The Greatest Trade Deal That Never Was


It’s been a week since the Trump Administration engaged in what might be one of the most daring and controversial diplomatic summits in recent decades. There has been much hemming-and-hawing of the White House’s handling of the summit, and it remains to be seen whether or not the Trump Administration will obtain any of its stated aims in the ongoing negotiations.

No, I am not referring to the recent high-level meeting in Singapore between President Donald J. Trump and North Korean leader Kim Jong-un. That went shockingly well (as you well know from having read this site in recent days). I’m referring to the recent G-7 summit in Canada.

At this year’s G-7 Summit, President Trump decided to implement his highly controversial trade agenda. For the record, the G-7 countries consist of Canada, the United States, Italy, Germany, France, Japan, and the United Kingdom. The president has spent the last three decades railing against unfairness of the global “free trade” network that the United States sits atop of.

It’s More Than A Feeling…

In Trump’s eyes, the rest of the world has been getting rich at our expense. The president has (in some cases, correctly) identified horrendous excesses in trade allowed by our so-called leaders in Washington, D.C. that harm most Americans–and benefit both the trading “partners” of the United States and the elites in Washington who craft the trade policies to begin with.

In other words, Trump believes that “free trade” is a closed system that you’re not a part of.

Naturally, the president’s viewpoint has its detractors. He certainly does, at times, overstate his case. Yet, this misses the point of the president’s trade stance–most recently exhibited at the much-ballyhooed G-7 summit.

While the media and his political opposition are left befuddled, calling him everything from the “mad king” (a Game of Thrones reference) to an incompetent leader who alienates our oldest friends, the reality is far more complex.

You see, one of the reasons that Trump resonated with roughly 62 million voters in the United States–and why he has a solid base of support that remains committed to him–is because he promised to restore American leadership.

For better or worse, Trump is acting according to that promise (I think, it’s generally for the better). So, while analysts everywhere wring their hands over his claims, and seek to “fact-check” the president, they continue missing the point.

Sure, the United States does have trade deficit in goods with Canada, according to the U.S. Trade Representative. However, we also have trade surplus in services with Canada. The point is to reassert American leadership in the world, both with our friends and our enemies. If anything, Trump–or, rather, the nascent movement called “Trumpism”–is attitudinal.

The president, therefore, wades into situations (particularly of an international sort) exhibiting great moxie. It matters less that he’s “right,” but more that he’s reasserting the concept of American leadership (and potentially getting Americans better trade deals). At the G-7 summit, Trump put on the greatest display of leadership in years–particularly with countries that have disrespected and abused their close relationship with the U.S.

The Hard-Ass Approach

By behaving in the tough manner that Trump was, he was engaging in his now-overused observation from The Art of Deal: he was entering into a negotiation, aiming for very high goals, and ratcheting up pressure, until the other side either buckled, or forced a compromise that was much closer to what Trump wanted (but included some of what the counter-party wanted as well).

But, “why did he have to be so mean about it?” the arrogant Western press preened.

Well, that’s because, whether it can ever be ameliorated or not, the United States has major trade deficits with the G-7 countries–to say nothing of countries, like China! For decades, the United States has brought its concerns to these states in nice, diplomatic ways. The collective response of the G-7–from the Clinton to the Obama Administrations–was essentially, “Et alors?” Followed on by, “Leck mich am Arsch!”

Say what you will about the president, but his attitudinal change for American presidents has put our trading “partners” through a loop. It has sent signals throughout the world that Trump will not be messed with (and therefore, Americans won’t). Whatever happens next, this adjustment in the way American presidents are perceived in foreign capitals will have profoundly positive impacts–just look what happened on the heels of Trump’s G-7 meeting: he had an excellent summit with North Korea’s Kim Jong-un.

The great (former) Notre Dame football coach, Lou Holtz, once said that a good coach knows which players to “pat on the ass” and which ones to “kick in the ass.” It’s all about attitude and motivation. In this case, motivating world leaders to engage in behavior that is conducive to U.S. national interests. Being nice–patting Macron on the ass, if you will–did little to get a more balanced trade deal with the G-7 states. Now, Trump will give them a kick.

Sometimes the hard ass approach works best.

Full of Sound and Fury, Signifying Nothing

Looking at the combined GDP of the G-7 countries compared with the United States, the former still have a smaller GDP (on the order of a trillion dollars less). For all of their bluster to the contrary, the Europeans and Canada need reliable trade with the United States far more than America needs to give it.

Ultimately, the G-7 will fold and congeal with the Americans–crying like toddlers all of the way to an amicable agreement (no matter how small of a difference it makes for settling American trade imbalances).

The real problem with our trade imbalance in goods cuts down to American production levels. Unless that problem is addressed–over the long-run–we will always run an imbalance.

Lastly, for all of the rhetoric about the president being an unreasonable fellow, he actually came across as the most reasonable participant at the G-7 (if you’re being objective, that is).

The Trump team offered the G-7 the deal of the century. Far from promoting protectionism, the Trump trade team floated the possibility of the ultimate free trade agreement: removing all barriers to trade between the G-7 countries and eradicating any subsidies for preferred industries (which would have weakened the farmers in the U.S., one of Trump’s main constituencies).

The G-7 states balked and declined. Fact is, they don’t know what to do: they need the trade imbalance; they need tariffs (and non-tariff trade barriers), as well as massive subsidies (Hell, the whole European Union is not a “free trade” union, but rather a giant customs union with a massive external tariff). Yet, with Trump, they know that they won’t get these things much longer.

Further, they can’t just easily pivot to trading exclusively with China–especially since not all G-7 states will be as enthusiastic about selling themselves to Beijing the way that Germany has been (I’m looking at you, Japan). It is clear that Japan, in particular, will tow Washington’s line (meaning that the world’s largest and third-largest economies will be at loggerheads with the other European-based members).

Trump recognizes how unfairly our “partners” are treating us. He also exposed how insincere our trading partners were when they so readily declined his deal of true free trade. What’s more, he’s reinvigorating the image of the American president as a figure who commands–and deserves–the respect of foreign leaders, friend and foe alike. If our allies were as smart as they believed, then they would have accepted true free trade, as Trump had offered.

Too late. It might be everyone’s loss. Who knows?

As I’ve said often: God, save us from our allies.

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