Merit Janow
Merit Janow speaks about the history of US trade


“The pain involved has been very high,” said Merit E. Janow, dean of Columbia’s School of International and Public Affairs. As part of a recent all-star panel discussion, “Trade Under Trump,” she was referencing the renegotiation of the North American Free Trade Agreement (NAFTA), but also the general bombardment against international trade during President Donald Trump’s first two years in office. In particular, said Janow, the uncertainty of US positions on international commerce has triggered what she called “reputational consequences.”

Speaker after speaker at the lecture, held by the Richard Paul Richman Center for Business, Law, and Public Policy, confessed bewilderment over trade policies punctuated by what moderator Jesse J. Greene, executive in residence at Columbia Business School, referred to as “chaos”—withdrawal from the hard-fought Trans-Pacific Partnership (TPP) and NAFTA, punishing tariffs on allies and competitors alike, and threats to leave the World Trade Organization (WTO).

“The last time we saw something like this has to be the 1930s, with big protectionist movements developing in Italy and Germany, and places like that, and spreading to other locations,” recounted David Weinstein, professor of Japanese economics at Columbia. Damien Neven, an economist at Geneva’s Graduate Institute of International Studies and a visiting professor at Columbia’s School of International and Public Affairs, added that the White House has compounded the confusion over trade by stating viewpoints or tenets that directly contradict reality. To help understand the panelists’ analysis of prevailing issues, here are their remarks regarding common myths perpetuated about trade.


Myth 1: Tariffs boost domestic employment and cap prices.

The United States has wielded tariffs on steel under the past four administrations, starting in 1995 when 20 percent of all steel imports were affected. By 2017, that number had doubled.

During this period, US steel production has been flat, but the sector’s employment has followed a long downward trend. Weinstein pointed out that automation has picked up most of the slack. Technology means it simply takes fewer workers to produce steel, and many other manufactured goods as well. View David Weinstein’s presentation.

Duties in the steel industry and associated consumer goods, like cars and washing machines, can also explain the effects of trade tariffs on prices. “We’re not getting a lot of steel jobs as a result of [the current tariffs], but we are getting higher steel prices,” said Weinstein. When the price tag of a washing machine or an automobile rises, consumers tend to delay purchases. That means manufacturers sell fewer goods and, in turn, hire fewer workers.


Myth 2: Wall Street supports tariffs.

The stock market has been no stranger to the mixed impact of new trade policies. Weinstein parsed S&P 500 data based on the announcement of specific tariffs between March and June 2018, and found cumulative market declines of about 2.5 percent in the United States and about 13 percent in China. “Take that number and multiply it by the S&P market cap,” he said. “Announcements of tariffs have shaved about $741 billion off the US market. That’s about 4 percent of US GDP.”


Myth 3: Tariffs reduce the trade deficit.

Data from the US Census Bureau indicates the overall American trade deficit increased 10 percent in 2017 after two years of virtually flat numbers, and roared ahead by another 7 percent through July 2018. Moreover, assuming that deficits are a barometer of the health of country’s bilateral trade relationships is problematic, noted Janow, and “unlikely to be a successful strategy.”


Myth 4: Other countries also have harsh retaliatory tariffs.

It is true that about $150 million worth of US exports have been hit with tariffs of roughly 20–30 percent, but the US has imposed tariffs on imports totaling double that amount. Moreover, even as China matched import duties with its own tariffs, the country’s leaders indicated a willingness to increase purchases of US goods. Most trading partners seem to have assumed a defensive position, apparently willing to allow the United States act first.

Indeed, “measured response” was how Janow and Neven described the reactions of China, Canada, Mexico, and European states to the US government’s new tariffs and views on trade treaties.


Myth 5: Protectionist policies benefit US companies.

Multinationals operating within targeted nations often suffer from tariffs as much as local companies, and the global supply chain means that tariffs can make multinationals’ foreign-supplied parts and labor more expensive.

Consider goods produced in China. “As it turns out, China is us,” said Weinstein, “because if you look at computers you can see that 86 percent of the goods that we’re hitting with tariffs are produced by non-Chinese multinational corporations with operations in China.” So at the end of the day, Weinstein noted, “The goods coming in from our companies are getting hit by tariffs in order to teach the Chinese a lesson not to hurt our companies.”


Myth 6: America is getting better deals by negotiating bilaterally.

