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The United States economy has significantly underperformed in recent years in very large part due to the Obama administration’s extraordinary capacity for imposing distorting and expensive new regulations on American businesses. Fortunately, in domestic policy President Trump has already proven an equally extraordinary capacity for undoing some of the worst of the regulatory excesses of his predecessor.
President Trump has also repeatedly stated his strong support for free trade. Assuming his future actions reflect his previous comments, then President Trump will extend his deregulatory zeal from domestic policy to international trade to the further benefit of America’s workers and businesses.
The economic story of U.S. underperformance is now well-known: slow growth in output, persistent underemployment and excess capacity, and anemic growth in wages. While apologists sought alternative explanations, the enduring and obvious explanation for these results was found in the Obama administration’s economic policies, most especially its regulatory policies often devised with little regard to economic cost. Not that government regulation is per se bad or even always a net minus for the economy, but the steady drumbeat of burdensome new regulations across the board simply proved more than the economy could withstand and still perform well – especially those flowing from the Obamacare health care reform and the Dodd-Frank financial markets legislation.
Signals of Optimism
In one of his first acts upon taking office, President Trump erected a huge red “STOP” sign to the regulations still in the Obama pipeline, giving businesses struggling under regulatory overload a chance to regain their economic footing. President Trump then sent further signals he meant it when he said he would “unleash the U.S. economy” as when, for example, he cleared the paths for the Keystone XL and Dakota Access pipelines. Just as new regulations once poured out of the Obama Administration, regulatory relief is now pouring out of the Trump Administration.
The early signs of consequent economic rejuvenation are very encouraging. Whereas 2016 saw a slow economy slowing further and little enthusiasm for the future, earlier in March the NFIB’s small-business optimism index hit one of its highest readings in 43 years. The CEOs of America’s largest companies share this optimism, as do investors as the bull market’s recent surge dates almost precisely to Election Day, 2016. Of course, this renewed optimism must still translate into concrete actions involving hiring and investing in productive capacity, but these should follow quickly given the pronounced attitudinal shift among business leaders.
Given this progress on deregulation and the immediate signs of positive economic response, the administration should now extend this approach to international trade consistent with the President’s past statements. The essence of American trade policy for decades has been the pursuit of free and fair trade following a deregulatory approach. Trade barriers to the flow of goods and services, capital and labor and technology, whether of the obvious forms of tariffs and quotas, or more subtle forms of various administrative rules, are essentially just another form of government regulation. Even under the Obama administration foreswore its regulatory tendencies to pursue a deregulatory policy in international trade.
When a nation erects a trade barrier, this is fundamentally a regulatory act. Government policy is intending to regulate some aspect of the flow of trade. With respect to imports, government may be attempting to regulate the extent to which its citizens should be compelled to purchase domestic over foreign goods or services. With respect to exports, government may through the provision of special advantages try to regulate toward increased penetration into foreign markets.
In contrast, negotiating trade deals is a process of lowering one’s own regulatory barriers – domestic deregulation – and of negotiating down a trading partner’s barriers – foreign regulations applicable to domestic companies. The pursuit of free trade fundamentally manifests a deregulatory policy.
To be sure, nations sometimes engage in regulatory policies specifically with the intent of distorting trade flows in ways which from a U.S. perspective create an unfair disadvantage. Contesting such actions through established channels is both proper and necessary. This is the positive approach to ensuring free trade remains fair trade.
However, specific instances of ill-advised policies should not deflect from the broader theme of deregulating domestic and international practices that distort trade patterns. The Trump administration should certainly pursue every instance in which America’s foreign trading partners violate the rules of the road, but otherwise should dedicate itself as much to deregulation in the area of international trade as they have so successfully in domestic deregulation.