Do You Feel Lucky?

The Administration rolled out a new trade strategy yesterday. Like many things the Administration has put forward, it is heavy on rhetoric, light on policy specifics. That being said, if the Administration pursues a trade agenda that invites trade retaliation, while implementation of stimulative macro policies (e.g., infrastructure investment, tax cuts) are delayed, then we may very well get an economic slowdown before a boom.

From the document:

“It is time for a more aggressive approach. The Trump Administration will use all possible leverage to encourage other countries to give U.S. producers fair, reciprocal access to their markets…”

From WaPo:

The new trade approach, which was sent to Congress Wednesday, could affect businesses and consumers worldwide, with the White House suggesting the United States could unilaterally impose tariffs against countries it thinks have unfair trade practices — paving the way for a more adversarial relationship with China and other trading partners — and punish companies that relocate overseas and then attempt to sell products on the U.S. market.

…

Trump’s threatened tariffs and other trade barriers could violate WTO rules and bring blowback from other countries in the trade organization. But the agenda signals the Trump administration could simply ignore those complaints.

…

Chad Bown, a senior fellow at the Peterson Institute for International Economics, said he fears the administration’s criticism of WTO rules could end up creating a more lawless global system. “The difficulty is, once we step away from that and say the WTO rules imply a lot more flexibility in what we’re allowed to do, we can be 100 percent certain other countries will start to do the same. That’s what will ultimately undermine the U.S. system, and there will be big repercussions for U.S. exporters.”

So retaliation is a distinct possibility. The amount of the authorized retaliation against the U.S. is not trivial. From Mericle and Phillips, “US Daily: Trade Disputes: What Happens When You Break the Rules?” Goldman Sachs, February 17, 2017 (not online):