President Trump called NAFTA “the worst deal ever,” and one of his first actions in office was to walk away from the TPP. But the country’s turn away from these agreements has not led to better or significantly different treaties—at least not yet.

“After lots of talk, the new NAFTA [officially the United States-Mexico-Canada Agreement, or USMCA] is not so different from the original,” commented Petros C. Mavroidis, professor of foreign and comparative law at Columbia Law School. The treaty does adjust some Canadian dairy expectations and put in place new provisions regarding the digital economy, which Janow noted is based on TPP language.

Nevertheless, the panel found fault with some aspects of the yet-to-be ratified agreement. One clause requires any of the three USMCA countries to notify each other if they pursue trade talks with any outside nation. Mavroidis found the restriction “a bit odd because it’s really making a free trade agreement contingent on negotiating or not negotiating a free trade agreement with respect to someone else.”

As for the TPP, while the US departure has resulted in a changed dynamic with Japan in the lead, the treaty is far from toothless on its own. “It was wise of Japan and other countries not to tinker with TPP too much,” said Janow, noting that while a future US willingness to join would require some adjustments to the agreement, the TPP is in a good position to go forward on its own.

And while the White House maintains preference for separate bilateral negotiations, such treaties are unlikely to happen quickly on a meaningful scale.


Myth 7: China is the trade villain, and there is little we can do about it.

This issue is much more complex. Some developments—including the adoption of TPP-11—have nudged the world’s second largest economy in the direction of measured change. When dealing with the possibility of the Chinese economy opening up, “the first step is to move the debate away from ownership,” said Neven. “It is an issue of subsidies,” he stressed, referring to China’s subsidies for its state-owned enterprises.

Janow acknowledged that China has significantly slowed reform in the aftermath of the great recession, and added that the TPP “serves as a signal to China that this is where the trade architecture is going.”

“China represents a flex point,” added Mavroidis. To preserve a level global playing field, the rules have to change to either accommodate China’s brand of capitalism, or China has to change to fit the world view.

The panel was unanimous in its belief that the US would be in a much stronger negotiating position with China if it did so with the backing of other nations—in other words, what the TPP was meant to do.

Moreover, the world already has a more-or-less democratic body whose job is to assure trade harmony—the WTO. “Does it make sense to take on China by yourself, or would you rather have WTO members behind you against China?” Mavroidis asked.


Myth 8: The WTO is biased, not to mention ineffectual.

The panel conceded that President Trump had a point in this area. To a large degree, the WTO has prevented the United States from wielding its economic might to pursue an international political agenda. “Many of the people at the time [of the WTO’s formation] who are now in government—including [US Trade Representative Robert] Lighthizer—were always concerned that the multilateral framework dispute settlement system would be constraining US unilateralism,” stated Janow.

On the other hand, the WTO has pushed globalism in a capitalist direction and helped lift emerging markets from poverty. “If you think about what happened in 2000 when China joined the WTO, and you ask the question, ‘What happened to US tariffs against China?’ the answer is nothing,” said Weinstein. China already had most-favored-nation pacts with the United States, but they had to be renewed every year. Joining the WTO locked down tariffs so investors, including multinational corporations, knew what their Chinese expenses would be. “Chinese exports exploded once that uncertainty was eliminated,” he said. “Now we’re running that story in reverse. My guess is that a lot of companies are wondering if they should go forward with their foreign investments. That uncertainty is raising risk and changing investment behavior, affecting exports in major ways.”

The panelists agreed the WTO suffers from both procedural and substantive issues that need to be addressed in a global world where China holds a great deal of clout. In particular, Mavroidis pointed to China as blocking the way to electing judges to the dispute resolution process—the panel has shrunk from seven to three judges, one of whom is Chinese. “China has disrespected some of the WTO’s most basic promises,” he said, noting dispute resolution can now take a year to achieve, even though the bylaws require settlement within 90 days.

Still, the panelists argued that it makes more sense to fix an existing platform than to start from scratch. And since the United States appears to have no interest in assuming leadership or even participating in tweaks, they fear the WTO could sink into oblivion.

Regardless of the truth behind certain statements and actions, current US trade policy is not just about economics, companies, and jobs. “There’s another agenda that’s going on that is very anti-global,” said Weinstein, citing efforts to reduce immigration and other forms of US interaction on a global stage. “It’s why, to some extent, when I give these arguments about costs and benefits, it’s not really convincing to many people on the other side. What they’re looking for is something very different.”