Global Affairs Expert Webinar: Global Trade Policy
Inu Manak, fellow for trade policy at CFR, leads the conversation on global trade policy.
Speaker
Inu Manak
Fellow for Trade Policy
Council on Foreign Relations
Presider
Irina A. Faskianos
Vice President, National Program and Outreach
Council on Foreign Relations
FASKIANOS: Welcome to the final session of the Fall 2024 Global Affairs Expert Webinar Series. I’m Irina Faskianos, vice president of the National Program and Outreach here at CFR.
Today’s discussion is on the record, and the video and transcript will be available on education. CFR.org if you would like to share these materials with your colleagues or classmates. As always, CFR takes no institutional positions on matters of policy.
We are delighted to have Inu Manak with us to discuss global trade policy. Dr. Manak is a fellow for trade policy at CFR.
Previously, she served as a research fellow at the Cato Institute’s Herbert Stiefel Center for Trade Policy Studies and as a junior visiting fellow at the Center for Trade and Economic Integration at the Graduate Institute in Geneva. She is an expert in international and political economy and her research focuses on U.S. trade policy and the law and politics of the World Trade Organization (WTO), and she is a coauthor of The Development Dimension: Special and Differential Treatment in Trade, which was published in 2021, and is currently working on a book on U.S. trade policy’s bipartisan shift toward protectionism.
So, Inu, thanks very much for being with us. I thought we could begin if you could give us an overview of the current use global trade policies and how they might change under the incoming Trump administration.
MANAK: Thank you, Irina. It’s a pleasure to be here today and especially with this group of folks. I’m really looking forward to having a conversation with you all. Let me sort of set the stage for that a little bit by talking about how we can understand U.S. trade policy from a historical perspective and then what the implications are of current trends in trade.
So, if we’re to look at the last eight years of trade policy, we witness a shift in both the rhetoric and the substance. A striking feature has been the abandonment of traditional trade priorities of opening markets and maintaining the rules-based trading system. In fact, the United States has seen a broader change whereby policymakers not only question the value of trade and economic efficiency but have loaded trade with equal blame and burden and correcting what they perceive as inequities created by a policy of openness and economic cooperation.
Importantly, I would say that this shift is not just limited to a single party or presidency. Trump broke with the past by embracing a unilateralist and transactional style that leveraged a populist call to action to address the grievances of certain segments of society whether or not those problems were a product of trade or not. And then President Biden, largely, continued the Trump administration’s trade policy and went further in some ways by championing an industrial policy and rolling out a reshoring agenda through his self-titled worker-centric trade policy.
Now, in all of these actions the international trading system and the World Trade Organization, which has long been the space to settle trade disputes between countries and to negotiate new high standard rules, became decentered from that. What we may be about to witness next year is sort of the completion of this cycle of U.S. trade disengagement and disengagement from leadership in the global trading system itself, which I think will have consequences that stretch far into the future.
Now, if we’re trying to make sense of this I think we can look at some historical trends in U.S. trade policy itself. Economic historian Douglas Irwin in his book Clashing Over Commerce—I highly recommend you read it if you have not. I know it’s a really big book but it’s worth it. He explains how U.S. trade policy can best be understood as occurring in three distinct waves where trade debates have been shaped by various push and pull factors.
The first wave focuses, largely, on tariff policy. As a new nation we sought to ensure a steady flow of revenue to finance a growing government and infant industries. And then there’s the second wave, which begins at the end of the Civil War which marks a shift from viewing tariffs mainly as a source of government revenue to a means of protecting domestic industry.
At that time, you saw a major political realignment as the South lay devastated and the northern industrials and Midwest farmers found common cause in fending off foreign competition from Europe.
And then you have this third wave that emerges during the Great Depression when Congress delegated tariff policy to the president, paving the way for post-war U.S. trade policy that focuses on reciprocity and tariff liberalization.
Now, the Great Depression called for immediate action and the president could deliver it, and although Democrats and Republicans still squabble over the content of trade policy during this third wave the forces of protectionism, largely, fell away to a consensus in favor of lowering barriers to trade to support economic recovery and other broader foreign policy goals.
Today, and the focus of my research, is the current wave where we also have a bipartisan consensus but it’s no longer for trade liberalization. And, in fact, a lot of what we’re seeing in terms of proposals that are on the table look a lot like nineteenth century trade policy when the United States was a far less powerful and economically consequential power than it is today.
So why does this all matter? Protectionist waves often followed massive trade disruptions with trade contracting in the late nineteenth and twentieth centuries due to recession in Europe, the First World War, and then the Great Depression and World War II.
The challenge today is that the current wave of protectionism has lagged behind any major exogenous shock. Despite the bipartisan rhetoric of U.S. decline and a need to correct it, the United States by most indicators is doing very well. It was the fastest to recover from the COVID-19 growth slowdown, tamed inflation, and has seen low unemployment and record productivity.
And if we look at the global level, the World Trade Organization projects gradual trade recovery with goods trades projected to grow 2.7 percent in 2024, up a little from the previous estimate that they made earlier, about 2.6 percent.
