REPORT ON

Impact of the new US trade policy on

world trade and economy

Submitted to- Submitted by-

Sourindra bhattacharjee Harpreet kaur
Mallika kakkar
Melani kapoor
Rupanjali bisht
Tulika Agarwal
Impact of the new US trade policy on world trade and economy

The victory by Republican presidential candidate Donald Trump in the 2016 general election
marked the beginning of a transitional period for the United States. Hot button issues such as
civil rights, economics, foreign affairs and judicial appointments took centre stage during the
fiercely contested election. Trumps commitment to improving the U.S. economy is largely
based on fundamentally changing the manner in which the government conducts business. His
stated idealsranging from the restructuring of U.S. debt abroad to the renegotiation of trade
agreementssent shock waves throughout the financial community.

The overriding theme of these stated policies is to limit the impact of globalisation on the
nations economy. Through taking an aggressive stance towards rolling back previous trade
deals such as NAFTA, KORUS (South Korea/US) and avoiding entry into TPP, President
Trump aims to achieve U.S. economic independence through reducing the trade deficit.

Deficits. The Administration would make trade balances a prime metric for evaluating trade
deals. The agenda highlights America's trade deficit with Chinaa country with no free trade
agreement with the United Stateswhile ignoring the fact that America actually runs a trade
surplus with its 20 FTA partners. More significantly, most mainstream experts believe trade
balances are an exceedingly poor measure of effective trade policy. Deficits are driven by
broader economic factors, and lower trade deficits coincide with economic downturns, not
periods of growth. Moreover, the Administration's attempt to link deficits to lost manufacturing
jobs ignores findings that these jobs were overwhelmingly lost to automation, not trade.

The Administration's obsession with trade deficits is particularly concerning in view of reports
that the it's considering a discredited methodology to "cook the books" in calculating deficits
and proposals to make deficits a reason for withdrawing from trade deals. These ill-considered
ideas would create great uncertainty in the real American economy. The latter is
especially nonsensical, since the Administration also demands "reciprocity" in trade.

Market Access. The Administration rightly notes that many barriers to American trade result
when countries fail to pursue free market principles or apply transparent rules. Based on the
trade agenda, however, the Administration's response to these challenges appears to be
retreathiding behind bluster and trade protection, while ceding the writing of new trade rules
to countries like China. Trump's decision to abandon America's hard-won gains in the TPP
negotiations is especially puzzling in this regard. The TPP includes hundreds of practical and
enforceable provisions that would increase trade and regulatory transparency, reduce market
distortions, slash tariff and non-tariff barriers to American goods and services, and even reform
NAFTA. And it would apply these reforms broadly, to countries accounting for 40 percent of
global tradea near-term result that would be impossible to duplicate by starting from scratch
on one-off bilateral deals.
Rather than abandoning the vital work of expanding global rules-based trade, the
Administration should seek to reassert American leadership. It could begin by revisiting the
TPP's many positive reforms and applying them in other key contexts, such as efforts to update
and improve NAFTA.

Presidential trade agendas have historically been forward-looking, with a strong focus on the
opportunities that trade presents for America. Trump's agenda, in contrast, is inward-looking
and reactive. As Congress reviews the Administration's report, it should be mindful of its
own Constitutional authority, both to block destructive efforts to upend longstanding
arrangements like the WTO and NAFTA and to shape a positive trade agenda that provides
real-world benefits for American producers and workers.

TPP

The T.P.P. would have created a Pacific trade zone not unlike the zone that NAFTA created in
North America, but comprising a dozen countries bordering the PacificJapan, Vietnam,
Brunei, Singapore, Malaysia, Australia, New Zealand, Canada, the U.S., Mexico, Peru, and
Chile. By 2030, those countries would have been able to access one anothers ports with next
to no tariffs or other restrictions.

Trump, argued variously that it would destroy jobs and the environment and strengthen China.
Pro-trade members of the Obama Administration argued that the T.P.P. would help increase
Made-in-America exports, grow the American economy, support well-paying American jobs,
and strengthen the American middle class.

Both proponents and detractors exaggerated the effects of the T.P.P., the impact of which was
always going to be modest in measurable economic terms. The Peterson Institute for
International Economics, a reputable but strongly pro-T.P.P. research organization, for
instance, estimated that U.S. national income would grow by a hundred and thirty-one billion
dollars a year by 2030 under the trade deal, a number that many T.P.P. advocates repeat as
evidence of its magnitude. But, even if the estimate turned out to be right, it would represent
just half a per cent of the over-all U.S. economyoutweighed by even slight changes in, say,
the average price of oil or the Federal Reserves key interest rateand would have essentially
no measurable impact on almost anybodys life. In other words, it could easily be seen as
somewhere between worthless and barely measurable in economic terms.

For a trade deal to have a major impact, good or bad, it would have to change the trade dynamics
with a previously closed but potentially immense trading partner. Such a seismic shift happened
when China joined the world trading system. But the U.S. already engages in trade with most
of the T.P.P. countries. Instead, the deal would have meant marginally more trade with a set of
second- and third-tier trading partners.

