The Neo-Davos Man

I had planned on calling this essay the Anti-Davos Man but thought it might be better to wait on its publication until I had actually heard what President Trump had to say to the gathered globalist elite at Davos Switzerland for the World Economic Forum. Everyone expected him promote the America First campaign and to denounce globalism (and the gathered elite) in favor of economic nationalism. Good thing I waited. Surprising almost everyone (he does that all the time but in this instance in a good way) he gave a very reasoned and rational (if somewhat redundant) exposition of his administration’s position and how he wanted to work with the world community.

I am beginning to discern a pattern (should I say a method to his madness). His spoken words (and especially his tweets) are often outrageous driving his opponents to paroxysms of rage and even confusing his supporters. But these opening sallies are often followed by more reasoned policy initiatives. While Democrats and progressives howled in rage at the recently passed tax reform package I gave it an overall passing grade of C-. However, I gave his corporate tax reforms an A- and businesses have responded with big bonuses and wage increases for their employees along with promises of new investments by both domestic and international companies. Apple alone has promised to repatriate its overseas earnings and to invest $350 billion in the US over five years. President Trump commented that his goal was to make US corporate taxes competitive and did not want to participate into a race to bottom. This represents a reasonable approach to policy.

He not only touted the 2.4 million new jobs since his election and the historically low unemployment rate of 4.1% but he also noted that the unemployment rate for blacks was at a record low and that women’s unemployment was at a 17 year low. He believed that the strong economic growth in the US was largely due to reduced regulation and a change in the regulatory environment from the anti-business attitude of the Obama administration.

He asserted that he supported free and open trade but that trade must be fair and reciprocal. He stated that he would “protect the interests of our country, our companies, and our workers” as he expects other world leaders to do in their countries. He even stated that he was very open to bilateral trade treaties including the countries in the Trans-Pacific Partnership (TPP) and perhaps even as a group, opening a way to reenter the TPP. But he was adamant that, in protecting the interests of our country, he would fight against unfair trade practices of other countries.

In a separate interview with Joe Kernan of CNBC he elaborated that a certain country (in this case India) imposes a 100% tariff on our exports of Harley Davidson motorcycles but we let their motorcycles in with no tariffs (although it should also be noted that the US does have high tariffs on other Indian exports). This is clearly not reciprocal and the United States has filed numerous complaints with the World Trade Organization on these and other unfair trade practices (of course other countries have filed complaints against us as well). Each country has the right to impose tariffs on imports as President Trump has recently done for imports of solar panels and washing machines. Of course the countries exporting solar panels and washing machines can go to the WTO and file a complaint that if approved will allow them to impose countervailing tariffs and duties on US exports as a remedy. While the WTO process is slow and bureaucratic the alternative would be a chaotic imposition of tariffs and duties that could easily degenerate into a trade war – where all countries would be worse off.

But existence of a trade deficit is not evidence of unfair treatment or a lack of reciprocity. International trade is “lumpy”. The US might export natural gas but no auto parts to one country, while exporting auto parts but no natural gas to another country. The same is true with imports so we might have deficits with some countries and surpluses with others. Hopefully, President Trump’s idea of reciprocity is to impose tariffs and other barriers to countries that impose them on us.

Another way to avoid the glacial bureaucratic process at the WTO is to enter into a bilateral or multilateral trade agreement with other countries. In that same CNBC interview President Trump stated that NAFTA was a bad trade deal because we have large trade deficits with both Mexico (about $71 billion) and Canada (about $17 billion). But wait a minute! The total trade deficit in 2014 was $734 billion, which was 20.2% of the total volume of US international trade in goods. But our deficit with Mexico was only 12.0% of total trade while our deficit with Canada was a puny 2.1%. Much less than average. Compare that to trade with China where the deficit was 60.0% (no trade agreement), Germany – 39.7% (no trade agreement) and Japan – 35.3% (no trade agreement). And don’t forget that we have a $33 billion surplus in services with Canada and Mexico. If President Trump prefers bilateral agreements over multilateral agreements as he says he does, then he should sit down with China, Germany and Japan before throwing NAFTA in the rubbish.

So while President Trump’s speech at the World Economic Forum and his other bilateral meetings and other events were very measured and reasonable and appear to have been well received, it will be the actions of his administration that determine how this policy plays out. And while President Trump appeared to be neo-Davos Man this week in Switzerland, everyone will remain on the lookout for the populist, nativist Anti-Davos Man many people thought him to be.