President Trump’s idea to turn the G7 into a free trade zone strikes one as a bit impulsive and underthought. After all, the Trump trade record this year seems to suggest a different direction, from solar panel and washing machine tariffs back in January to the steel and aluminum tariffs in March to China tariffs perhaps coming up.
Of course, none of that makes a G7 free trade zone necessarily a bad idea. Not at all. In theory, at least, it’s a remarkable one, breathtaking in its ambition. As Financial Times trade reporter Shawn Donnan writes:
Imagine an industrialised free trade area for the ages with no tariffs or other barriers to commerce and only a goal of shared prosperity in the 21st century? From Europe in the Atlantic east to Japan in the Pacific west it would cover a $36tn economic zone and almost half of global output. It would be a remarkable free-market alliance against a rising China and its brand of state-directed capitalism. Talk about a presidential legacy project. It would be huge.
Yuge, even. But it would also be a massive political undertaking, not least of all here in the United States. It’s not as if US trade policy has been run by Adam Smith and David Ricardo. America’s relative low import tariff average, notes Cato’s Scott Lincicome in a 2016 analysis, hides some awfully high tariffs on products such as peanuts, tuna, and light trucks. There’s a whole bunch of restrictive quotas, too, as well as non-tariffs barriers. The US might well be one of the most protectionist advanced economies, by some measures.
And it’s not just domestic interest groups that would need to be dealt with. There’s the administration’s own professed views on trade. First, Trump hates trade deficits, and there’s nothing about a free trade zone that guarantees the US would have equally balanced trade or run trade surpluses. Indeed, its overall trade deficit situation might not be much changed given it is due to macroeconomic factors not dumb deals. Second, it is tough to square a desire for some idealized free trade zone with the interest by some in the administration such as Peter Navarro to repatriate global supply chains. Third, it would seem natural for a free flow of good, services, and capital to also include talent. Has the president signed on to that idea, as well?
More from Donnan on the complexity of such an arrangement:
The first negotiation, presumably, would be over how much time any transition would take and how many products would be covered. Before long the aforementioned politically powerful industries would weigh in and begin seeking different timelines for different products, pleading the risk of job losses and closed factories. Eventually the issue of non-tariff barriers would surface. Would the EU agree to a zero tariff on beef raised on hormones? Or chicken produced with a chlorinated wash? What about auto safety and emission standards? Would the highly protected US sugar industry sign on? Would services be included? What about data flows? How would it all be policed? How would anti-dumping cases be handled?
Indeed, the whole enterprise sounds so difficult one wonders if success is really the goal, given its bolt-from-the-blue nature. As Lincicome tweets: “Finally, a major reason for skepticism: protectionists/cronies/pols have long used the impossible True Free Trade dream as an excuse to maintain their protectionism/subsidies (see eg Big Sugar and “zero for zero”).”