Why did the Obama Administration fight so hard for T.P.P.? Modern productsfrom cheaper
goods such as clothes to expensive and durable products such as computers, cars, and medical
devicesare no longer made in one country. They require stable, predictable international
supply chains, and the T.P.P. would have encouraged C.E.O.s, logistics managers, and others
to place their bets on the worlds single largest trading zone, one that would have been
dominated by the U.S., the largest and most developed economy in it.
Labour and environmental activists in America had already won major victories, insuring that
the T.P.P. would force a new set of standards on trading partners. For the poorer countries,
especially Vietnam, these would have meant real advances for workers and the environment.
After passage, other countries in the Pacific and in South America would have been anxious to
join this large and growing trading zone and would have wanted to make sure they stayed on
the good side of the United States President Trump, like many others, is right to be concerned
about people losing factory jobs, particularly in the Rust Belt, which delivered his victory. The
T.P.P. probably would have killed some jobs there, and it surely would have created some
others. Estimates suggest that it would have been a wash. But, over all, it wouldnt have had
much direct impact on blue-collar workers. The global shift away from tariffs and other trade
barriers began in 1964 and was, largely, complete by the mid-two-thousands. There are a few
real fights left, particularly over trade involving finance, entertainment, and pharmaceuticals,
but, for American manufacturing companies and their workers, there just arent that many high
trade barriers left. No deal is likely to have a significant impact on the number of jobs or on the
wages workers receive.

Multinational corporations do have a backup plan, now that the T.P.P. is dead. Its called
R.C.E.P., the Regional Competitive Economic Partnership. It is made up of sixteen countries,
all in Asia. Many were signatories to the T.P.P. The trade zone is not quite as bigR.C.E.P.
represents less than a third of the global economybut, in many ways, its a lot easier to join.
The U.S. is not a member, and there are virtually no environmental or labor standards required.
One country that is a member of R.C.E.P. is China, and it will be the nation that will dominate
what will soon become the worlds largest trade zone.

NAFTA

On a wave of resentment toward NAFTA and other trade deals Trump threatened to hit car
companies with huge tariffs for producing cars in Mexico and importing them to the U.S. for
sale. Trump has maintained that he wants to implement a 35 percent tariff on all vehicles and
parts imported into the U.S. NAFTA, a nearly quarter-century old agreement that was signed
in the waning days of George H.W. Bushs administration, eliminated most tariffs on products
traded between the U.S., Canada and Mexico. Beyond cars and auto parts, NAFTA covers an
array of products, like textiles, clothing and fibers. In the automotive sector, NAFTA has
resulted in a tremendous growth in Mexican car production to serve both the U.S., the worlds
second largest car market behind China, and other markets too. At least until Trump was
elected, those investments in Mexico seemed poised to only grow, as automakers from BMW
to Fiat Chrysler to Honda planned more and more plants there, especially to produce small
cars.

As per the study it should be noted, that withdrawing from NAFTA while implementing a 35
percent tariff would lead to a spike in vehicle prices, and cost the U.S. upward of 31,000 jobs.
Or to otherwise restrict automotive vehicle, parts and components trade within North America
will result in higher costs to producers, lower returns for investors, fewer choices for consumers
and a less competitive U.S. automotive and supplier industry, according to Automotive News.

The CAR report suggested Trumps trade and tariff promises are bluster, and would likely have
an adverse impact on the economy that he never expected.
For instance, a 35 percent tariff on vehicles imported from Mexico would result in the loss of
at least 6,700 North American assembly jobs and 450,000 units of U.S. auto sales, according
to CAR.

Despite NAFTA, theres still plenty of cars produced in the U.S. Small car production has
generally been shifting to Mexico because profit margins in the business are thin, especially
with cheap gas shifting Americas car market toward larger trucks and SUVs. If those margins
are scrapped, the cars are eliminated, thereby hurting the U.S. auto industry. The cost could
jump anywhere from $5,000 to $15,000.

Has NAFTA Actually Caused The U.S. To Lose Jobs?

NAFTA affected U.S. workers in four principal ways. First, it caused the loss of some
700,000 jobs as production moved to Mexico. Most of these losses came in California, Texas,
Michigan, and other states where manufacturing is concentrated. To be sure, there were some
job gains along the border in service and retail sectors resulting from increased trucking
activity, but these gains are small in relation to the loses, and are in lower paying
occupations. The vast majority of workers who lost jobs from NAFTA suffered a permanent
loss of income during 2013

But in 2015, the Congressional Research Service concluded that the impact on the U.S.
economy hasnt been as drastic as Trump may think.

The net overall effect of NAFTA on the U.S. economy appears to have been relatively
modest, primarily because trade with Canada and Mexico accounts for a small percentage of
U.S. GDP, the service wrote. However, there were worker and firm adjustment costs as the
three countries adjusted to more open trade and investment among their economies.

How America's new president will affect the global economy

Mexico

Americas neighbour to the south has most to lose from the new Republican president. Trumps
message to blue-collar voters in the rust-belt states was that US manufacturing jobs have
migrated across the Rio Grande as a result of the North American Free Trade Agreement signed
by Bill Clinton in the early 1990s. Trump has said that if he cannot renegotiate Nafta he will
pull out of the free trade deal altogether. He has threatened to put a 35% tariff on some Mexican
goods and pledged to close the sweatshops in Mexico that undercut American workers.

In addition, he has said he would round up and send home up illegal immigrants living and
working in America, 5 million of whom are thought to be Mexican. If implemented in full, the
impact on the Mexican economy of these policies would be profound. Trade between the US
and Mexico would slow, factories would close, foreign direct investment flows would dry up
and millions of repatriated workers would have to be absorbed into the Mexican workforce.
US consumers would see the price of some goods rise.

Mexico is not the only central American country at risk. Claudia Calich, fund manager at the
M&G emerging market bond fund, says remittances from people working illegally in the US
are worth 5.6%, 8% and 13.2% of GDP to the economies of Guatemala, El Salvador and
Honduras respectively.
China

Some of Trumps economic manifesto has been hazy but his attitude to China could not have
been clearer. He will instruct his Treasury secretary to label China a currency manipulator, he
will bring cases against Beijing to the World Trade Organisation, and he will consider imposing
a 45% tariff on Chinese imports into the US to make it easier for American companies to
compete.

