US aluminium industry? It moved to Iceland, according to the New York Times’ Binyamin Appelbaum. 

● Axios on the cabinet meeting where almost everyone but Donald Trump wanted to avoid a trade war. 

● Phil Levy of the Chicago Council on Global Affairs on the narrow US political window for trade deals. 

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