- REUTERS/Jonathan Ernst
Many of the economists and investors who feared Donald Trump’s harsh trade promises during the presidential campaign have taken umbrage at some of the administration’s lack of follow-through on the divisive issue.
The president did abandon the long-negotiated Trans-Pacific Partnership agreement between 12 Pacific Rim nations, a move seen as deep blow to America’s global leadership, especially in Asia.
But despite tough campaign rhetoric against China, Trump backed off a promise to name the country a currency manipulator and raise tariffs on the world’s second largest economy and a major trading partner. This raises questions about Trump’s business ties to China, and how potential conflicts of interest may be shaping his foreign and trade policies.
And while the North-American Free Trade Agreement (NAFTA) looks to be on the ropes after the latest set of demands from the Trump trade team, the president took much longer than expected to go after this other campaign boogeyman, which he called the “worst deal ever made.”
However, experts on trade paint a much more worrisome picture of the administration’s words and actions.
Susan Ariel Aaronson, a senior fellow at the Center for International and Global Development, a think tank in Waterloo, Canada, says the uncertainty generated by Trump’s whimsical approach to policy is already hampering investments with and in the United States.
“Investors today have a lot of investing options, and frankly, other countries look more stable and better managed than the United States,” Aaronson, a professor at George Washington University’s Elliott School of International Affairs in Washington DC, wrote in a recent opinion column in Maclean’s.
- Bureau of Economic Analysis
“If investors can no longer take American stability – or even an adherence to the rule of law- President Donald Trump’s words and actions undermine confidence that government, companies and individuals will be treated in an evenhanded and accountable manner, and that the US will stay true to its commitments. And we are now seeing evidence that this is affecting how and where businesses invest their money.”
That evidence came in a recent Commerce Department report on foreign investment trends, which acknowledged that expenditures by foreign direct investors to acquire, establish or expand American businesses declined by $66.1 billion, or 15%, from $439.6 billion in 2015.
“That’s a mighty big plunge for the center of global capitalism,” said Aaronson.
At issue is no less than faith in the predictability of legal and regulatory systems. Effectively, policy has become so erratic under Trump that it’s almost like dealing with the sort of risk usually faced by emerging markets – a potential breakdown in the rule of law.
“Historically, foreign direct investment (FDI) performance is driven by multiple factors, only some which can be quantified,” Aaronson wrote. “The rule of law is one. In countries with strong rule of law, government officials as well as individuals and private entities are predictable, reliable and held to account.”
“Instead, Trump’s chaos and unpredictability are signaling a decline in the rule of law,” she concludes. “Trump’s trade policies tell investors that the mores they value – accountability, predictability and even-handedness – have been thrown out the window. Alienated potential investors, especially foreign investors, will respond to Trump’s actions by voting with their feet.”