The US is the biggest single market for Chinese exports, accounting for about 20% of the total.
There would be a risk that aggressive US trade policy could result in a marked slowdown in
Chinas growth and a loss of manufacturing jobs. Faced with that possibility, Beijing would
have two choices. It might take an emollient line, promising to increase direct investment into
the US as a way of supporting Trumps attempt to rebuild the American economy.

More likely, though, China would adopt an aggressive, nationalistic stance. Beijing is not
without economic weapons, since it has amassed a vast stock of US Treasury bonds in recent
years, the proceeds of its trade surplus with America. Beijing could meet Trumps threat with
one of its own: to dump US assets. A tit-for-tat trade war, in which China puts tariffs on US
exports, could not be ruled out either.

The rest of Asia

Barack Obama has shifted the focus of US foreign policy. For most of the postwar period,
Washington has looked eastwards across the Atlantic. Since the collapse of communist Russia
and the rise of China, its gaze has been westwards across the Pacific. This has been reflected
in all three manifestations of American power: military, diplomatic and economic. Obama saw
the Trans-Pacific Partnership as a way of keeping countries such as Japan, Brunei, Singapore
and Malaysia out of Beijings orbit. All these countries have an export-led model of growth
and Obamas plan was to create a US-led free trade zone that included all the major economies
of the Pacific apart from China.

That plan now lies in tatters. There will be no TPP under a Trump presidency and all the signs
are that countries such as South Korea and Taiwan will be subject to the same protectionist
strictures as Mexico and China. This would result in slower growth across Asia as exports and
investment weaken. Japan, which has been in the doldrums for a quarter of a century and which
remains on the brink of deflation, appears to be most at risk, but it is not alone in being anxious
about the impact of Trump.

In geopolitical terms, a tough US trade stance provides China with the opportunity to increase
its influence in the region, bolstering economic ties and making countries of the Pacific rim
less dependent on the American market.

Europe excluding Britain

The main short-term risk to Europe looks to be political rather than economic.There are,
however, economic and financial implications for Europe. Like Asia, the eurozone is heavily
reliant on exports as a source of growth. These could be affected in two ways: through a more
restrictive US trade regime and if a weaker dollar drives up the euro on the foreign exchanges.
Completing negotiations for the Trans-Atlantic Trade and Investment Partnership(TTIP)
always looked like an uphill struggle because Trump was against the concept in principle and
Hillary Clinton despite being a free trader by instinct was not prepared to spend any political
capital pushing for a deal. TTIP will never happen.

The relative calm of financial markets immediately after Trumps victory will come as a great
relief to European banks, which look highly vulnerable to a sustained bout of jitters. For
months, there have been rumours about the health of the Italian banking system and one of
Germanys leading banks, Deutsche. Plentiful supplies of cheap money from the European
Central Bank and relatively benign conditions in recent months have kept the problems hidden
from sight. For now, at least.

Britain

The UK will not be immune from any slowdown in the global economy that might result from
a Trump victory. Britain is the second biggest exporter of services in the world and America
takes more of them than any other country. But Trumps protectionist measures are targeted at
cheap manufactured goods, rather than the high-end services Britain provides, so at present
there seems little reason to fear that any new barriers will be erected for UK firms.

Trump has said the UK will be at the front of the queue for a new trade deal, which suggests
negotiations on a bilateral TTIP-style deal could get under way between Washington and
London. This would be helpful to Theresa May, who has been struggling to show that the UK
can clinch its own trade deals after it leaves the EU. Her bargaining position with the other 27
members of the EU will be strengthened if she can show that she can do business with Trump,
even though the stalled state of the current TTIP negotiations suggests that starting talks will
be a lot easier than concluding them.

In the short term, Trumps win helps take the pressure off the pound. Sterling has been sold
heavily against the dollar since the EU referendum, partly because of uncertainty about what
the UK will look like after Brexit. Trumps victory brings risk and uncertainty into the equation
for the US as well.

Economic and Strategic Impact

Transnational trade agreements such as TPP or North American Free Trade Agreement
(NAFTA) not only have implications for exports and GDP growth, but also for employment.
Monthly wages in a TPP partner countries, such as Vietnam, can be as low as $120 USD per
month, and in NAFTA partner, Mexico, the average wage, according to Business Insider, was
$4.35 per day. US factory workers earn around $2,000 a month, making it very tempting for
US companies to move overseas and take advantage of lower labour costs. As a result, US
labour unions have praised Trumps decision to leave the TPP, while supporting his plan to
reconfigure NAFTA and other international trade agreements.

Lori Wallach, Director of Public Citizens Global Trade Watch, published a statement calling
for the end of the TPP and NAFTA, claiming NAFTA is packed with incentives for job
offshoring. The AFL-CIO, Americas largest federation of labour unions, was similarly
opposed to the TPP. A message published on the Federation website read We are doing all we
can to make sure Americas working families are educated about the TPP and organized to
fight against it. The message went on to explain that one of the many reasons the AFL-CIO
disliked the TPP was because they didnt believe the agreement would raise the wages of
workers in member countries, and because rules designed to improve employment conditions
were vague.

