Elizabeth Morgan | What is President Trump’s real endgame?

IT DOES feel like we have been on a roller coaster since January 20, when Donald Trump was inaugurated as the 47th president of the USA. President Trump did state that if he won the elections, he would be about retribution and upheaval. It seems that he wants to reduce the US trade deficit; return manufacturing (self-sufficiency, it seems); and increase investments in the USA. In addition, he wants to reduce illegal migration and the inflow of the drug, fentanyl. His weapon of choice, against other countries, including allies, is tariffs (customs duties). This, he feels, will intimidate and get him results.

Well, a basic principle of economics is supply and demand. People in the USA are demanding goods and services from outside the USA, including the labour of undocumented immigrants and illegal drugs, and the supply is finding its way to the USA.

President Trump’s tariff proposals were addressed in this column on September 18, 2024 in the article titled ‘US elections: Implications of Trump’s tariff proposals’. Concern about the likely impact of these proposed tariffs was raised here.

In last week’s article, it was mentioned that at the behest of US businesses and the then Republican Party, the US supported bilateral/plurilateral reciprocal free trade agreements, meaning that goods from all parties entered the markets free of customs duties ( i.e., without tariffs). The USA, it is recorded, is party to 14 comprehensive free trade agreements involving 20 countries. These include the USMC Agreement (formerly NAFTA) renegotiated with Mexico and Canada, and entered into force in July 2020. It is up for review in 2026.

The negotiation of a comprehensive free trade agreement (FTA) with the European Union (EU) stalled during the first Trump administration. The US and China do not have a comprehensive FTA. The United Kingdom (UK) has been hoping to negotiate an FTA with the USA. This means that goods imported into the USA from these countries attract tariffs, unless they are tariff-free (zero) at the WTO Most Favoured Nation level. US WTO tariffs have been mainly quite low by choice.

The US’s top 10 trade partners are Mexico, Canada, China, EU, Japan, South Korea, Taiwan, Vietnam, UK, and India. The USA has a trade deficit with all these countries except the UK. The USA has a trade deficit with the world in merchandise trade. In 2024, the US imported US$2.9 trillion and exported US$1.9 trillion, giving it a deficit of US$1.1 trillion.

So, President Trump, it seems, would be seeking to close this goods trade gap and reduce imports. Trump would be supporting import substitution. President Trump does not mention trade in services, except for a brief mention of financial services (banking) in reference to Canada.

TRADE IN SERVICES

The General Agreement on Trade in Services (GATS) was negotiated in the GATT Uruguay Round, 1986-1994. Then, the liberalisation of trade in services was seen as a great opportunity, with technology expanding, the importance of logistics increasing, and the general ascendance of services. The US saw trade in services as a means of closing its goods deficit, which had been a US concern for decades.

The US exports of services in 2023 were valued at about US$1 trillion. US imports of services were valued at about US$748 billion. The US had a surplus in trade in services, but it is nowhere near its goods deficit. Trade in services has not bridged the goods deficit.

THE DECLINE OF MANUFACTURING

The decline of manufacturing in the USA can be traced to the 1970s. It is reported that the US lost about eight million manufacturing jobs between 1980 and 2020. Japan had then risen to become an industrial power, followed by other countries in Asia. After the recession of 2009-2010, a further nearly six million manufacturing jobs were lost. In the USA, the buzzwords were ‘downsizing’ and ‘outsourcing’. Manufacturing was being outsourced to China, other countries in Asia, to Mexico, and elsewhere in Latin America and the Caribbean. The US, like the UK and other developed countries, were becoming service economies.

In addition, Americans are big spenders, buying a lot of imported consumer goods, especially with easy access to credit. They are not big savers, it seems.

So, the US goods import bill ballooned. With globalisation and liberalisation, the US became dependent on intricately intertwined global supply chains. This was highlighted by the global COVID pandemic of 2020-2022.

It is then that the USA and others became aware that some products important to national security should be produced in the domestic market and not in China. There was talk of ‘near-shoring’. This would mean, one would have thought, strengthening the relations with Canada, Mexico, and countries in Latin America and the Caribbean. But, not so, it seems.

TRUMP TARIFFS

Instead, President Trump is talking about making the US self-sufficient in manufacturing, to make it great again, and is threatening to impose tariffs not just on China, but on neighbours, trade partners, and allies, Canada and Mexico. The EU could be next.

He is also threatening high tariffs on goods from other countries. This is supposed to be a negotiating tactic. It is supposed to frighten trade partners into investing in the USA, relocating manufacturing to the USA. Tariffs, a tax on US citizens, would also earn income for the country (thus having a revenue effect). A tariff barrier around a country can promote domestic production, but with increased production costs and reduced competitiveness, especially if deregulation is promoted, as many countries have found from past experience. Tariffs did not save the US textiles industry.

It is, in fact, very difficult to keep up with the Trump frenetic pace in the USA – his shock-and-awe strategy. What is it really about – reducing the inflow of a drug (fentanyl), reducing undocumented immigrants, or making the US self-sufficient in manufactured goods (reversing the trade deficit)? As done in the past, drugs and immigration can be discussed as it always has been at the bilateral levels. The US can act as it always does. These issues also have to be addressed in the USA – getting to the root causes of drug use, and acting on immigration reform.

The bigger question is, can the USA make itself near self-sufficient in manufactured goods at this point in the 21st century? Is this actually a realistic proposition? Can the Trump Administration isolate itself from the world, as seems to be a plan? Does it really want to, considering that it is engaged in several theatres, even deciding to comment on land reform measures in South Africa?

Elizabeth Morgan is a specialist in international trade policy and international politics. Send feedback to columns@gleanerjm.com.