Background on Free Trade

The reason the public and the pundits don't care is that trade deficits don't matter. Politicians in the early 2000s accepted SOME economists' belief that trade deficits DO matter. But try to answer this question: "How much is California's trade deficit with Texas?" Nobody cares about that "trade deficit" because it wouldn't change what either state does. There IS a trade deficit between any two states, in one direction or the other, but people care so little about interstate trade deficits that they're not even measured. So why do we even measure international trade deficits?

Trump (and Biden) focused on "normalizing" relations with Taiwan because, officially, the United States has no normalized relations with Taiwan -- in other words, we don't diplomatically recognize the existence of the Republic of China as a separate country. America has diplomatically recognized only the People's Republic of China (Beijing, run by the CCP) since President Nixon's opening in 1972. Every president since Nixon has taken a couple of steps toward "normalizing" Taiwan -- China routinely complains about each step -- and Trump's second term will likely include a couple more steps.

America's policy on Taiwan is very much a multi-dimensional policy, mixing trade issues with foreign policy and miltary issues. Accordingly, our readers might refer to our "China news" page for consolidated updates (OnTheIssues had a separate "China issues" page in the early 2000s, where you can read older background on China).


Free Trade topics in the 2020 election cycle:

Multilateral Trade Agreements
• NAFTA: In 2018, the USMCA (United States-Mexico-Canada Agreement) replaced NAFTA (North American Free Trade Agreement) as the treaty governing North American trade. It required bipartisan support; Democrats focused on getting more enforcement of labor and environmental standards and drug pricing provisions. The FTAA (Free Trade Area of the Americas) and CAFTA (Central American-Dominican Republic Free Trade Agreement) could have expanded NAFTA to more Latin American nations, but the USMCA excluded them. (OTI)
• USMCA: Here's a brief overview of what's in the USMCA: (Vox.com)
  • Country of origin rules: Automobiles must have 75% of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs
  • Labor provisions: 40 to 45% of automobile parts must be made by workers who earn at least $16 an hour by 2023.
  • Agricultural exports: US farmers get more access to the Canadian dairy market
  • Intellectual property: Copyright extended to 70 years beyond the life of the author, and protections for internet companies.
  • Sunset clause: The agreement adds a 16-year sunset clause
• CAFTA and FTAA: By 2002, newly elected progressive Latin American leaders started opposing many of the details that had been negotiated. They were looking for South American unity, independent of the US; FTAA negotiations were abandoned. Instead, the US and six countries signed CAFTA in 2004, including Honduras, El Salvador, Guatemala, Nicaragua, Costa Rica, and the Dominican Republic. (The Balance)
• TPP: Before President Trump withdrew the US in 2017, the TPP (Trans-Pacific Partnership) was set to become the world's largest free trade deal, covering 40% of the global economy. The remaining TPP countries have forged ahead with a new version of the pact, without the US. (CFR)
• RCEP: The Regional Comprehensive Economic Partnership includes 15 Asia-Pacific economies to form the world's largest free trade bloc--a China-backed deal that excludes the United States. The RCEP groups the 10-member Association of Southeast Asian Nations (ASEAN), China, Japan, South Korea, Australia and New Zealand. (CNBC 2020)
• Multilateralism: Multilateral trade agreements are made between more than two countries to strengthen economy of member countries by exchanging of goods and services among them. Unilateral trade agreements are the agreements between two nations for the purpose of exchange of goods and service each other for mutual benefit of both of the countries. (ExportImport)

• News on Multilateral trade agreements (Candidates' recent excerpts)
• TRUMP: USMCA delivers dreams shattered by catastrophe of NAFTA (Feb 2019)
• BIDEN: Labor should be involved in renegotiating NAFTA/USMCA (July 2019)
• PENCE: Support multilateral negotiations: no nation ruined by trade (Jul 2016)
• HARRIS: Demand changes to post-NAFTA agreement USMCA (Jul 2019)
• Socialist Party nominee Gloria LA RIVA: Support global transformation from capitalism to socialism (Aug 2020)
• BIDEN: Voted NO on implementing CAFTA for Central America free-trade (Jul 2005)
• PENCE: Voted YES on implementing CAFTA, Central America Free Trade (Jul 2005)
• News on NAFTA/USMCA (Candidates' recent excerpts)