A Roosevelt Institute report questioned the economic benefit of the TPP. The report points out
that since 2011 the US dollar is up 26%, essentially making US products 26% more expensive
on foreign markets and making foreign imports cheaper at home and abroad. Removing the
tariffs on US products in Asia still wouldnt bring their price in line with local products.
Conversely, Asian products are already cheap in the US. Reducing current tariffs wouldnt
make them that much more attractive. And of course, US local industries would be better served
by making foreign imports less, not more, attractive. The Roosevelt Institute went on to analyse
the tariffs that were being removed from US exports and found that among about half of the
18,000 categories of goods, the US had sold none to TPP partners. In most of the other
categories the US had sold very little. Examples of dubious benefits to US GDP included the
removal of tariffs on US pork exports to Muslim Malaysia and Brunei, as well as skis to tropical
Vietnam.

The Congressional Research Service analysed a number of TPP economic reports produced by
institutions ranging from The World Bank to Tufts University. While conclusions about the
potential benefits to US trade and GDP differed across the various studies, most found that the
increases to trade and GDP would be rather small and would be easily negated if TPP resulted
in greater than expected job loss or by continued appreciation of the US dollar.

The results in detail: U.S. International Trade Commission (USITC) determined that GDP
would increase by 0.15% and trade by 1%, and U.S. annual employment would increase by
128,000. Peter A. Petri and Michael G. Plummer (Peterson Institute for International
Economics) estimated that GDP would increase by 0.5% and U.S. exports would increase by
9.0%. The World Bank: projected an increase in GDP of 0.5% by 2030. A study out of the
Global Development and Environment Institute at Tufts University by Jeronim Capaldo and
Alex Izurieta estimated that all TPP participants would lose 770,000 jobs and non-TPP
developing economies would lose 4.5 million jobs

A Possible Trade War

Apart from Job loss and trade deficit, one reasons Donald Trump has cited unfair trade practices
as a reason for his protectionist measures. In the case of China, points of legitimate concern
identified by Business Insider included state-owned enterprises, heavy industrial subsidies,
intellectual property theft and piracy, indigenous innovation policies, rare earth mineral export
restrictions and other trade-distorting practices. Many of these complaints apply to TPP
member countries as well. Most TPP partners have state owned enterprises and impose more
restrictions on US investment in their country than the US does on foreign investment in the
United States. Some have argued that the US should remain in the TPP for economic reasons,
while others think the US should leave for economic reasons. Yet another camp argues that
weather the TPP is economically good or bad, the US should not leave the TPP or raise tariffs
for fear of starting a trade war.

A very concrete negative outcome of a trade war would be that it would make it difficult for
US companies to export to Asia, the fastest growing market in the world. On the other hand,
the US already runs a trade deficit with those countries. The threat of a trade war would most
likely hurt the surplus countries more. Additionally, much of the US trade deficit with these
countries derives from US companies operating abroad, exporting products back to the US.
Increased tariffs may cause these companies to relocate to the US. If they chose to go out of
business, or to seek new markets, rather than moving home, US demand for these products
would remain the same and the void would be filled by US domestic companies, producing in
the US, albeit at a higher price.

Similar logic applies to European countries producing US bound goods in Mexico. Euro News
reported that BMW, Daimler and Volkswagen, all have production facilities in Mexico to build
cars and parts for the American market. President Trumps proposed 35% tariff would most
likely render this business model untenable. German auto industry spokes people said that the
US would suffer from the tariffs because, between dealerships and automotive suppliers, over
100,000 US jobs depend on the German carmakers. This argument seems spurious, however,
because the number of people employed in the auto industry is dependent on the demand for
cars. And there is no reason to believe that the demand for cars in America would drop simply
due to the absence of the German carmakers. Ostensibly, American carmakers would simply
increase production to meet consumer needs, which would generate jobs. And of course, the
supply chains and business service chains supporting this increased production of cars would
all be inside of the US, creating a positive ripple effect in the US economy.

Strategic Benefits of the TPP

While admitting the economic benefits of the TPP for the US were minimal, CNBCs Everett
Rosenfeld called the TPP a key component of the American geopolitical pivot toward the
Asia-Pacific region. This statement echoes the viewpoint of many TPP proponents who
supported the agreement because of the strategic benefits they believed the US would obtain.
The TPP, unlike other free trade agreements, includes a wide variety of governance rules such
as regulations on pollution, anti-dumping, and currency manipulation. Through the TPP, the
US could have helped its Asian trading partners increase their good governance by stipulating
strict rules regarding labor, the environment, and copyright protection. The TPP would also
have been a way of reaffirming the US interest in the region. Leaving the TPP means that the
US will not get to control the rules of trade or help guide the corporate governance development
of its trading partners. While the governance argument holds some merit, opponents of TPP
found the governance rules insufficient. Critics pointed at a lack of pharmaceutical patent
protections, investor-state dispute settlement (ISDS) procedures, local content requirements for
autos and parts, and exceptions to full or partial liberalization of trade barriers.

Leaving the TPP may still represent a loss of US influence in Asia. Japanese Prime Minister
Shinzo Abe told CNBC that the US pulling out of the TPP will cause Asian countries to join
the China backed Regional Comprehensive Economic Partnership (RCEP). In addition to
RCEP, China is proposing other transnational trade deals such as the Free Trade Area of the
Asia Pacific. In addition to these deals potentially increasing Chinas regional power, at the
expense of the US, the China backed agreements also do nothing to improve corporate
governance. The China backed initiatives are primarily focused on trade and tariffs, without
the governance components of the TPP.

Why the Shift in US Trade Policy?

Since World War Two, use foreign policy has been dominated by defense strategies, with trade
being used to help increase the economic power of US strategic allies. The Trump
administration seems to be putting trade first and defense second. The decision to leave the
TPP and other organizations is based on trade, but it may feel like an act of betrayal for US
allies such as Japan, Thailand, and Vietnam.

