When Donald Trump reached the White House in January, one of the biggest threats that his administration posed to the status quo was in trade. Saying that trade deals in general, and the North American Free Trade Agreement in particular, had cheated the US out of jobs and exports, he vowed to rewrite them, if necessary by unilateral diktat.
More than two months in, the prevailing attitude in the community of trade policymakers is bemusement. True to his word, Mr Trump immediately pulled the US out of the regional Trans-Pacific Partnership and demanded a renegotiation of Nafta with its other two members, Mexico and Canada. But it is unclear to what extent he wishes to destroy and rebuild the architecture of trade governance rather than give it a judicious redesign.
Mr Trump sees China as the main rival to the US in determining the rules of world trade. But across the Atlantic, the EU is quietly going about the business of signing trade deals and extending its standards around the world. Even without the formal imprimatur of agreements, EU regulation has increasingly become the norm in large economies, including, at times, the US.
The White House’s policy on rewriting Nafta is unclear. A policy document circulated recently seemed to suggest it wanted only minimal tweaks. Indeed, since the agreement dates from 1994, economies and technology have moved on, and such a development might well be welcomed by Mexico and Canada.
But the White House has since suggested that was an outdated paper, and that its actual proposals will be much more radical, designed to force the reshoring of production to the US. That would be foolish. Nafta has facilitated the creation of highly efficient supply chains, not least for autos. Frequently, that involves moving the labour-intensive parts of production to Mexico and having the US specialise in higher-value-added stages.
Trying to bring manual work back to the US is likely to be counterproductive. Much of Mexico’s car production is traded outside Nafta, partly thanks to its bilateral trade deals with other countries. It will be capable of knitting into non-Nafta supply networks if necessary.
As it happens, Mexican officials are in Brussels this week to update an EU-Mexico bilateral trade deal, dating from 2000, in a considerably less confrontational atmosphere. The EU is never going to replace the US as Mexico’s main trading partner, not least because of geography. But the episode does show that Brussels’ more methodical approach can achieve useful incremental benefits. While Mr Trump pulls America out of the TPP, the EU is getting close to sealing a trade deal with Japan, by far the pact’s largest economy outside the US.
It has long been noted that, even without being enshrined in formal trade deals, the EU’s more comprehensive and rigorous rules are often adopted around the world. Even American multinationals comply with, for example, the EU Reach regulatory regime for chemicals wherever they operate.
If Mr Trump’s aggressive mercantilism goes global and starts a worldwide trade war, the future for the international governance of commerce becomes more uncertain. But if the EU can make achievements in calm, reasoned negotiations with trading partners, European regulatory creep is only likely to accelerate.
While Mr Trump and his officials complain about lost jobs, their combative and self-destructive approach is ceding ground not just to Beijing but also to Brussels.
