Trump threw away our best chance at fairer trade

Can I interest you in a Trans-Pacific Partnership?

Over the course of Trump’s tariff-paloozza, he has repeatedly raised the issue of non-tariff barriers to trade.

It’s a little bit hard to know what to say about this, in part because Trump and his team keep being very non-specific about what they think the relevant barriers are, and also because they keep wrongly insisting that all bilateral trade deficits are caused by non-tariff trade barriers. At the same time, it’s certainly true that such a thing as non-tariff trade barriers exist and that such barriers are an important aspect of the global economy.

But because he’s Trump, he rarely seems to actually understand anything about non-tariff barriers to trade or be interested in accurately describing why they exist or where.

And most of all, he never acknowledges that presidents of both parties spent a generation making hard won progress against non-tariff trade barriers, and that the proximate cause of that progress coming to a halt is, in fact, Donald Trump.

Which is just to say that the solution to non-tariff trade barriers is free trade agreements.

One of the big objectives of NAFTA, for example, was to open the Mexican market to American corn exports. Donald Trump has a long list of complaints about American companies’ access to the Japanese market, many of which were specifically addressed in the Trans-Pacific Partnership deal that the Obama administration negotiated and that died due to opposition in Congress and opposition from Donald Trump. The Obama administration also began the process of negotiating a Transatlantic Trade and Investment Partnership (T-TIP) with the European Union. This process hadn’t gotten very far before Trump’s election scuttled negotiations, but had it come together, T-TIP would have been the biggest reduction in non-tariff trade barriers in history.

Getting this kind of deal done is not easy. That’s partly for the standard Econ 101 reasons that protectionism always has some political appeal. But the deeper issue is that while a tariff is a tariff, what constitutes a non-tariff trade barriers is very much up for the debate.

We have free trade in goods between American states because most of the relevant regulatory functions are handled by the federal government. To have the same level of market integration between Michigan and Kanagawa as exists between Michigan and Kentucky would require governance to be as integrated — and that would compromise national sovereignty. Negotiating these deals is, as a result, difficult and controversial. But the potential upside is big. The Trumpian premise that different countries having different regulations is, per se, some kind of scam is not a useful starting point for dialogue. And there’s no reason to believe that Trump’s bullying-centric approach is a particularly useful way to get deals done.

Again, Obama already negotiated a market-access deal with Japan and other major Pacific countries, and Trump just tore it up. George H.W. Bush and Bill Clinton negotiated one with Canada and Mexico, Trump himself modified it somewhat, and then Trump tore up his own deal unilaterally.

There’s no reason to behave like this. The Trump administration needs to treat the process seriously.

Non-tariff trade barriers are ubiquitous

The number two automaker in the world by volume is the Volkswagen Group, and their number two model is a tiny car called the Volkswagen Polo. As if often the case with rinky-dink cars, the Polo is not available for sale in the United States, because Volkswagen thinks the US market for such a small car wouldn’t be profitable.

We sort of take this for granted. If you go to Europe, you see a lot of vehicles on the road that are normally very small by American standards and aren’t sold here.

But isn’t this kind of weird? Stipulate that yes, the market for Polos in the United States would not be large. Volkswagen is still making the cars. And they have a dealership network in the United States. Shouldn’t they ship some non-zero quantity of Polos across the Atlantic to sell to eccentric Americans who want a small car? They have the factories, they have the boats, they have the dealerships — why not sell the car to someone who wants it? It turns out that unless they’re over 25 years old, European cars aren’t street-legal in the United States. When a model like the Volkswagen Tiguan is sold on both sides of the Atlantic, the North American Tiguans and the European Tiguans are not identical. So if Volkswagen were to decide to start selling Polos here in America, they couldn’t just put a dozen on a boat one day, they would have to create an entire production line to make a North American version of the car.

On its face, this is kind of dumb.

Americans who go to Europe may be a little befuddled by the relative paucity of automatic transmission cars, but nobody’s going to hop into an Irish Tiguan and be terrified of a car built to EU specs. And by the same token, if somehow a Polo snuck onto an American car dealership lot and somebody bought it and started driving it around, I don’t think anyone would in good faith regard this as menacing behavior. You could just let Americans drive European cars and vice versa.

Except, could you?

The notion that cars should have safety regulations is pretty uncontroversial. And to have safety regulations, you need laws and you need regulatory agencies that implement those laws. We have a United States Congress and a Federal Highway Safety Administration; they have the European Parliament and the Council of Europe and the European Commission’s General Vehicle Safety Regulation.

The concern is that even if right now, nobody really cares that much about the detailed differences between US and EU car safety rules, that might change in the future. Europe, for example, is a bit ahead of the United States in addressing the arms race toward ever-brighter headlights that is undermining road safety. If you could just drive American cars on European roads, then companies would go to Brussels and say, “Hey, if you adopt these new headlight rules, you’re just going to put EU-based factories at a disadvantage relative to North American ones and cost jobs.” European auto worker unions will say “Don’t fuck us over, guys!” Safety advocates would fear, not without reason, a regulatory race to the bottom, with transatlantic pressure to reduce safety in order to gain jobs

This is not an unsolvable problem. But to facilitate true integration of US and European car markets, we would need to negotiate a specific solution with a lot of detailed mechanisms about what happens if one regulator or the other wants to change something. And the same holds for things like energy efficiency rules for appliances and a million other things.

The global economy trilemma

Steve Randy Waldman recently wrote a good explanation of Dani Rodrik’s trilemma of the world economy.