At the same time that the US appears to be abandoning old friends, the Trump administration
seems to be moving closer to Russia. And this may also be seen as a strategic alignment. One
explanation for a shift towards Russia while taking a more antagonistic stance toward China
was suggested by Washington Post journalist, Simon Denyer. He explained that, as President
Trumps foreign policy seems to be dominated by trade, rather than defense, he sees China, the
country with the largest trade surplus, as a threat, rather than Russia, a country which has
always run long on guns, but short on butter. The same logic may lead President Trump to view
Mexico, Japan, and Germany as opponents, because of their trade surpluses with the US.
Although the US runs trade deficits with numerous countries, with whom US relations may
become less friendly, China is singled out for special animosity because China alone accounts
for nearly half of the US total trade deficit. Indeed, even Japan, the closest Asian ally of the US
has also been threatened with tariffs on the import of Toyota cars.
A trade-first policy would mean that in spite of a lot of blustering and rhetoric, issues such as
Taiwan and the South China Sea are unimportant to Trump as they have very little to do with
trade. Such issues are, however, important to China, and the US president may be planning to
use them as bargaining chips to gain advantages in trade with China.

If America, or Trump, now sees China as an adversary, leaving the TPP has created an avenue
of opportunity for the dragon from the east. Many people saw the TPP as a counter to China.
For example, the electronics industry saw the TPP as protection from cheap Chinese imports.
The TPP would also have given US companies new sourcing and supply chains, as well as
creating transparent trade between America and its overseas trading partners, simplifying
customs and importation procedures. Now it may be China that will be reaping the benefits of
these opportunities.

At the World Economic Forum in Davos, Switzerland, in January 2017, Chinese President Xi
Jinping promised to uphold the ideals of free trade in the world. And he has a number of
vehicles by which to do this. Whether the TPP lives or dies, China has RCEP and several other
acronyms for the countries of Asia and the Pacific to join. If the US had remained in and helped
enforce the rules of TPP, there would have been rules encouraging collective bargaining and
forbidding forced lab or. The Chinese lead trade agreements would lack such provisions.
Obviously, it would not be in Chinas interest to push for rules barring state owned enterprises,
currency manipulation or illegal subsidies. As a result, the alternative trade organizations will
not have the same benefits to global partners as TPP aspired to.

Meanwhile, Australian Prime Minister Malcolm Turnbull is in discussions with other TPP
nations to form the TPP 12 minus one, which would include China, but not the US. Although
China has positioned itself as championing free trade, they have been noncommittal about
joining the TPP, promoting instead the Regional Comprehensive Economic Partnership
(RCEP). One reason why China may not be too quick to join the TPP is the long list of
regulations. Jefferey Schott, a Senior Fellow, at Peterson Institute for International Economics,
doubted if China were ready to accept a broad array of TPP obligations on transparency and
restrictions on government market interventions, labour rights, freedom of data flows, and
intellectual property.

The economic reasons for the US to leave the TPP and renegotiate other transnational
agreements seem fairly compelling. From a strategic standpoint, however, the US may be
giving up much of its dominance in Asia. It is this authors opinion, however, that President
Trump may just be playing a very long game. It is possible that all of his posturing and tough
talk was a negotiation strategy designed to force US trading partners back to the negotiation
table, where he hopes to secure better deals.
TRUMPS POLICY: TRADE AND ECONOMIC IMPACT

As observed by the worlds financial markets in the elections immediate aftermath, the
potential impact of Trumps policies towards global commerce are largely debatable.
Depending on ones perspective, proposals to restructure international trade deals, impose
aggressive tariff structures and enforce WTO regulation can be seen as either positive or
negative. While Trumps proposed actions can be perceived to add value to the American
manufacturing sector, the trading regions of Asia and Latin America may equate them to
economic decline. If imposed, strict tariff structures could bring into question the viability of
exporting goods to the U.S. from developing countries. In the event that tariffs are placed on
imports from countries actively devaluing their currency, the value created by producing goods
in these countries is mitigated. As a result, many multinational corporations may choose to
relocate production facilities.

China is poised to experience substantial economic change if Trumps policies come to fruition.
The U.S. is the largest destination of goods made in China, accounting for 18% of all Chinese
exports.10) To maintain trade relations with the U.S., the Chinese government will likely have
to make concessions. Although the final compromise may be elementary, even a short-term
contraction in Chinas GDP could result in widespread corrections in global markets.

From the perspective of the U.S., reforms of NAFTA and KORUS in addition to non-entry into
the TPP can be seen as positive developments related to improving the trade balance. Often
being seen as a result of NAFTA, the U.S. has experienced a trade deficit with Mexico for 22
straight years. As of the year-end 2015, it measured US$60.7 billion. Since the inception of
KORUS, the U.S. trade deficit with South Korea has increased 114.6% and, as of the year-end
2015, has measured US$28.3 billion.12) The renegotiation of trade deals with Mexico and South
Korea under the Trump administration will serve as templates by which future agreements are
crafted. Attempts to reduce the US trade deficit under Trumps policies will likely benefit U.S.
workers and bolster GDP growth, at least in the short term. The long-term ramifications
resulting from a dramatic policy shift to economic independence from one of globalisation are
debatable.