• PRO-China tariffs: The US is currently imposing a 25% tariff on approximately $250 billion of imports from China and a 7.5% tariff on approximately $112 billion worth of imports from China. The president has repeatedly threatened tariffs of varying rates on the remaining balance of imports from China. (Tax Foundation)
• ANTI-China tariffs: A September 2019 study found that the trade war had already cost the U.S. economy nearly 300,000 jobs and an estimated 0.3% of real GDP. Another 2019 report estimated that the trade war would cost the U.S. economy $316 billion by the end of 2020. (Brookings)

• TRUMP: Country built on tariffs; they'll lead to new trade deals (Aug 2018)
• BIDEN: Malarkey that China paid farmers; taxpayers did (Oct 2020)
• PENCE: Favors free trade, but not tariff dodging from China (Jan 2014)
• HARRIS: Trump's tariffs are a trade tax on workers and farmers (Jul 2019)
• Libertarian Party nominee Jo JORGENSEN: Eliminate trade barriers and tariffs (Jul 2020)

• Europe Tariffs: In 2020, Washington served notice that it would strike the EU with a particularly punitive form of tariffs. Under the so-called carousel retaliation, the US said it would rotate its current tariffs of 10 to 25 percent on European products to a different set of items every six months, affecting goods such as trucks, beer, olives, and gin. The EU has promised to retaliate in kind against any new US tariffs. (Foreign Policy)
• ANTI-Tariffs: In 2019, Trump says Chinese companies pay the tariffs, but most economists see them being borne by U.S. businesses and consumers. That is, they are essentially a tax increase. Over time, however, consumers and businesses can reduce this tax hit by substituting away from high-priced goods and Chinese production. (CNBC 2019)
• PRO-Tariffs: The U.S. imposed duties on imports of aluminum foil from China. The Commerce Department said Friday it would impose preliminary import duties in the range of 96.81% to 162.24% on Chinese aluminum foil, saying the goods are being sold at unfairly low prices. China disagreed with the U.S. move. (Industry Week)
• ANTI-Dumping Duties: The World Trade Organization (WTO) granted China clearance to levy $3.5 billion of duties on U.S. goods in response to a WTO case where China challenged a wide-range of U.S. anti-dumping duties. The Chinese alleged that the U.S. anti-dumping calculation method of "zeroing", which has been determined illegal at the WTO, has been artificially inflating dumping margins for Chinese exporters. (>Crowell-Moring)

• TRUMP: Nominates opponent of World Bank to lead World Bank (Feb 2019)
• BIDEN: No to tariffs; just enforce the law (Dec 2007)
• PENCE: Extend trade restrictions on Burma to promote democracy (Jun 2007)
• HARRIS: Export American products, not American jobs (Sep 2019)

International Trade Buzzwords
• NAFTA: refers to the North American Free Trade Agreement, which in 1994 established a free-trade zone between the US, Canada, and Mexico. NAFTA passed with some important compromises to protect the environment and labor standards. In 2001, President Bush formalized the proposal of expanding NAFTA to a Free Trade Area for the Americas (FTAA), encompassing 34 countries and 800 million people by 2005. Pres. Obama continues to push for expansion to CAFTA (Central American Free Trade Agreement)

• WTO: refers to the World Trade Organization, an international organization intended to reduce trade barriers, formed in 1995. WTO members (which include China since 2001) charge minimal import tariffs on each other. The WTO adjudicates international disputes over trade barriers, such as currency manipulation.

• Currency Manipulation: The Republican primary contenders, especially Donald Trump, accuse China of manipulating their currency. That means they maintain an artifically low exchange rate which makes Chinese goods relatively inexpensive for export. The result is that the US imports more goods from China, at lower cost for US consumers, but the manufacturing jobs are in China.

  Generally, the purpose of Currency Manipulation is make exports cheaper, which is called devaluing the currency. China and other nations manipulate their currencies, resulting in cheaper goods in the United States, but more jobs producing those goods in China. Currency manipulation is an illegal trade practice under rules of the WTO (World Trade Organization); the Chinese yuan is estimated to be undervalued by about 25% to 40%.