Now, in a historical perspective that still means we’re seeing a slowdown over the last decade in terms of trade growth, which is not positive, but at the same time there is little indication that globalization itself has disappeared.
A big reason I think we’ve seen some of these slowdowns has been sort of the rise of geopolitical tensions, regional conflict, and economic policy uncertainty, and as these expand we can expect to see even worse projections next year such as from high energy costs and inflation in particular will have an impact on demand for goods.
But as inflation has come down maybe we can maintain some of this shift. But that could all change in the face of certain inflationary policies if they’re adopted such as mass deportation or tariff increases.
So let’s get into a little bit of that, too. What are some of these things that are being proposed? So, first, President Trump has threatened to impose across-the-board tariffs of 10 to 20 percent, which would have a major impact on all U.S. trade partners if they’re applied equally.
This would be the largest tariff hike in U.S. history since the 1930s. The question is where would it hurt the most. If we look at some of the studies that are out there, and there are many that have been released as of late, there’s one from Kim Clausing and Mary Lovely at the Peterson Institute for International Economics and they showed that a 20 percent across-the-board tariff combined with a 60 percent tariff on China would cost a typical U.S. household in the middle of the income distribution more than $2,600 a year. Their earlier estimates, looking at a lower tariff line which is about 10 percent, would be about $1,700 less than that but still substantial.
Now, if imposed this would be a highly regressive tax. If you think about just the basic purchases that you make every day, it’s mostly the poorest Americans that would be affected by some of these tariffs.
Now, second, if we look at some of the proposals out there there’s also an effort to raise tariffs on imports from China. I did mention the 60 percent tariff in the study from the Peterson Institute, but there is a push to do more than that potentially as well.
So these are tariffs that Americans are going to pay. This could either be through expanding the existing tariffs that are already in place that cover a broad range of goods. So this is what we call the Section 301 tariffs and the trade war tariffs against China that President Trump began.
So far both Trump and Biden have avoided raising tariffs on a lot of consumer goods like electronics and clothing but that could certainly change, especially if we did an across-the-board tariff and then did an additional tariff on Chinese products.
Now, one thing I will flag that if you shop online at websites that source products from China, you may be paying more for it next year, because Congress is also considering a bill that would get rid of duty-free treatment for imports under $800, many of which do come from China. So that’s the second thing.
The third thing I would say is that Trump has also called on firms to make more things in the United States—to reshore production that has left or to encourage others to invest here by raising tariffs so high that exports are cost prohibitive.
The problem with this idea is twofold. First, a lot of the jobs that left the United States are just not coming back and some have not been lost to trade at all but through automation, technological advancement, all sorts of other things.
Second, it belies the reality of how things actually get made here. Over half of what we import are intermediate goods that we then use to make up things to resell. So when you put a tariff on imports we’re essentially taxing U.S. ingenuity and profits. In fact, if you look at U.S. firms that trade in goods they support half of all jobs in the U.S. economy and almost three-quarters of those jobs are at firms that both export and import goods.
These export/import firms are major employers across key sectors of the economy, employing over half of all workers in manufacturing, retail, transportation, utilities, wholesale, and information. So if Trump’s broad based tariff proposal are implemented the effects are going to ripple throughout the entire U.S. economy.
And let me also just make one point about the link between a lot of these trade proposals and then the immigration proposals as well because I don’t think those links are talked about enough.
A lot of what Trump and his advisors have said is motivating the trade agenda is to strengthen the U.S. manufacturing and to make more things in the United States across the board. The problem, however, is that you need workers to do that and depending on who gets targeted on immigration we could see a drop in the U.S. talent pool. So we need to attract talent, not to push it away, and so this could be really problematic.
Of course, there are a lot of unknowns at this point about exactly how and to what degree the next wave of protectionism will be and how it’s going to impact the U.S. economy and consumer prices in particular. But what we do know for sure is that tariffs lead to cost increases and that Americans pay those costs. We saw that last time and we’ll see it again.
So just to end on sort of the implications, I think that aside from inflation we could also see a drop in U.S. economic growth as imports rise in price. If Americans are unhappy with the economy there could be additional interventions from the government to try to correct for that.
We saw that in terms of the response, the retaliation from our foreign trading partners with the first round of tariffs that were applied on China and others, and that’s what led to sort of giving subsidies to U.S. farm states in order to make up for that loss.
But I would say that overall a more protectionist trade posture will lead to a decline in U.S. soft power globally because we are going to get a sense that the United States is no longer abiding by the rules and others will follow.
This could lead to a weakening global economy and much more negative trade growth and fragmentation potentially in global supply chains if firms are having to pick and choose where they locate based on making sure that they may retain access to the U.S. market.
Let me conclude by saying, you know, at the end of the Second World War, the United States took a leap in creating a global rule book for a fair and law-based trading system, and today the United States is leading the charge in eroding it. That’s not just one administration that’s done it. This has been going on for a little while, and I think that right now what we could potentially see if other countries fill that gap and take on more of a leadership role it’s yet to, you know, be decided who that will be. But others may step up to the plate.
So I think we’re in for a lot of uncertainty in the next couple years and certainly lots of disruption in the trading world.
FASKIANOS: Thank you, Inu. That was great.
