Assessing Trump's 'America First' trade policy

Slightly more than a month into Donald Trump’s second term, he has put into motion a trade agenda far more radical and with far-reaching global consequences than any in American commerce policy in the last century. To understand the implications of Trump’s ‘America First’ trade policy and how they reshape and threaten global trade, Deborah Elms, Head of Trade Policy at the Hinrich Foundation, joined Nikkei Asia's Washington bureau chief Ryohei Yasoshima for a discussion in a program organized by the Association of Foreign Press Correspondents-USA.

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Highlights from the webinar:

'America First' trade policy

Trump's trade policies have operated with a level of volatility not seen in previous administrations. Decisions are made swiftly and seemingly arbitrarily, often through Trump’s preferred unconventional social media platform and a blizzard of executive orders followed by ad-hoc statements that sometimes walk back parts of the orders. Cabinet officials have sent confusing messages that appear to contradict orders issued elsewhere. This erratic policymaking, combined with the weakened role of global institutions, has left trading partners in deepening uncertainty about the rising US emphasis on unilateralism, making it increasingly difficult for businesses to plan ahead.

Elms highlighted that firms operating on long-term planning cycles face significant challenges, as sudden policy shifts can drastically alter cost structures and supply chains. The uncertainty surrounding tariff implementations, trade agreements, and retaliatory measures has forced businesses to adopt contingency strategies, but even these are difficult to execute in such an unpredictable environment.

She also emphasized that Trump's trade policies are not just unpredictable but are unfolding at a time of heightened global instability. Several key US trading partners, including South Korea (currently without a stable government), Canada (undergoing a leadership transition), and Australia (facing elections), are in weaker positions to push back against US trade maneuvers. This geopolitical backdrop amplifies the uncertainty generated by Trump's policies, as global players may be less prepared to counterbalance US trade actions.

Legal tools of Trump’s trade strategy

The Trump administration’s approach to policymaking, especially in trade, operates with an unprecedented level of executive authority. Trump often bypasses traditional legal and procedural frameworks, leaning heavily on the broad powers vested in the presidency. Almost every policy announcement begins with a declaration of authority from the president, without seeking approval from Congress and without adhering strictly to established statutes.

The Trump administration’s choice legal instruments are Section 232, Section 301, and the International Emergency Powers Act (IEEPA), Elms said.

Section 232 allows the US government to impose trade restrictions under the justification of national security. While this provision has existed for decades, Trump's use of it has been particularly aggressive, employing it to justify tariffs on steel, aluminum, and potentially automobiles (though perhaps with selective exemptions, his officials currently say as of the time of this publication).

Section 301, originally used to counteract unfair trade practices, had been largely dormant since 1995, until Trump revived it to impose tariffs on China under his first administration. The law grants the US government unilateral authority to investigate and penalize foreign trade policies it deems unfair, without requiring international arbitration or approval from the World Trade Organization (WTO).

The IEEPA, perhaps the most flexible tool in Trump’s trade arsenal, grants the president sweeping powers to impose economic measures, under the rubric of "international emergency," without lengthy investigations by other branches of government. Originally intended for national security crises, it has been increasingly invoked to implement economic restrictions, reinforcing Trump’s preference for executive-driven trade policy.

Elms pointed out that the administration’s broad interpretation of executive authority often leads to rapid policy shifts that lack clear legal justification, creating an environment of ongoing legal disputes and global economic instability.

Risk of reciprocal tariffs

A centerpiece of Trump's second-term trade agenda is his "reciprocal tariffs" policy, which he now threatens (at the time of this publication) to put into effect on April 2. Under this approach, the US would “match” the tariffs imposed by foreign nations, regardless of the economic rationale behind them. The word “match” is used loosely. While the idea may seem straightforward, Elms explained why it is deeply flawed.                           

Historically, tariff structures have never been identical across countries, as they are shaped by domestic economic priorities, industry protections, and geopolitical considerations. By attempting to align US tariffs with those of other nations, the policy risks inflating consumer prices and harming American businesses.

Moreover, with over 12,000 tariff lines across 166 WTO members, the logistics of matching each tariff would create an administrative nightmare. Beyond addressing trade imbalances, the policy also considers tax structures, currency valuation, and other vague factors, making the system highly unpredictable.

The policy amounts to a "choose-your-own-tariff” adventure, Elms said, where inconsistent rules create market instability and leave businesses unable to plan for the long term. Additionally, retaliatory tariffs from affected nations could escalate into full-scale trade disputes, further straining diplomatic and economic relations.

Using the analogy of a "rock in the pool," Elms described how Trump's trade policies create initial shockwaves that ripple across global markets. However, as those waves rebound, they produce unpredictable turbulence, exacerbated by retaliatory measures from other countries. She warned that while Trump thrives in such a chaotic environment, businesses and consumers bear the brunt of the instability, which would cause lasting damage to global trade systems.

Future of global trade

The conversation also examined the WTO’s diminishing influence. With its dispute settlement system already broken, Elms highlighted that global trade may revert to a fragmented "law of the jungle" model where the most powerful economies dictate terms while smaller nations struggle to have a say.

Elms said recent attempts to reform the WTO and drive more effective decision-making at the body via smaller, more issue-specific groups have been blocked as much by the US as by the body’s own outdated multilateral trade rules, further stagnating progress. The risk of the US completely withdrawing from WTO structures looms, a move that would further unravel decades of trade cooperation.

Currency manipulation, a longstanding issue in global trade, remains another volatile factor. Artificially deflating a currency can provide an unfair export advantage, an accusation long leveled against the world’s largest exporters, notably China. However, Elms criticized Trump’s approach of using tariffs as a countermeasure, arguing that tariffs are an ineffective tool for addressing currency devaluation. Solving this issue requires diplomatic and economic coordination rather than unilateral trade penalties.

Possibility of a 1930s-style global trade war

While a full-scale global trade war reminiscent of the 1930s is not inevitable, Elms warned that rising protectionist policies and retaliatory tariffs increase the likelihood of escalating tensions. Without a functioning multilateral trading system to mediate disputes, nations will likely resort – as they already are – to tit-for-tat trade restrictions.

A repeat of the extreme consequences of the 1930s cannot be ruled out. The uncertainty surrounding current policies could have lasting repercussions. Accurate reporting on trade policies and their broader impact is crucial in helping businesses, policymakers, and the media navigate the uncertain new world of America First.

The AFPC-USA is solely responsible for the content of this educational program.

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