Trump’s Economic Statecraft: The First 1,000 Days
Volume V, Issue 4, April 2017
April 27, 2017It’s tempting to add to the pile of reviews of the Trump administration’s first 100 days. In the area we follow here at the Simon Chair, international economic policy, there is certainly a lot to talk about. But instead of looking back, let’s consider, based on the early evidence, the prospects for Trump’s economic statecraft over the next two to four years.
We’ve noted here before that the success of any administration rests on three “Ps”: people, process, and policy. Again, there is a lot to say about each of these topics. But let’s look at a couple of aspects of each “P” where the first 100 days give hints of what is likely to come in Trump’s international economic policy.
The obvious thing to say about people is that there aren’t enough of them: only about two dozen Trump appointees confirmed across all of government; no U.S. trade representative (USTR); none of the critical subcabinet officials at State, Treasury, Commerce, or most other agencies. But presumably these positions will eventually be filled. The more interesting question is what kind of experience and expertise—related but separate points—will key economic officials bring to the job.
In a typically insightful and amusing piece earlier this month, Dan Drezner of Tufts University argues that despite their lack of government experience, Trump appointees like Secretary of State Rex Tillerson and Secretary of Defense James Mattis will presumably get better at their new jobs with time. Indeed, there have been encouraging signs in the first 100 days that diplomatic skills are being honed. However, Drezner notes that for all his prowess on the basketball court, Michael Jordan never learned how to hit a Major League fastball. Similarly, it isn’t clear that Trump advisers with formidable talents in other fields will ever really master their jobs in policymaking.
So one key indicator of Trump’s success in the international economic realm will be whether he starts to appoint senior people with deep policy experience in the field. In this sense, the nominations of David Malpass and Adam Lerrick for senior international roles at the U.S. Treasury Department are encouraging. Other key positions to watch are deputy USTR and under secretary of State for economic affairs.
Then there is the separate question of expertise and its implications for the policy orientation of key administration officials. So far there has been a decidedly “microeconomic” bent to Trump’s economic appointees, with almost all having a background in business and finance rather than academic economics. The only PhD economist in place is Peter Navarro, and it was his unconventional views on trade, not macroeconomics, that won him his position as head of the newly created National Trade Council.
One policy implication of this “micro bias” is that Trump’s obsession with trade deficits, and the primary attribution of these to unfair foreign trade practices, meets no pushback from conventional economists in the inner circle who would cite macroeconomic causes for the U.S. global trade deficit (notably a low national savings rate) and dismiss the economic significance of bilateral deficits. The nomination of mainstream conservative economist Kevin Hassett to be chairman of the Council of Economic Advisers should provide better balance in internal debates on these issues.
As for policymaking process, there are three key indicators to watch here. First is the division of labor in the White House between the National Security Council (NSC) and National Economic Council (NEC). Gary Cohn appears to have taken firm control of the NEC and to be moderating the worst instincts of the president on trade. But economics should fully inform strategic debates in the NSC, and it isn’t clear this is happening, as evidenced by the president’s casual comments about downplaying trade and currency issues if Beijing is helpful on the North Korea nuclear problem. The NSC needs strong economic capabilities, whether provided from within or through robust coordination with the NEC.
The second process point is that the NSC and NEC need to play an appropriate role in coordinating policy while devolving most operational responsibility to line agencies. The Obama administration was rightly criticized for agglomerating more and more operational functions in a bloated NSC, stifling agency initiative. There are some positive signs on this score in the Trump administration, at least on the security side, with the White House appearing to have given the Defense Department running room to implement policy. But the jury is still out on international economic policy, where key players and processes are not yet in place.
A third and more specific process question is whether the State Department is playing its due role in international economic policymaking. As noted here often, economic tools are a critical part of effective foreign policy. They should be thought of as strategic tools, not just tactical ones. The Marshall Plan and Trans-Pacific Partnership (TPP), two of the best examples of U.S. economic statecraft, were designed to shape the broader behavior of allies and adversaries, not simply as financial carrots to win support for U.S. policy. An understaffed and marginalized Trump State Department is clearly not playing its part in shaping an effective economic statecraft.
Then there is the substance of policy itself. A successful international economic policy requires both smart defense and smart offense. Robust enforcement of existing trade agreements lies at the core of the former, and the Trump administration is right to growl about illegal or unfair trade practices by other countries. Trump also gets points for not following through on his campaign commitments to immediately call China a currency manipulator and impose unilateral tariffs on trading partners in violation of World Trade Organization (WTO) obligations.
But as noted above, the Trump obsession with trade deficits is misguided, as are the hints in various documents emerging from the administration in the first 100 days of WTO-illegal (and likely ineffective) actions to bring these down. Chad Bown of the Peterson Institute has also noted the risks of self-initiation by the U.S. government of trade enforcement cases. The national security reviews of U.S. steel and aluminum imports announced this month are especially troubling, both for the unilateral actions that may result and for signaling to other countries that protectionism under the guise of national security is acceptable. None of this amounts to smart defense.
Meanwhile, almost entirely missing from Trump international economic policy in the first 100 days is smart offense, that is, a considered, comprehensive strategy to shape economic rules, norms, and practices around the world. The only significant actions to date by the Trump administration in this regard have been ones that shun key strategic tools of a smart offense: deciding to withdraw from TPP, proposing to slash funding for multilateral financial institutions like the World Bank and International Monetary Fund (IMF), and threatening to close the Overseas Private Investment Corporation (OPIC).
Something to watch once Robert Lighthizer is confirmed as USTR (expected in early May) is whether the balance of Trump trade policy will shift from defense to offense. Lighthizer is best remembered from his time as deputy USTR in the Reagan administration for negotiating voluntary export restraints with Japan, and he has spent most of his legal career since then filing dumping and countervailing duty cases. But the incentives for a USTR are to open markets and negotiate new agreements, not just play defense. Other economic officials like Treasury Secretary Steven Mnuchin should develop a similar impulse.
On reflection, there is a fourth “P” that is important to an administration’s success: presentation. As the previous occupant of the White House famously said, “Words matter.” A little unpredictability to throw adversaries off balance can be useful, but presidents shouldn’t bluster without being prepared to follow through, they shouldn’t insult other countries, and they should support important international commitments—such as opposing protectionism in all forms, something the Trump administration has now failed to do twice, in G20 and IMF communiqués. There is certainly room for improvement in this area—and on the three other “Ps”—over the next 1,000 days.
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