We’re going to go to all of you now for your questions. Please click the raised hand icon on your screen to ask a question. On an iPad or tablet click the More button to access the raised hand feature and when you’re called upon accept the unmute prompt and state your name and affiliation followed by your question.
You can also submit a written question via the Q&A icon or vote for other questions you would like to hear answered, and if you do write a question if you could include your affiliation as well.
So over to you, and don’t be shy. Q&A—let me just see if we have any raised hands. We do, going first to Joseph Grieco, and please tell us your affiliation, please.
Joseph? Oh, you need to unmute yourself.
Q: Yes, I think I’ve done that.
FASKIANOS: There you go. We can hear you now. Your affiliation, please.
Q: Yes. I’m Joe Grieco. I’m at Duke University, and I greatly appreciated this excellent overview and thoughtful commentary.
I am very interested in what you are learning in your larger project, and if you could tell us a bit about what you’ve learned so far about the bipartisan character of the protectionist move. In particular, I’m interested in your thoughts on how the lack of resistance to the protectionist move in the business community but also in the political parties.
There are—you know, we used to think in this—in the literature on IPE (International Petroleum Exchange) that a pro-trade coalition, once it has become ingrained, would indeed be able to resist temporary tensions and motivations towards protectionism. That did not seem to occur.
So could you offer us, please, your thoughts on why the lack of pushback—I’m thinking from the multinational business community as represented by the business council and other organizations. It just seems to have collapsed, and similar things happened in the U.S.-China relationship. So I’m very interested in your early thoughts on this.
MANAK: Great. Thank you, Joe. I’m happy to talk about that.
You know, I think that for those of us who spend a lot of time studying sort of the economy a lot of what we see is pretty shocking the last couple years in some respects and I think that what’s been notable about sort of this bipartisan shift I think a lot of people early on were saying, oh, this is like a Trumpian phenomenon. This turned towards protectionism.
And, I mean, I think when you dig deep and you look at sort of the statements from different members of Congress over the last eight years you see that it’s not really a Trump phenomenon, that in many ways you saw many folks in the Democratic Party as well saying similar things about trade and supporting much more trade closure.
But that’s not surprising in the sense if you look at the long history of sort of the Democratic Party’s sort of views on trade, generally speaking. But I think that what you’ve seen over time, certainly with the fracturing in the Republican Party, is the fact that there is sort of this odd situation where you have segments within both parties that have actually aligned a lot more in their views than they have with their own parties themselves and those voices are quite loud even though there are not many of them.
And I think that they’ve really been able to direct a lot of the content of U.S. trade policy, particularly over the last eight years. I think that movement starts way pre-Trump and think that the fissures do in many ways begin during the Clinton administration, and we can see that in terms of the pushback against trade and globalization that occurs there even with the Democratic Party fracturing on that. So I think that there’s sort of a long run thing that we’re seeing.
In terms of thinking about the resistance, you know, I was hopeful in the last administration—the Biden administration—that there would potentially be more resistance to these things. But what was surprising was that Biden sort of leaned in pretty heavily into one segment of his party more than others.
So he didn’t really rule as a moderate when it came to trade and that was a bit surprising given his track record. But I think part of that has to do with some of the ideational shifts in the Washington cells. Part of it is this belief and this perception in U.S. decline and what the response should be.
I think that the parties have different views on what the response should be to that but in many ways on the trade portfolio it comes down to very similar policies and this is I think why we see political operatives that typically would be considered to be on the left working even with the right. You know, so I think we’re seeing that consistently across the political spectrum.
And then in terms of the business community too, I mean, I think the business community really gave up earlier—(laughs)—than Trump. I feel like they gave up during the debates over TPP. They were just not there to make the case for why U.S. engagement mattered in the Asia Pacific where we could have actually had a bit more of a presence in a place where we are competing with China directly and could have created an institution that would have helped us create new rules and bring more folks onto sort of our view of seeing things over there.
So I think one of the challenges is that, you know, the business community has been, largely, disengaged, thinking and taking for granted, perhaps, the fact that you had this bipartisan consensus for liberalization that lasts for nearly seven years and they thought it would last forever, and then it didn’t.
And so I think part of the challenge for the business community now is to be much more vocal and to explain what are the costs of making some of these changes and, obviously, as you saw from, you know, the last round of tariffs that Trump had put in place business committee was split. Some of them benefited from the protectionist tariffs and others did not.
So I think this is one of the challenges that certainly has stood out but I think that it’s making us all kind of step back and say, OK, there are bigger trends happening here that have been happening for a while and maybe it’s time for us to start looking at those and address those, too.
But I think these perceptions of where the U.S. is in the world and the reactions to it is really a major driving factor for this shift between the parties.
FASKIANOS: Thank you. I’m going to go next to Kathy Long Holland. If you could unmute yourself and state your affiliation.
Q: Yes. Kathy Long Holland, a faculty at the University of Oregon business school in sports product management.
I was wondering what your vision is. Are we—is the economy now, in terms of the well-being of the economics of the United States, separated from politics now, and business, even? It seems like there’s some greater structural schism here that has been, to your point, going on for—you know, through multiple administrations.
