One notable thing about Trump’s inaugural address is that it seemed more explicit about his views on trade than he usually is. Here is the passage:
Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength.
The only way this could have been more explicit is the addition of an -ism:
Protectionism will lead to great prosperity and strength.
Usually, Trump just talks in terms of cutting better deals; this was a more fundamental statement. It, together with what we’ve seen over the last few months, makes me believe that we will see some sort of trade war–or battles–in the early-going here. Whereas a bunch of Trump’s picks are conventional Republicans with views in tension with his–General Mattis is exhibit A–Trump’s picks in the area of trade agree with him 100 percent and are fully committed on the issue. And I think Trump almost has to follow through on his repeated threats to impose some tariffs. If he doesn’t, he is going to lose credibility, when a key part of his economic strategy is using his bully pulpit to push companies away from off-shoring. If a year or six months from now corporate America has concluded that he’s a paper tiger, Trump’s jawboning will lose force. Finally, the president has a lot of unilateral authority in this area, so it doesn’t matter so much if Paul Ryan and congressional Republicans are opposed to new tariffs.
Now, maybe the Trump team really does just want to rattle some cages in China and Mexico to get better deals and concessions, but I would brace for something bigger and more ambitious.
(By the way, Derek Scissors of the American Enterprise Institute has an excellent and informative piece on how to think about trade with China in our new issue.)