• TPP: The Trans-Pacific Partnership is a proposed free trade agreement between the U.S. and Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Negotiations began in 2005; China, Mexico, and South Korea may also join. The TPP is potentially the largest free trade agreement in the world, laying the framework for a "free trade area of the Pacific." Negotiations have been mostly held in secret, a source of some controversy. Other controversial topics include trade barriers and currency manipulation (by the Asian nations) and labor and environmental issues (by China).

• FTAA: The �free trade area of the Americas� is an extension of NAFTA to include the entire North American continent; negotiations began in 2001. It was scheduled to take effect by 2005, but has been met by strong anti-corporate protests.

• Fast-Track: means authorizing the President to sign trade deals with a single yes-or-no Congressional vote after only limited debate. Supporting Fast-Track implies the speaker supports free trade.

• Fair Trade: means placing restrictions on imports based on environmental, labor, or other concerns. Supporting Fair Trade implies the speaker is against free trade.

• Trade Deficits: mean that the US imports more than we export to a particular country. Concern over trade deficits implies supporting trade restrictions against Mexico, Japan, and East Asia, with whom the US has large trade deficits.

• China, the world's largest Communist country, will soon become the world's largest economy (estimated to pass the U.S. in 2024). In 2014, China's economy grew at an annual rate of 7.4%, despite the lingering Great Recession (which only slowed China's growth slightly). U.S. trade with China totaled $562 billion in 2013, but with a $319 billion trade deficit. The U.S. has issues with China on currency manipulation, export dumping, and labor conditions within China. Those trade-related issues will dominate U.S.-China relations in the 2016 campaign and afterwards.

• Click for more on China

NAFTA
• The North American Free Trade Agreement of 1994 establishes a free-trade zone between the US, Canada, and Mexico.
• A �free trade zone� means that goods can cross the border in either direction without tariffs or taxes of any kind.
• Canada is the largest trading partner of the US, accounting for over 25% of both our imports and exports.
• Mexico & Japan account for about 15% each; Europe combined for about 20%; and East Asia combined for about 15%.
• NAFTA passed with some important compromises to protect the environment and labor standards; these are refered to as �Side Agreements.�
• In 1994, President Clinton invited Chile to join NAFTA as the next step toward a Free Trade Zone for the Americas.
• In 2001, President Bush formalized the proposal of expanding NAFTA to a Free Trade Area for the Americas, encompassing 34 countries and 800 million people by 2005.

GATT & WTO
• The World Trade Organization is an international organization intended to reduce trade barriers, formed in 1995.
• The General Agreement on Trade and Tariffs is the international treaty which preceded the WTO's formation; it began in 1947.
• The �Uruguay Round� was the most recently completed round of GATT negotiations, completed in 1994.
• Negotiations to start a new �Round� took place in Seattle in Dec. 1999, but were disrupted by riots.
• WTO members (which includes the US and most industrialized countries) grant each other �MFN� or Most Favored Nation status, which means minimal import tariffs.

Globalization
• �Globalization� refers generally to free trade, open borders, improved communication and transportation, and the commerce implications of the Internet.
• Specifically, anti-globalization advocates refer to the negative aspects of free trade on environmental and labor standards. At issue is that open borders cause corporations to seek out the lowest environmental and labor standards to minimize production costs, thereby pressuring for lower standards globally.
• Anti-globalization advocates primarily focus on the secrecy of WTO proceedings, but also criticize other international trade organizations as too favorable to corporate interests.
• Anti-globalization protests have been particularly effective since a large protest at a WTO meeting in Seattle in late 1999. The 2001 WTO meeting was held in Qatar (in the Persian Gulf) partially to make protest more difficult b its remoteness.
• While the anti-corporate aspect of anti-globalization is primarily a liberal cause, many conservatives join the anti-globalization movement on grounds of protection of national sovereignty. At issue is that the WTO and international trade agreements override national law, and hence place the US Congress and the US President subordinate to an unelected foreign organization.

�Anti-Dumping Laws�
• Dumping: A country sells goods in the US at costs lower than they are sold in the home country, presumably with the intent of capturing market share.
• Countervailing Duties: The US imposes import tariffs -- often 100% or more -- on goods which the government determines have been dumped.
• In the last 4 years, the federal government found dumping in 107 cases, mostly steel from Asia but also on European bananas, and imposed countervailing duties.