MANAK: Yeah. You know, I think that’s a really good question. It’s as if we’re sort of putting so much pressure on these economic decisions to be sort of a solution for some of the problems that are not necessarily going to be solved by sort of trade actions, for example.
So I think what we’re seeing is sort of a lot of things being sort of thrown into the same basket in terms of the tools that we should be using to address some of these concerns if they’re—you know, whether it’s global inequality, whether it’s inequality within the United States or I just—I think that one of the challenges that we face is that we forgot and I think there’s a lot of commentary out there that says, you know, the lesson to be learned is we need to do more about helping U.S. workers.
I’m, like, well, we’ve had the opportunity to do that. We just have not done it, you know, and I think one of the challenges when you look at the opportunities that we tried to create in terms of making sure we have strong workforce development that’s really something where I think we missed.
Folks often talk about how at the end of the Second World War there was an understanding that while you would have an open economic trading system you would still do things within your own country that would help folks transition when they needed to, that you would create a social safety net to support them in reaching some of their personal economic goals.
But in the United States I think we did not really hold up our end of the contract. You know, I think one of the challenges we have here is that we don’t really have a way for people to bounce back when there are particular economic disruptions to them and so we don’t have, for example, apprenticeship retraining programs and things like that that could actually support folks who are looking for new jobs.
So I think that there is an attempt, certainly, to separate out these issues but they all come together, and to solve them we actually need to look at them in a little bit more clarity in the long view of what went wrong and how we should fix it.
FASKIANOS: Great.
I’m going to take the next question from Earl Anthony Wayne, who is distinguished Diplomat in Residence at American University and the former U.S. Ambassador to Mexico and also Argentina: Could you talk a bit about relations with Mexico and Canada, which require building things and trading things together including having final assembly for so much in Mexico? And, obviously, there’s a new president there as well. So—
MANAK: Yeah. Thank you so much for that question, Tony.
You know, this is going to be one of the biggest challenges, I think, going forward, in terms of how we think about our relationship with our nearest and dearest trading partners—our neighbors—and as you well know the USMCA—the new NAFTA—is up for review in 2026 and in that discussion is going to be a debate about what it means to essentially have a preferential trading agreement and what is required to have preferential access.
So I would imagine that we’re going to have discussions about tightening things like the rules of origin on automobiles, which were already tightened under the USMCA, and potentially also including more stringent provisions potentially on Chinese investments that are made within Canada and Mexico as well.
Now, for Canada and Mexico, it’s a real challenging time, because for them they don’t really have a choice. So much of what they produce goes to the United States, and as you rightly pointed out those are things that we make together.
So we have sort of a—we call it an intermestic policy when it comes to relations with Canada and Mexico because they’re both international partners but part of our sort of domestic resilience and our own domestic productivity. So whatever happens there is going to be pretty consequential not just for relations between our three partners but also for the rest of the Americas as well.
If we’re trying to expand, potentially, parts of USMCA, as some have called for, increasing, you know, the sort of the workforce development agenda in the Americas, we are going to need to make sure that Canada and Mexico also share some of the views that the U.S. does and that could become very, very challenging.
So I think that, you know, we’re up for a renegotiation even though folks say it’s not a renegotiation of USMCA, potentially, but I think a limited opening of some of the chapters, again, that will be really difficult and, obviously, with a new president in Mexico we get to see what her strategy is. We could have a new prime minister in Canada next year—highly possible—and that would also change the dynamics of how those negotiations go.
So there’s a lot of uncertainty, I think, in terms of what the future of North America is going to look like.
FASKIANOS: Thank you. I’m going to go next to Bob Hormats.
If you could unmute yourself, Bob. OK.
Q: OK.
FASKIANOS: There you go.
Q: Great. Thank you.
FASKIANOS: And identify yourself, please.
Q: Bob Hormats. I used to be in the State Department as undersecretary and deputy USTR. Now I’m at Yale.
First of all, I think that’s a really excellent and very succinct presentation and, second, I just wanted to add one historical fact and then ask you to elaborate on a point you just made which I thought was under-focused on in much of the debate.
Prior to the Civil War, an income tax was unconstitutional. The Constitution prohibited what was called direct taxes, and income tax was considered a direct tax. So the only way the government had to raise revenue was on tariffs.
In addition, they did support the Hamiltonian view of what we would call industrial policy or helping to build the early American version of what we have now, which is a more manufacturing-oriented economy.
So and then we had the income tax instituted during the Civil War to pay for it because tariffs weren’t enough, and then we canceled the income tax again and reverted back to tariffs, as you pointed out, later and years after the Civil War. So there’s a lot of give-and-take early on in our constitutional process.
The other point I wanted to make was I think a very profoundly important one and that is if you have very high taxes on Chinese goods—let’s say, 60 percent or whatever the president decides—you’re going to have exactly the problems that you have raised and that is other—American companies and other foreign companies that want to produce elsewhere like Mexico or Canada or Vietnam or anywhere are going to use almost certainly some Chinese components.