The basic idea is that you can have two out of the three of integrated markets, independent nation-states, and mass politics, but not all three. The United States of America has an integrated national market in goods and also mass democratic politics, but that’s because the individual states, despite playing a considerable role in governance, are fundamentally subordinate to the national government. In an area where the federal government steps away (like determining who’s allowed to cut hair), we end up with a fragmented market.

So you could just dissolve nation states and have globally integrated markets thanks to global federalism. But there are, obviously, a lot of problems with that.

An alternate approach is embodied in things like the World Trade Organization and regional trade deals. In this approach, you accept that there isn’t going to be a President of NAFTA or a NAFTA Parliament that conducts mass politics, but there will be common rules that are negotiated on an intergovernmental level as part of an elite negotiating process.

On one level, I think that this makes a lot of sense. It is genuinely bad for consumers that we don’t have an integrated transatlantic car market. I believe that if you got the relevant civil servants in a room with the executives from GM, Ford, Stellantis, Volkswagen, BMW, and Mercedes Benz, plus the leadership of UAW, IG Metall, and other relevant labor stakeholders, they could work something out. Whatever choices were made, though, they would not make 100 percent of people happy. And whoever is unhappy could claim that big decisions with major social and economic consequences were being made by elites in behind-closed-door bargains with minimal democratic scrutiny. That kind of big picture critique of the “trade deals” paradigm is, unfortunately, mostly accurate.

The problem is that if global federalism is unworkable, and elite-driven bargains are unacceptable, then we’re left with fragmented markets. This is not the end of the world. Americans are surviving without the Volkswagen Polo. But there are real issues here.

Alexandria Ocasio-Cortez made waves back in 2023 by driving attention to the long-simmering question of why the FDA won’t let Americans buy superior European sunscreen. If you consider this just as a question of sunscreen, then it seems like it should be solvable by getting enough members of Congress to yell at the FDA until they feel like they need to move on this. But the general point — that it seems duplicative and unnecessary to have two separate approval processes — is a harder fix. Whether or not it’s true that these superior European sunscreens are unsafe, makers of inferior American sunscreen would obviously like the FDA to keep it banned. This becomes not a scientific question about sunscreen safety, but just another trade policy dispute pitting concentrated benefits to sunscreen-makers against diffuse costs to consumers.

At the same time, these issues do cut close to the heart of self-governance.

Americans negotiators are always trying to get the UK and/or European Union to accept the American farming practice of washing chickens with chlorine. Our perspective is that this is an arbitrary trade barrier. Across the Atlantic, they say it’s a bona fide public health regulation (there are disputes about the comparative food-borne illness statistics). Beyond the specifics of chlorine, lots of Americans say they believe there’s something more healthful about the European food environment. I’m always a bit skeptical of these claims, but their existence underscores that this is not all bad faith, even if the Europeans are wrong. It’s hard to talk countries out of abandoning key aspects of sovereignty for the sake of commerce.

The deal we had

Back to Trump. One example he cites of the kind of non-tariff barrier to trade that he wants to eliminate is Japan’s notorious “bowling ball test” for car safety. According to Trump, for a vehicle to be certified as safe to drive on Japanese roads, “they take a bowling ball from 20 feet up in the air and drop it on the hood of the car. If the hood dents, the car doesn’t qualify. It’s horrible.” He thinks this helps explain why American car brands struggle so much in the Japanese market.

Japanese negotiators are apparently struggling with how to address this demand since there is no such test. On the one hand, they can easily agree to drop it as a concession. On the other hand, since it doesn’t exist, eliminating it isn’t going to alter the trade balance or be considered a big win by American automakers.

What is true is that Japan has many technical safety standards for automobiles that differ from both the US and the EU standards, and there are longstanding complaints by American auto companies that these are manipulated to keep their products off the road. This is why the Obama administration painstakingly negotiated extensive automobile market access provisions for Japan as part of the TPP. This did not include eliminating the fake bowling ball test, but did involve Japan agreeing to adopt a bunch of American technical standards and forcing much more transparency on the Japanese regulatory process.

But the concessions were much further reaching than that. To sell cars, you need car dealerships. And apparently Japanese zoning rules have been applied in ways that make it hard for American companies to open affiliated dealerships. TPP included provisions stating “that zoning rules maintained and applied by the central government will be applied in a transparent and non-discriminatory manner.”

These kinds of things are all very complicated and disputes can’t just be settled with a handshake, which is why TPP included formal dispute resolution mechanisms with penalties and snapbacks.

And these are all things that people objected to about TPP.

For these agreements to work, countries need to accept a fairly intrusive monitoring and dispute resolution regime. But it really is good to have access to foreign markets and a more integrated economy!

China is a lot larger than the United States, and geopolitical competition requires the free world to find ways to cooperate more deeply. And TPP was full of provisions like that. Countries were going to agree not to mandate an in-country physical presence in order to let American companies export goods or services to them. There were going to be common sanitary and phytosanitary rules to facilitate agricultural trade. They were addressing duplicative scientific and testing regimes.

Everything Trump says he’s trying to accomplish, in other words, was already on the table. He not only walked away from it, but his insistence on attacking the whole underlying concept of a rule-governed global trading system means we almost certainly can’t get any kind of durable or enforceable deal. The one trade breakthrough of his first term was that he got China to agree to buy more stuff from the United States, and then they just didn’t do it. Those kinds of informal arrangements are more sovereignty-respecting, but precisely because they have no enforcement mechanisms, they don’t actually work. If we want America to export more, we need to go back to the old formula of doing trade deals and making concessions — a project that is impossible as long as the president insists he has the right to personally order up new tariffs at any time, for any reason.