Trade Experts Say Little to Contain Trump in 2nd Term

But, they agreed, a few things are predictable: Trump will have favorite sectors, lobbying will be fierce from companies and agricultural interests, and there will be little to no warning of coming changes.

Scott Lincicome, who leads the libertarian Cato Institute's trade policy studies, was a trade lawyer during the first Trump administration. "I spent a lot of Friday nights as a trade lawyer on frantic calls with journalists and clients because of some random tweet," he said. "I'm a huge critic of the Biden administration’s trade and industrial policies, but at least it was somewhat predictable." Trump actions won't be, he said in a phone interview.

Lincicome and Arturo Sarukhan, who founded Sarukhan and Associates, think Congress could impose checks on radical trade actions, but they're somewhat pessimistic it will. Sarukhan, a former Mexican ambassador to the U.S., said it will depend on which party controls the House. He predicted the House will remain a GOP majority, but even if Republicans control both chambers, he thinks pro-trade voices could provide some checks "on the more volatile, dangerous inclinations of Trump."

Sen. John Cornyn, R-Texas, is one of the two front-runners to be the Senate majority leader, and Sarukhan said that as ambassador, he spoke with the senator extensively and expects Cornyn would tell Trump that the Texan and Mexican economies are deeply intertwined.

"I think John Cornyn is one of the senators who understands and gets the relationship with Mexico," Sarukhan said in a phone interview. "I think he would be a good, significant advocate for not destroying the type of relationship" the two countries have.

However, Sarukhan and Lincicome both noted that checks on the White House were instrumental in stopping some of Trump's impulses during his first term, like ending NAFTA. Lincicome said he didn't know if there would be voices like that this time; Sarukhan doubts it. He said pro-trade advisers buried an executive order Trump requested to end NAFTA, and he doesn't expect that kind of action this time.

"The adults in the room in the first administration probably won't even be there in the room in the 2.0 Trump administration," he said. "This is for real."

Sarukhan noted that although Trump didn't impose escalating tariffs over migration and drug trafficking from Mexico in 2019 (see 1907020055), he doesn't think Mexican exporters or government officials should see the threats of higher escalating tariffs that Trump made on the campaign trail in the last week as bluster.

"One should take him at his word this time around," he said.

And, Sarukhan said, even if Trump doesn't impose 25% tariffs on all Mexican imports, or 10% tariffs on Mexican goods as part of a global tariff, he thinks Trump will impose high tariffs on all Mexican auto parts and autos -- even those with no connection to Chinese firms.

He expects efforts to force auto companies to reshore domestic assembly and expand domestic sourcing will be the "greatest, greatest focus" in the administration.

The Coalition for a Prosperous America, the biggest advocate of Trump's trade approaches, said Trump would have "the opportunity to drive transformative changes in trade, tax, and industrial policy to secure a stronger, more resilient U.S. economy," including by addressing trade imbalances, decoupling from China and reshoring. Its chairman said Trump intends to implement "strategic tariffs."

Lincicome doesn't think Trump will target favorite sectors. He thinks a global tariff of 10% or 20%, with possible exclusions from lobbying, is far more likely, because Trump sincerely believes the trade deficit is a serious problem.

While Lincicome said Elon Musk is an obvious messenger from manufacturers that immediate tariffs only hurt the companies he wants to help build American manufacturing, he doesn't think lobbying will change the trajectory substantively.

"I think we should also remember most of us expected a lot more visible and vocal pushback to the other tariffs than what we got," he said. "There is a philosophy in many C-suites [which] is the best thing to do is keep your head down and adapt. Lobby for exclusions; rejigger your supply chains just enough; don’t take on the president."

Major pro-free trade groups seemed to be taking that approach after Trump's victory. The U.S. Chamber of Commerce said nothing about tariffs or trade; the National Foreign Trade Council said it looked forward to working with the new administration to promote tax and trade policies that make businesses more competitive. "While we may have our disagreements about the use of specific policy instruments like tariffs, we look forward to being a constructive business voice to help strengthen America’s economic alliances, stand up for U.S. businesses and workers abroad and set the standards that will guide the global economy," NFTC wrote.

Lincicome noted that some foreign governments, such as Japan, also chose to lie low.

However, "if we get global tariff actions, there’s no place to hide anymore," he said, in terms of rejiggering supply chains or purchasing locations.

Lincicome doesn't think the tariffs will be that inflationary -- it will be a one-time price hike -- and in terms of GDP, he said the effect won't be that visible, since the U.S. is far less trade-exposed than most countries, and services are the vast majority of its output.

Still, he said there are a lot of unknowns, such as how countries will retaliate.

Sarukhan said Mexico's retaliation over U.S. abandonment of trucking pledges in NAFTA got results in just nine months, and he expressed confidence Mexico could put pressure on certain American ag exporters, and it would be effective again.

Lincicome said he doesn't expect retaliation to be against soybean exports, Boeing or symbolic products from leaders' states. Instead, he thinks the Europeans could impose digital services taxes, countries could stop enforcing anti-piracy laws, or China could revoke the license of a major American financial services company.

Last time, he said, some governments seemed to believe "we just got to ride him out. This time, maybe governments say: That’s it."

If the trade war tanks the stock market or is obvious in the economy, Lincicome said, he thinks that's when Trump would pivot. He said Trump backed off steel and aluminum tariffs on Mexico and Canada after a year, and he could say he's delaying tariffs on certain countries because they're in talks, or he could claim he's negotiated deals.