So the question the United States is going to have to ask is after the first order issues that we’ve been discussing about inflation and other things what do we do when you get into this more complicated world of supply chains where the components, the intermediate goods in those supply chains, even if they don’t come to the United States directly where they would be subject to this higher tariff will come into third—through third countries that use these components. What does the United States do there? And then you get a much more complicated system.
Are we going to tell other countries, you can’t use Chinese goods if you want to get in under a 10 percent rule—you’re going to have to pay 60 percent or something like that?
So we’re not only getting into a very, very difficult situation with China, which is going to retaliate for sure—they’re not going to sit there and accept this and if I were sitting in Beijing I wouldn’t either because our tariffs normally are subject to (Sections) 301, 201, 232. We just traditionally don’t have blanket tariffs and they don’t fit under American or international law.
So you’re going to get China problems and then you’re going to get third country problems, and I’d like to hear you elaborate on this because I think this has been very poorly understood and there has been very little thinking about what we’re going to do in a world that’s very complex, and trying to make it blanket through these blanket tariffs makes it look simple but it is not.
MANAK: Absolutely. Thank you so much for that excellent question and overview.
The issue of the income taxes is a fascinating one I could talk about for a long time but I won’t get into it. But I do think that the push and pull of what happened in establishing the current policy we have today is really fascinating in light of recent debates of potentially using the tariff to pay for tax cuts or to replace the income tax, which we’ve seen thrown around. So it’s a really interesting time that we’re having that debate.
On the point about supply chains and Chinese inputs being in a lot of our trading partners’ goods that are then sent to us or are components of things that are made into U.S. goods so, for example, even automobiles is one of those products where we have lots of components that come from everywhere and there are Chinese investments, and products that are brought in in Mexico, Canada, everywhere in which those are components.
So it’s a really difficult thing to disentangle. I mean, what I think the Biden administration even realized when it negotiated the Indo-Pacific Economic Framework (IPEF) and trying to create this pillar on supply chain resilience was that supply chains are very complicated, number one, and second, firms don’t want to tell you exactly what they’re doing half the time. I mean, it’s some of their secret sauce.
So getting the information, for one, of where firms have sourced products from and that itself is very, very challenging. We could try to find ways to improve transparency there and I think there are efforts underway, and it is potentially a thing that I think the Trump administration might retain from IPEF in some way, shape, or form as some sort of supply chain monitoring system for specific products.
But I think that one of the realities that is fairly clear already in terms of what the Commerce Department has done in terms of supply chain mapping is that there are huge limitations on what we can control when it comes to really getting our trading partners to adjust their own connections with other trading partners.
So we need to compel them to do that, right? And the fact is we can’t do that if all we’re using are our trade sticks. We’re not giving any incentives or carrots to get folks to buy into our model of choosing us and not choosing, you know, the Chinese products.
So I think this is one of the biggest missing pieces in sort of current U.S. trade policy. Even if you look at the way that the IPEF is structured there’s no trade pillar. There’s no market access component. So there never was a way to tell some of these countries, yeah, there’s a reason you want to buy into our model and you want to derisk as much as possible.
I don’t think complete decoupling is going to be possible, but to the extent that we want, you know, choices to be made about using other sources first then we need to find a way to incentivize that, and we haven’t done so.
And the other part that I think that you’re getting at that is really, really important is the fact that if we want to ensure that our supply chains are resilient, that we’re getting things from partners that we trust, we also need to be open to trade with those partners, right?
And if we’re just going to apply broad based tariffs on everyone why would they want to trade with us primarily? Why would they want to use parts that are going to be tariffed anyways that have, you know, higher costs that are made in the United States?
So I think there has to be a better incentive structure that we create to make this happen. But I just don’t see most countries deciding to move away from trade with China just because the United States has decided to kind of focus on that.
So I think it’s going to be very complicated. But we could see in certain agreements requests to derisk further from China. Particularly in the context of the USMCA negotiations I think is where we’re going to see it, in automobiles and potentially for steel as well. So let’s see how that goes.
Oh, Irina, you’re on mute.
FASKIANOS: Sorry. Thank you. I’m going to take the next question from Nicole Mbuse, an undergraduate at Suffolk University.
My question is for you to add on to your thoughts on what will happen to markets that are supported by immigrants such as agriculture and manufacturing industries. Will they be able to sustain the U.S. population consumer demands with reduced imports due to higher tariffs?
MANAK: Really good question.
You know, I think this is one of the things that we’re going to see the effects pretty clearly if there are changes in some of our immigration policies including if there are mass deportations that happen. As well-known we have a lot of folks who are in our agricultural community, in our food processing community, who may be undocumented. We have others that are undocumented that work there, too.
But one of the challenges that will come is that if those people are forced out and they’re no longer working at these places, we’re certainly going to see a drop in the ability to do those jobs.
Clearly, there won’t be people, you know, picking vegetables, processing the products, and so that’s going to be something that we’ll certainly notice at the grocery store in terms of price increases. So and the other thing is trying to find people to replace those folks is going to be very difficult. I mean, these are difficult jobs.
There’s a reason that I think people who come from abroad want to start off and get some experience and do something and they choose all the hard labor jobs. It’s really difficult to fill those jobs otherwise. So we’re going to have a labor shortage in some of these sectors where we do force folks out.
