This year’s G20 summit took a turn that no one was expecting. A long standing tradition for the countries involved in the G20 has been the common endorsement of free trade by all parties. This year, President Trump’s administration changed that.
Newly-appointed Treasury Secretary Steven Mnuchin attended the summit, which was held in Baden-Baden, Germany, to represent the United States. The gathering consists of economic ministers and central bankers from the 20 largest economies in the world. The focus of the G20 is to create fluidity between markets and make trade easier and more beneficial for everyone involved. However, the current trade agreements aren’t exactly a reflection of that mission – and President Trump hopes to change that.
After the United States officially declined to promote free trade as it stands during the summit, the media went into a tailspin. They claimed the announcement was a blow to economies like Germany and other trade partners. What people often forget is that the diminution of a free trade agreement doesn’t have to hurt exporters like Germany. It actually has more of an impact on consumers who buy the products. Essentially, Trump’s economic plans, and subsequent disapproval of free trade, will have little impact if Germany is able to make the necessary changes it needs to in order to meet whatever trade standards are introduced. If the country fails to do so, that’s not a reflection of Trump or the U.S.
Another argument is that the lack of free trade means more expensive imported goods. That’s the entire point. By creating a trade system in which imported goods are more expensive, people will have an incentive to buy American-made products. The option to buy foreign goods will still be there, but at a price. The system will also encourage job growth in companies that return their operations to the United States and hire American workers.
Trump introduced his view on existing U.S. trade policies before he even stepped foot into the White House. The first thing he did as President was sign an executive order eliminating U.S. involvement in the Trans-Pacific Partnership, or TPP. The TPP, which involved 12 Pacific Rim nations, was negotiated in secret and ended up being more than 5,000 pages long. It took WikiLeaks’ Julian Assange to break the news that only a handful of the TPP’s 30 sections had to do with traditional trade. As with other such agreements, much of it concerned labor and environmental regulations and special treatment for various industries and products.
The move proved to be a good one for America, but it was, of course, met with a lot of resistance. Even Hillary Clinton and Bernie Sanders supported killing the TPP when they were campaigning. However, because it was Trump who got to sign his name on the order, liberals still threw a fit.
Now Trump is focused on changing the way we trade with our partnering countries. The administration is set on shifting the system to help with the “America First” policy they’ve stood by since the campaign trail.
NAFTA, the North American Free Trade Agreement, is another thing on Trump’s list. He doesn’t necessarily want to do away with it, but he’s very open to renegotiating the deal. NAFTA is the exclusive trade agreement between the United States, Canada and Mexico. Essentially, it’s an agreement that keeps trade tariffs down to virtually zero and allows for products to come and go from each country with ease. So why renegotiate it if it’s such a great deal? Well, with the state the U.S. economy is in, a free deal – even with our neighbors – isn’t really generating revenue.
With that being said, renegotiating NAFTA, even just to slightly increase the amount of money businesses and individuals in the U.S. would make from trading with Canada and Mexico, isn’t such a bad idea. Again, he’s open to negotiating, which includes a discussion between all parties involved. The agreement could change, it could stay the same, or be eliminated altogether – but it’s not just Trump that will be sitting at the table.
By taking a stand against the current “free trade” market at the G20 summit, the United States has shaken up the system. This could be a good thing. The current understanding of “free trade” isn’t really free. The term is simply used by economies to promote their own agreements and policies under a better light. By adding “free” to the discussion, people are more apt to agree to it.
Plus, the agreements are meant to be made to reflect the current needs of each economy involved. In 1789, a tariff was put on sugar imports to raise money for the economy. At the time, nearly all Federal tax revenues came from tariffs, so the deal was sensible for the current climate. In 1913, income taxes were introduced to make up a large chunk of Federal tax revenues, so there was really no need for the sugar tariff any longer. It made perfect sense to do away with the high tariff, but it didn’t happen. In fact, it is now 2017 and the tariff still exists! Because of all of the trade agreements that came after it, it’s essentially buried underneath and simply overlooked.
Trump sees agreements as needing to be renegotiated from time to time. Economies shift, and both recessions and economic booms happen all over the world. For this reason alone, it’s important to have agreements that are able to fluctuate to fit the current climate.
The summit comes shortly after relations have become strained between the United States and Germany. Last week, after meeting with German Chancellor Angela Merkel, President Trump claimed that Germany owes money to NATO and it must be paid. Germany only contributes 1.2 percent of the its GDP to NATO, which is well below the expected two percent every country in the organization is expected to give.
The policies we will see unfolding during the Trump administration will reflect fair trade. By implementing more fair trade agreements, Trump is creating a common understanding between economies rather than what is currently happening, which is one country always benefiting more than another. If countries like Germany can’t handle that, it’s their own problem.