The Presidents Trade Policy Agenda

A. Key Principles and Objectives of the Trump Administrations Trade Policy

In 2016, voters in both major parties called for a fundamental change in direction of U.S. trade
policy. The American people grew frustrated with our prior trade policy not because they have
ceased to believe in free trade and open markets, but because they did not all see clear benefits
from international trade agreements. President Trump has called for a new approach, and the
Trump Administration will deliver on that promise. The overarching purpose of our trade
policy the guiding principle behind all of our actions in this key area will be to expand trade
in a way that is freer and fairer for all Americans. Every action we take with respect to trade
will be designed to increase our economic growth, promote job creation in the United States,
promote reciprocity with our trading partners, strengthen our manufacturing base and our
ability to defend ourselves, and expand our agricultural and services industry exports. As a
general matter, we believe that these goals can be best accomplished by focusing on bilateral
negotiations rather than multilateral negotiations and by renegotiating and revising trade
agreements when our goals are not being met. Finally, we reject the notion that the United
States should, for putative geopolitical advantage, turn a blind eye to unfair trade practices that
disadvantage American workers, farmers, ranchers, and businesses in global markets.

In addition to these basic principles, we will focus on the following key objectives:

1. Ensuring that U.S. workers and businesses have a fair opportunity to compete for
business both in the domestic U.S. market and in other key markets around the world.
2. Breaking down unfair trade barriers in other markets that block U.S. exports, including
exports of agricultural goods.
3. Maintaining a balanced policy that looks out for the interests of all segments of the U.S.
economy, including manufacturing, agriculture, and services, as well as small
businesses and entrepreneurs.
4. Ensuring that U.S. owners of intellectual property (IP) have a full and fair opportunity
to use and profit from their IP.
5. Strictly enforcing U.S. trade laws to prevent the U.S. market from being distorted by
dumped and/or subsidized imports that harm domestic industries and workers.
6. Enforcing labor provisions in existing agreements and enforcing the prohibition against
the importation and sale of goods made with forced labor.
7. Resisting efforts by other countries or Members of international bodies like the World
Trade Organization (WTO) to advance interpretations that would weaken the rights
and benefits of, or increase the obligations under, the various trade agreements to which
the United States is a party.
8. Updating current trade agreements as necessary to reflect changing times and market
conditions.
9. Ensuring that United States trade policy contributes to the economic strength and
manufacturing base necessary to maintain and improve our national security.
10. Strongly advocating for all U.S. workers, farmers, ranchers, services providers, and
businesses, large and small to assure the fairest possible treatment of American
interests in the U.S. market and in other markets around the world.

B. Top Priorities and Reasons Therefor

1. Defending Our National Sovereignty Over Trade Policy

In late 1994, Congress approved the Uruguay Round Agreements Act, thereby paving the way
for the United States entry into the WTO. WTO members agreed to provisions to ensure that,
if a country lost a dispute at the WTO and failed to bring its measure into compliance with
WTO rules, to provide compensation, or otherwise to reach a mutually satisfactory solution,
the complaining countries would have the right to be authorized to retaliate by imposing trade
sanctions on the losing country.

The anchor for this new dispute settlement system was an agreement known as the
Understanding on Rules and Procedures Governing the Settlement of Disputes, often called the
Dispute Settlement Understanding (DSU). The core provision of the DSU was the express
legal requirement that the WTO, through its dispute settlement findings and recommendations,
could not add to or diminish the rights or obligations of the United States, or other countries
under the WTO agreements. This requirement was so critical that it was included not once,
but twice in the text of the DSU, once in Article 3 as a specific direction to the WTOs Dispute
Settlement Body in adopting its recommendations, and once in Article 19 as a specific direction
to WTO panels and the Appellate Body in setting out their findings and recommendations to
be adopted by the DSB. The Clinton Administration and Congress both made clear that this
language was essential to winning American support for the DSU.

At the time, the American people were assured that, by the express terms of the DSU itself,
this dispute settlement process would not alter the terms of what the United States had agreed
to in the WTO Agreements, and what Congress thereafter expressly approved when it passed
the Uruguay Round Agreements Act. In other words, the United States entered into written
agreements that contained rules on a range of matter such as trade-related aspects of intellectual
property rights, import licensing, sanitary and phytosanitary standards, antidumping, technical
standards, subsidies and countervailing duties, investment measures, and safeguards. The
United States also entered into the DSU, which contained a clear and express legal limitation
that the WTO dispute settlement process could not add to U.S. obligations or diminish U.S.
rights under those agreements. By insisting on and negotiating the express terms of these
agreements, the United States established clear and firm parameters for the role of the WTO in
regulating trade.

Given this history, it is important to recall also that Congress had made clear that Americans
are not directly subject to WTO decisions. The Uruguay Round Agreements Act states that, if
a WTO dispute settlement report is adverse to the United States, [the U.S. Trade
Representative shall] consult with the appropriate congressional committees concerning
whether to implement the reports recommendation and, if so, the manner of such
implementation and the period of time needed for such implementation, confirming that these
WTO reports are not binding or self-executing. 19 U.S.C. 3533(f). The Uruguay Round
Agreements Act also specifically provides that No provision of any of the Uruguay Round
Agreements, nor the application of any such provision to any person or circumstance, that is
inconsistent with any law of the United States shall have effect. 19 U.S.C. 3512(a)(1). In
other words, even if a WTO dispute settlement panel or the WTO Appellate Body rules
against the United States, such a ruling does not automatically lead to a change in U.S. law or
practice. Consistent with these important protections and applicable U.S. law, the Trump
Administration will aggressively defend American sovereignty over matters of trade policy.

2. Strictly Enforcing U.S. Trade Laws

For decades, Congress has maintained a series of laws designed to prevent the U.S. market
from being distorted by unfair practices such as injuriously dumped or subsidized imports, or
by harmful surges of imports. These laws have been a critical aspect of the bargain between
the U.S. government and American workers, farmers, ranchers, and businesses (large and
small) that has long supported the free and fair trade system in this country. These laws have
also reflected the core principles and legal rights of the multilateral trading system since its
founding in 1947 with the General Agreement on Tariffs and Trade (GATT). It is notable that
Article VI of the GATT in the strongest language possible, states that injurious dumping is to
be condemned. Trade remedies are a foundation to the implementation of the WTO
agreements, and to avoid market distortions, and it is critical that WTO members fully
recognize their centrality to the international trading system.