And then the other thing I just want to touch upon is that if we don’t ensure that we also keep a steady pool of talent in some of the—you know, I mean PhDs and master students, all the folks who come to our universities to study and then stay later to work a little bit we need those people.
We need their talent. We train them here. We want to make sure we retain that, and if there’s a shift to this where we’re getting people out of the United States as soon as possible I think we lose the potential to really benefit from the talent that we ourselves train, right?
So that could have a really big impact on the U.S. economy in the long run. We may not feel it right away, but those people will go elsewhere and take their talent to other countries. So I think that’s going to be an unfortunate outcome if it does happen.
FASKIANOS: Thank you. I’m going to take the next question from Stockton University.
If you can unmute yourself. There you go.
Q: OK. If President-elect Trump did impose something like a 200 percent tariff would companies immediately—would they immediately charge 200 percent more and if they did what would it mean for the domestic popularity of Donald Trump?
MANAK: Yeah. Good question.
So right now what we’ve seen a lot of firms doing is there have been stockpiling products in the United States and I think that’s going to continue as long as they can keep it going before tariffs are put in place.
So if you take something like, you know, a 200 percent tariff, which would be enormous—you know, it’s much higher than some of the things he has proposed although he has proposed a hundred percent tariff on products from Mexico at one point—but that would be felt pretty strongly by U.S. importers and that cost would be passed on.
We saw it being passed on in terms of the 301 tariffs that were placed on China and also the Section 232 tariffs on steel and aluminum as well. The International Trade Commission did a study on this and found that the entire cost was passed through because it’s usually the easiest thing you can do, and people would have to pay that.
What that would mean for President Trump’s popularity? I’m not sure. I mean, it depends on whether people attribute those price increases to him and it also depends on how those costs are dispersed. So if we look at the Section 301 tariffs in the China trade war, you had a huge dispersion of those costs on a lot of intermediate products, right?
And so when it comes to the folks who were affected most, you had a lot of small and midsized businesses that were impacted, and so when they had to figure out what was going on, I mean, it took them a while to get organized and to raise that issue with the U.S. Trade Representative office when she did the review on the tariffs in the last couple years. And some of the big firms didn’t matter for them—they were able to eat the cost.
So those that get affected the most, you know, the costs are very dispersed and it usually hits the smallest actors in the economy first the hardest and then it kind of moves on up. So I would imagine that it would be pretty severe if we had anything like a 200 percent tariff and we would notice it, and the question just is would Americans hold Trump to account for that or would they ascribe it to something else that’s going on. It’s hard to tell.
FASKIANOS: I’m going to take the next written question from Sara Held, a student at Adelphi University: Given the policy of nondiscrimination, GATT (General Agreement on Tariffs and Trade) and WTO, how is the U.S. as a unitary actor permitted to enact tariffs that specifically target China?
MANAK: Excellent question. My favorite subject, the WTO, which is always under threat. (Laughs.)
You know, yes, the actions to take unilateral tariffs against China, raise these tariffs, is in violation of the basic WTO principles of nondiscrimination in national treatment. So I think this would be a flagrant rebuke of the WTO rules.
But as we’ve seen in the last eight years there’s been a sense that, you know, WTO rules don’t necessarily matter for the United States if they’re considered unfair, right? And so I think we’re likely to see action being taken regardless of that.
Where it does matter, however, for our trading partners that are affected is that they still believe strongly in the WTO and the rules-based trading system, and for them if an action is taken in breach of those rules they will file disputes even if they get appealed into the void, so to speak, because we don’t have a second stage appeals mechanism anymore.
But they will use those rules to take retaliatory action against the United States that’s proportionate to the actions the United States has taken and we saw that the last time around from China, from Europe, where there was proportional action taken as well.
So I think that to the extent that the WTO rules matter I think they still do. Just because the United States is ignoring them in some respects doesn’t mean others are as well and I think we’re going to see some of that be preserved in the coming years.
But there’s going to be a bigger question about what the U.S. role is in that institution and its leadership in sort of creating a rules-based trading system, going forward. So let’s hope that there’s still a WTO in place. I think there will be.
I’m a little hopeful about that because I think you do need a place to discuss these things. But, certainly, there’s going to be a challenge to some of the basic precepts of that organization.
FASKIANOS: Thank you.
I’m going to go next to the raised hand from João Vítor Prado, and if you can identify yourself.
Q: All right. Hello. My name is João. I’m a graduate of Belmont University. I’m currently in Europe with an organization called CIFE doing a master’s program.
And we established earlier that tariffs—how tariffs were going to hurt the economy of the United States and especially the middle income citizens of the U.S., and I was wondering if we are going to move towards protectionism as it seems it will happen are there other ways that may be less hurtful to our own economy than tariffs, and if so are there other reasons, perhaps, even beyond the economic argument or conversation as to why Trump is insisting on these tariffs? Thank you.
MANAK: Thank you for your question.
You know, there are other things we could do. I don’t really think that the protectionist pathway is the correct one in terms of really fostering U.S. economic dynamism and experimentation and growth. You know, I think that perhaps if there are things that we think that we need to be investing in we can create those incentives for investment.
