When President Trump – and his tariff-hurling, fiery trade advisor Peter Navarro – impose tariffs on allies and adversaries alike, what is their purpose? To dismantle the global trading system and leave America standing strong amidst the rubble? Which drives many in the GOP crazy and desperate to plead in the president’s ear for a change of course. Or is it to secure better bilateral deals in a bare-knuckles sort of bilateralism? Or does Trump give it much thought beyond the reactions he seeks to provoke in others?

In a fascinating article in The National Interest, Milton Ezrati comments on the notion that President Trump is single-handedly taking a sledge hammer to the global trading system. According to Ezrati, a free-trading global system died about 30 years ago.

Fricking French Farmers.

Ok, allow me to elaborate. What Ezrati is talking about is what our global trading system has actually become. Over the last decades, starting in the late 80’s, the world began to move towards Preferential Trade Agreements, or PTA’s. What’s a good example of a PTA?

  • The EU. From the beginning of multilateral trade talks in the late 40’s, Europe, scarred by it’s history and the two World Wars that had ravaged the continent and for which the continent was solely responsible, began to forge an economic community that always had – and still has – political ends. To bind Germany into a framework that will prevent any future Teutonic expansionism and Germanic nationalism that yielded such horrifying results in the mid-twentieth century. In the 50’s, 60’s, and 70’s, attempts at lowering tariffs continually ran into European – lead by the French – obstructionism. European farmers were to be – and still are – protected from competition at practically all costs. So, while the European Union lowered barriers among European nations in a political attempt to bind distinct nations into a forever peaceful community, it did nothing to forward the cause of global free trade, or lower tariffs for those outside the preferential trading area.
  • Ditto for NAFTA, which lowered tariffs among the 3 nations that compromise the geographical, if not the cultural, North America. NAFTA does not lower trade barriers for Chile or China or Japan or Australia.
  • The defunct Trans-Pacific Partnership and it’s orphaned offspring, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership are also preferential trade agreements.

In other words, the latest global order is a competition, unequal and biased and with rules bent and massaged to accommodate particular interests, between trading blocks. This is not a free trading system. It is a curious hybrid between protectionism and freer-if-not-free trade. When combined with economic theories on optimal currency areas – Should the Mercosur, yet another PTA, have its own currency for example? – you have the basic landscape of the current international economic order.

So, the question becomes: is President Trump working within the PTA framework looking not to change the framework but to bully his way to better deals for America? Or is he looking to smash the PTA order and rebuild a free-trading world on top of the rubble?

Safe to say that that question has yet to be answered, least of all in the President’s mind. His approach is transactional, which would seem to suggest he’s fine with re-ordering but not destroying the Preferential Trade Agreement world order. But at times he seems to want to merely lower tariffs everywhere, which suggests more of a return to a global free-trading system that Kennedy and others tried and failed to build.

I’m not sure I’d actually want to show the President Milton Ezrati’s article in The National Interest. I’d fear he’d decide he’s in love with PTA’s as long as the lion’s share of the preference runs America’s way. Let’s hope instead that Trump keeps scaring political leaders into offering lower tariffs. And that his tactics actually work, unlike the evidence so far with regards to China. A high-tariff PTA global trade system would be the worst of both worlds for an economically isolated America.

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