Trump and Reagan: Whose trade policy wins?

After signing the United States - Mexico - Canada agreement and “Phase 1” of the China trade deal, President Donald Trump has now moved his international trade focus onto some of the closest US allies, the European Union. During the World Economic Forum in Davos, Switzerland, he proposed tariffs on auto imports from the EU, on wines, cheese, yoghurt and handbags from France, and on whiskies from Ireland. 

The international trade policy efforts by Trump are remindful of President Ronald Reagan. Both presidents are stars of the Republican party and very frowned upon by Democrats. Trump and Reagan were focused on reducing the US trade deficit and increasing the global competitiveness of US industry.  A look onto the past will provide a better understanding on whether Trump’s bold approach to trade policy wins over Reagan’s more sedate procedures.

The 1980s

The US trade deficit was significant and growing precipitously. In the early Reagan years, it averaged $30 billion and reached $123 billion by late 1984. 

Reagan’s preference for free trade contributed to the administration’s initial lassitude on this deficit. Gradually, however, calls for protectionism emerged. Examples were the US automotive and footwear industries. Even clothespins were considered by some worthy of protection against foreign imports. In response, Reagan signed the Trade and Tariff Act of 1984 to reduce unfair global trade practices. There were also additional efforts to increase exports. Reagan announced bilateral trade agreements with Israel, and later with Canada. New rules were implemented to ease US trade with China, yet the trade deficit continued to rise and reached $148 billion in 1985. 

The final, major trade legislation of the Reagan administration was the Omnibus and Competitiveness Act of 1988, which authorised negotiations in the General Agreement on Tariffs and Trade (GATT) and required the US Trade Representative to take aggressive corrective action against countries that had large trade surpluses with the US.

The end of the Reagan years coincided with a sharp rise in globalisation forces. The emergence of new technologies in transportation, communications and information dramatically lowered the costs of international business and marked a rise of worldwide competition.

Trade policy after 2016

Similar to Reagan, Trump has focused on fair trade. Some consider his approach more aggressive and populist. Trump ignited a new fervour in international trade policy. His tariffs have been imposed rapidly and often with little debate. His style has managed to concentrate the focus of trade partners. The constantly hammered message says: trade is now important to the US. 

Trump has argued consistently that the US has been ignored or treated unfairly for decades in trade related matters. He has pushed an “America First” policy with no more ongoing global support from the US. He renegotiated the North American Free Trade Agreement (NAFTA), eliminated the Trans-Pacific Partnership (TPP), as well as criticised major companies such as Carrier, Ford and Mondelez, for selecting their production location without patriotic consideration.

Trump tariffs of 2018 covered about $304 billion of imports into the US Together with other forms of protection, they have had limited effects on the US trade deficit. Some countries filed formal complaints against the US with the World Trade Organisation (WTO). Trump responded by threatening corrective measures against the WTO if US interests were not considered.

Comparing Reagan and Trump

Reagan’s policy endeavours were initially quite modest but became more assertive over time. Efforts sought to reduce the growing US trade deficit with Japan and bolster American industrial exports. Trump’s trade deficit is significantly larger both in real and relative terms. Trump’s policy uses more harsh, aggressive and clear approaches stating his expectations and demands, as well as reflecting the consequences of non-conformity.

Efforts by both the Reagan and Trump administrations to “level the playing field” have met with insufficient success. The powers of China and emerging markets are rising. American influence around the world should not become precarious. The time is right for further enlightened action on international trade. Countries need to understand the drivers of US policy, which requires embracement of new approaches, new linkages and new leadership directions for an entirely new era. 

The writer teaches international marketing and business at Georgetown University. His most recent book is “In Search for the Soul of International Business”, 2019. He served as deputy assistant secretary in the US Department of Commerce in the Reagan and Bush administrations. He contribute this article to The Jordan Times