You know, there’s been a lot of debate about industrial policy in the U.S. I don’t know necessarily if we’ve been doing it right. I think that, perhaps, we need to think a little bit more broadly about where we can have strategic investments made in areas where we do need to have sort of an upper and cutting-edge technology in certain areas where we can compete.
But we have to think about where our strengths are, and I think one of the problems that we’ve seen in the last several years has been a focus on investing in things that are maybe not sort of the products of the future, you know, and so we have to think about where it is that the United States has a comparative advantage and a talent advantage that we should actually be pursuing.
In terms of tariffs, I think that one thing we have to really keep in mind is that there are huge limitations to the use of tariffs as a tool to actually spur manufacturing growth. It hasn’t been shown to happen in the last round the tariffs were put in place and I think even if you put, you know, a hundred percent tariff on something that’s not going to necessarily incentivize everyone to move back to the United States.
So there are just other factors there and I think part of it means that we just need to invest in our own workforce whether it’s vocational training, whether it’s community college, whether there are ways to think about how we create the workforce for the twenty-first century, not looking at creating a workforce for the 1950s which is what a lot of, I think, some of the policies that we’ve seen put forward are trying to do.
So we really need to think about where we want the United States to be, you know, ten, twenty years from now, not comparing it nostalgically to where we were in the past.
FASKIANOS: Thank you. I’m taking the next written question from Alex Grigor, who is a PhD candidate from University of Cambridge.
Thank you for the excellent overview. One aspect that started during the last Trump administration and will likely be much more prevalent during his next term was a decreasing transparency and availability of accurate data. It is likely to be more difficult to obtain up-to-date U.S. inflation data, trade, and GDP statistics.
If this is withheld or obfuscated how will researchers and policy makers be able to gain an accurate picture of what these policies are achieving or causing in the U.S.? Are there alternative avenues of source data or alternative metrics that you will likely have to start referring to in order to get some sense of what is going on?
MANAK: Thank you for your question.
I think that there were some areas where we saw a lack of transparency but not just with the Trump administration. I would say, you know, when it comes to the Section 301 tariffs, understanding sort of the rationale behind the decisions for exclusions, it’s never been really made public and so that’s something that both the Trump and Biden administrations have not been open about.
So I think there’s a broader issue about, you know, how we should disclose information and what information needs to be shared in order for Congress, which actually has the constitutional authority over trade policy, to help make the right decisions and ensure that certain actions are held to account.
So I think that part of it is going to be understanding, particularly if we see the use of a lot of statutes that take advantage of executive authority on trade, we’ll need to have a clearer way of understanding sort of what actions are being taken, what information is being used to inform the measures that are pursued, and then how the objective outcome of those measures is actually evaluated in the long run.
So that’s going to have to take congressional action to make sure that that happens and we have not seen it yet. But, certainly, there’s a reason to hope that maybe Congress will want to take more action in the future.
In terms of other data sources, I mean, I think that there are plenty of researchers out there who have spent a lot of time trying to be very creative in how they collect data to understand a lot of the things that are going on in the world.
Global Trade Alert is a great service by Simon Evenett, who’s a professor at the University of St. Gallen. I often look at his work to see, you know, where we’re seeing subsidies, for example, being employed around the world.
So I think that there’s a lot of efforts being made by many people that have been showing that we can have a lot of transparency in some of the data and there are a lot of creative ways that we can go about trying to find out that information if the governments don’t share it.
FASKIANOS: Inu, do you think that the Congress will be able to retain that authority or do you think that it might—more of those controls will go into the executive branch?
MANAK: I think we’ve seen for decades a slow shift of power of trade away from Congress into the executive branch. That’s continuing, certainly, and maybe reaching its peak under the incoming administration. There has, for example, been some speculation as to what the role of the commerce secretary will be in the Trump administration because in the announcement that was made yesterday it was suggested that Mr. Lutnick would oversee both Commerce and USTR.
Now, USTR is an independent agency. Directly reports to Congress. If we were to fold that into Commerce, I think would raise a lot of questions about the accountability of USTR to Congress and how that relationship would sort of evolve over time.
I think that there would certainly be a lot of congressional pushback on that so, you know, House Ways and Means and Senate Finance are certainly, I think, not going to be happy with any suggestion that USTR not be an independent agency.
So I think that’s one of the areas where we’re going to see maybe one of the earliest battles if we don’t see a separate appointee come forward for USTR. But we have yet to see who the final Cabinet picks are going to be and then maybe that announcement was just an anomalous note that Trump made to say that Mr. Lutnick would actually oversee both agencies.
FASKIANOS: Right.
OK. We’ll take the next question from Dale Mark Benedict, raised hand, and if you can unmute yourself and identify yourself.
There you go.
Q: Got you. Yes, Mark Benedict from Regent University. I’m in the Education Department.
I appreciate the read-aheads you provided us on this topic and this opportunity to ask questions of an expert. Coincidentally, this morning Washington Post published an article, How Trump’s tariffs could spark trade war, and it’s interesting, there’s—it raised five points we haven’t really discussed yet.