Consistent with the strong textual foundation in the GATT and WTO Agreement, Title VII of
the Tariff Act of 1930 provides the United States with the authority to impose antidumping
(AD) and countervailing duties (CVD) on imports that are either dumped (sold at less than
their fair value) or subsidized if such imports cause or threaten material injury to a domestic
industry. The AD/CVD laws are fully consistent with our WTO obligations and, indeed, the
WTO agreements specifically provide for such laws. For decades, domestic producers have
had the right to file cases seeking AD and/or CVD relief. The U.S. Department of Commerce
also has the right to self-initiate such cases if circumstances warrant.

Other long-standing laws address other situations in which government action may be
appropriate. Under Section 201 of the Trade Act of 1974, the President may impose relief if
increasing imports are a substantial cause of serious injury to a domestic industry. This
safeguard provision, used most recently by President George W. Bush in response to a
harmful surge of steel imports, can be a vital tool for industries needing temporary relief from
imports to become more competitive. USTR has the authority to ask for a safeguard
investigation in the appropriate circumstances.

Section 301 of the Trade Act of 1974 authorizes the USTR to take appropriate action in
response to foreign actions that violate an international trade agreement or are unjustifiable, or
unreasonable or discriminatory, and burdens or restricts United States commerce.
Investigations leading to these important actions may be initiated pursuant to requests by
private U.S. workers and businesses or a determination by the USTR. Properly used, section
301 can be a powerful lever to encourage foreign countries to adopt more market-friendly
policies.

The Trump Administration believes that it is essential to both the United States and the world
trading system that all U.S. trade laws be strictly and effectively enforced. We strongly support
true market based competition and we welcome the partnership of any country that agrees
with us. Unfortunately, however, large portions of the global economy do not reflect market
forces. Important sectors of the global economy, and significant markets around the world,
have been at times distorted by foreign government subsidies, theft of intellectual property,
currency manipulation, unfair competitive behaviour by state-owned enterprises, violations of
labour laws, use of forced labour, and numerous other unfair practices.

The Trump Administration will not tolerate unfair trade practices that harm American workers,
farmers, ranchers, services providers, and other businesses large and small. These practices
lower living standards for all Americans by distorting U.S. and global markets and preventing
resources from being allocated in the most efficient manner. These practices distort global
efficiencies by preventing developing or emerging economies from competing against non-
market based rivals that drive them from markets before they can even get a foothold. And,
when the WTO adopts interpretations of WTO agreements that undermine the ability of the
United States and other WTO Members to respond effectively to these real world unfair trade
practices with remedies expressly allowed under WTO rules, those interpretations undermine
confidence in the trading system. None of these outcomes is in the interest of the United States
or a healthy global economy. Accordingly, the Trump Administration will act aggressively as
needed to discourage this type of behaviour and encourage true market competition.

3. Using Leverage to Open Foreign Markets

The Trump Administration believes that U.S. workers, farmers, ranchers, services providers,
and businesses large and small should have a free and fair chance to compete around the world.
Such access benefits the U.S. economy, as Americans would have larger and more competitive
markets in which to sell their goods and services. Indeed, exports of manufactured goods,
agricultural products, and services are an important and essential aspect of the U.S. economy.
Exports already support millions of high-paying jobs for American citizens, and the
Administration wants to see them grow. At the same time, increased market access for
American goods and services will also help the global economy, as everyone benefits from a
system that rewards hard work and innovation.

Unfortunately, U.S. exports face significant barriers in many markets. The causes of market
obstruction and closure are numerous. In some instances, trading partners maintain high
tariffs and other non-tariff barriers, which block market access to U.S. goods and agricultural
exports. In others, foreign producers can benefit from subsidies that give them an unfair
advantage over their U.S. competitors. Other countries have looked to harm U.S. companies
by blocking or unreasonably restricting the flow of digital data and services, or through theft
of trade secrets. In still others, foreign countries can use technical barriers such as
unnecessary regulations on particular items to limit competition, including in the services
sector. Concerns have also been raised over currency practices and their impact on the
competitiveness of U.S. goods and services. These are only a few examples of the tactics that
can be used to block or impede the competitiveness of U.S. exporters.

For decades, the U.S. government has engaged in efforts to break down such barriers and open
foreign markets to U.S. competition. The Trump Administration recognizes that such efforts
are inherently difficult, as foreign governments often have strong political reasons to protect
certain industries in their home markets. However, the status quo is unsustainable for too
long Americans have lost business to other countries, in part because our businesses and
workers are not being given a fair opportunity to compete abroad.

There are at least two fundamental challenges that we must finally address. The first challenge
is that the WTO rules, and those of some bilateral and plurilateral trade agreements, are often
written with the implicit understanding that countries implementing those rules are pursuing
free-market principles. In a world in which there are several important players in the global
economy that do not fully adhere to the free-market principles in the organization of their
economic systems, systematic analysis of such economies relative to economic principles must
become more acute. Furthermore, the drafting, implementation, and application of trading
rules must find ways to adjust.

The second challenge is that WTO rules, and those of bilateral and plurilateral trade
agreements, are often written with the implicit understanding that countries implementing those
rules have functional legal and regulatory systems that are transparent. In practice, transparent
systems are critical to the functioning of trade rules because transparency enables stakeholders
and governments to understand the rules of the road, and prepare effective diplomatic or legal
challenges to those rules when they are not in conformity with international obligations. Once
again, the world in which we find ourselves is one in which there are a number of important
players whose legal and regulatory systems are not sufficiently transparent. These countries
make it difficult for the global trading system to hold them accountable. The inability of the
system to hold those countries accountable in turn leads to a loss of confidence in the system.

