Trump and Trade Instability

Ken Shadlen at LSE has a post about Trump's tariff threats up at the LSE blog. He has two main points. The first is that it's inaccurate to say that linking trade to other issues (in this case immigration) is unheard of. Even NAFTA was linked to other things, such as reform demands on Mexico as a condition of ratification. The second point, however, is that NAFTA was actually constructed to protect all parties from the whims of politicians making such linkages.

Beyond NAFTA per se, these events make one wonder why any country would sign a trade agreement with the United States. After all, if countries already have preferential market access under the GSP, then one of the main benefits of reciprocal trade agreements is to lock-in and stabilise those preferences – even with the need to make substantial concessions on “trade-related” policy areas. 

If, in reality, only half of the bargain is locked in and the benefits can evaporate at the whim of the US president, then for many trading partners the benefits of such agreements will be unlikely to compensate for the costs.

Indeed, one of the reasons Carlos Salinas pursued NAFTA was to lock in reforms the PRI dinosaurs didn't like. If you throw that stability out the window as Trump is doing, you completely change the incentives of foreign leaders. Trade with the U.S. is no longer seen as a stabilizing factor. On the contrary, it could become a domestic nightmare. Who wants to be in AMLO's shoes as he is told to attack desperate Central American migrants?