The first one they point out reminding us that many nations in the world are still undergoing post-pandemic economy recovery which affects the way we do things including the United States, and how that had led to more nationalism as individuals focus on we need to look out for our own population, number one.
Number two, it points out that we haven’t talked about is that trade imbalance. EU maintains 10 percent tariffs on U.S. automobiles where the U.S. rate is only 2.5 percent, and there will be agricultural tariffs of 11 percent which is double the U.S. rate and that’s across the board, and Trump has pointed out more and more his frustration saying the Europeans aren’t carrying their load. Same things, like, in NATO.
And I’m so thinking maybe he’s waiting till we get that imbalance. And then he pointed out that the EC (European Commission) Commissioner has pointed out that they have their role to address this is—and they’re expecting this to happen and their intent is to, let’s see, first of all, engage; second, to discuss common interests; and then third, then go into negotiations, which is what Trump’s book actually defined, you know, The Art of the Deal, it just so happens. So the EC is expecting that. So that raises the question as Trump is using these threats as leverage to make individuals come to heel against China.
And then, finally, he points out that there’s probably going to be sectoral trade imbalances. You know, Germany is—their automobile exports are what they’re concerned about the most and that there’s going to be a Euro schism that’s going to return to nationalism.
FASKIANOS: Thanks, Mark. Over to you, Inu.
MANAK: Thank you very much for your comments, Mark.
Yeah, I haven’t read the article. I was out talking to some other folks this morning so haven’t had a chance to actually read the news at all. But I think those points are really fascinating.
You know, one point I’ll make about the trade balance, in my view a lot of the concerns over a trade balance in terms of not having equitable tariffs that’s something that certainly we could address from some trade negotiations. But us having lower tariffs is not necessarily a problem because we benefit from those imports.
We transform most of what we import into something else. So the United States having low tariffs is actually what makes the U.S. economy so dynamic and so capable of creating so many innovative products.
So I know there’s been floated this idea of sort of a reciprocal trade act—the United States would match, you know, its tariffs with others—and I just think that that is a recipe for creating more blockages and obstacles to U.S. innovation in the long run.
So I think if we can compel other countries to change what they’re doing we can do that but maybe not through unilateral tariffs to get to the negotiating table. I don’t think anyone needs a tariff as an incentive to show up and talk to the United States.
This has actually been the one thing that I think has been forgotten in the last eight years in particular is that if the United States is interested in negotiating new rules on things, people will show up and that U.S. leadership matters, and I don’t think we’ve seen enough of that in trade policy for quite some time.
So I think that it’s worth it for us to push for a market opening abroad. Do I think this is the right way to do it? Absolutely not. So I think there are other things that we could be doing that will be far more effective and preserve a much more rules-based system for decades to come.
FASKIANOS: I’m going to take the next question from Christopher Messinese, a history and government student from Bowie State University: What is the expected reaction of our trade partners in the Asian sphere—Japan, Taiwan, South Korea—in light of these tariffs? Will these tariffs drive them into a closer relationship with China or another major economic bloc as they try to make up for reduced purchases from North America?
MANAK: Yeah, a really good question.
I think that our partners in Asia have been thinking about this for quite some time. I think they’re most concerned about how the extent of their own linkages to China will have an impact on their relationship with the United States particularly for those countries, really Taiwan, which is heavily invested in the United States under the CHIPS Act. We have the TSMC (Taiwan Semiconductor Manufacturing Company) factory that’s being built in Arizona. They’re certainly concerned about whether those investments are secure and whether or not that the United States will continue to support those investments, going forward.
So I think for a lot of our partners there’s some uncertainty. But they don’t really see the choices being so stark and binary. I don’t think they see this as you either need to choose China or the United States. It’s about seeing, like, where should you derisk in areas where there is sensitivity in certain products and critical sectors and then where should those linkages not matter so much.
So I think one of the challenges and I think it’s the bigger notion of the fact that U.S. trade policy is increasingly seen through the lens of economic security where everything is seen as a potential threat to national security, and I think that’s a very dangerous way to think about trade.
Essentially, you know, why would a shoe that we import from Vietnam be a threat to our national security? This is not something we need to be worried about. But maybe we should be concerned about certain high-tech semiconductors being produced by China, right?
So there are things that we have to sort of balance, in a way, and figure out where are there legitimate threats, that we need to get our trading partners to focus more on coordinating with us to address those supply vulnerabilities and where is it OK that we maintain sort of an open rules-based trading system as we have for decades.
So I think that’s the challenge that we’re facing today and our partners are certainly really nervous about how far the United States is going to go in defining all trade and economic security terms. That could really complicate the way that we look at all of our relationships with many partners, not just with our core trading partners.
FASKIANOS: Thank you for that.
You know, we’re out of time and I’m sorry to all of you for not getting to all the questions and raised hands. But we will, obviously, need to continue to talk about this issue and it is great to have Inu Manak with us to share her expertise.
I encourage you all to go to CFR.org for more analysis by her and our other experts in our geoeconomic center. You can also follow us on—at @CFR_Education as well as go to ForeignAffairs.com and ThinkGlobalHealth.org for additional research and analysis on global issues.
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