It is time for a more aggressive approach. The Trump Administration will use all possible
leverage to encourage other countries to give U.S. producers fair, reciprocal access to their
markets. The purpose of this effort is to ensure that more markets are truly open to American
goods and services and to enhance, rather than restrict, global trade and competition. Such a
policy will help grow the global economy by breaking down long-standing trade barriers and
promoting increased competition.

4. Negotiating New and Better Trade Deals

Since the late 1980s, the United States has entered into a wide variety of trade deals, including
the North American Free Trade Agreement, the Uruguay Round Agreements that created the
WTO, Chinas 2001 Protocol of Accession to the WTO, and a series of trade agreements.
Together, these and other agreements have created a framework for globalization that
establishes the rules and conditions that govern U.S. trade and investment. For years,
Americans have been promised that this system would lead to stronger economic growth and
greater opportunities for U.S. workers and businesses. And, in fact, this system has generated
substantial benefits to some American workers, farmers, ranchers, services providers, and other
businesses particularly in the form of increased export opportunities.

Unfortunately, a review of what has happened since 2000 the last full year before China
joined the WTO shows a period of slowed GDP growth, weak employment growth, and sharp
net loss of manufacturing employment in the United States. Many factors contribute to this,
notably the financial crisis of 2008-2009 and the broad impact of automation. But the trade
data are striking. Rather than showing that the results of this system have lived up to
expectations, they portray a very different reality:

In 2000, the U.S. trade deficit in manufactured goods was $317 billion. Last year, it
was $648 billion an increase of 100 percent.
Trade deficit in goods and services with China soared from $81.9 billion in 2000 to
almost $334 billion in 2015 (the last year for which such data are available), an increase
of more than 300 percent.
Of course, a rising trade deficit may be consistent with a stronger economy. However,
that has not been the experience of the typical American household. In 2000, U.S. real
median household income (in 2015 dollars) was $57,790. In 2015 (the most recent year
for which data are available), it was $56,516. In fact, despite the recovery since the
financial crisis, real median household income in the United States remains lower today
than it was 16 years ago.
In January 2000, there were 17,284,000 manufacturing jobs in the United States a
figure roughly in line with the total number of U.S. manufacturing jobs going back to
the early 1980s. In January 2017, there were only 12,341,000 manufacturing jobs in
the United States a loss of almost 5 million jobs.
In the 16 years before China joined the WTO from 1984 to 2000 U.S. industrial
production grew by almost 71 percent. In the period from 2000 to 2016, U.S. industrial
production grew by less than 9 percent.
These are alarming results. They reflect numerous challenges facing U.S. policy other than
trade and the Trump Administration is committed to taking all possible steps to create a more
vibrant, and more competitive, economy. We intend to work with the Congress to lower taxes,
reduce regulations, increase funding for infrastructure, and take other steps to stimulate U.S.
economic growth. At the same time, these figures indicate that while the current global trading
system has been great for China, since the turn of the century it has not generated the same
results for the United States.

There are significant reasons to be concerned with other major agreements as well. For years
now, the United States has run trade deficits in goods with our trading partners in the North
American Free Trade Agreement (NAFTA). In 2016, for example, our combined trade deficit
in goods with Canada and Mexico was more than $74 billion. As long ago as 2008, both Barack
Obama and Hillary Clinton called for the United States to renegotiate NAFTA and to
withdraw from NAFTA if such renegotiations were unsuccessful. Further, the largest trade deal
implemented during the Obama Administration our free trade agreement with South Korea
has coincided with a dramatic increase in our trade deficit with that country. From 2011 (the
last full year before the U.S.-Korea FTA went into effect) to 2016, the total value of U.S. goods
exported to South Korea fell by $1.2 billion. Meanwhile, U.S. imports of goods from South
Korea grew by more than $13 billion. As a result, our trade deficit in goods with South Korea
more than doubled. Needless to say, this is not the outcome the American people expected
from that agreement.

The Trump Administration believes in free and fair trade, and are looking forward to
developing deeper trading relationships with international partners who share that belief. But,
going forward, we will tend to focus on bilateral negotiations, we will hold our trading partners
to higher standards of fairness, and we will not hesitate to use all possible legal measures in
response to trading partners that continue to engage in unfair activities.

Conclusion

For more than 20 years, the United States government has been committed to trade policies
that emphasized multilateral and other agreements designed to promote incremental change in
foreign trade practices, as well as deference to international dispute settlement mechanisms.
The hope was that such a system could obtain better treatment for U.S. workers, farmers,
ranchers, and businesses. Instead, we find that in too many instances, Americans have been
put at an unfair disadvantage in global markets. Under these circumstances, it is time for a new
trade policy that defends American sovereignty, enforces U.S. trade laws, uses American
leverage to open markets abroad, and negotiates new trade agreements that are fairer and more
effective both for the United States and for the world trading system, particularly those
countries committed to a market-based economy. The Trump Administration is committed to
this policy to increase the wages of American workers; give our farmers, ranchers, services
providers, and agricultural businesses a better chance to grow their exports; strengthen
American competitiveness in both goods and services; and provide all Americans with a better
and fairer chance to improve their standard of living.
ANNEXURE

(A)

(B)

(C)
Contribution of each member

Tulika Agarwal 20%

Rupanjali bisht 20%

Harpreet kaur 20%

Malika kakkar 20%

Melani Kapoor 20%