In this series, GTR compares the two US presidential hopefuls’ campaign promises on trade-related topics, and evaluates how likely these promises are to be fulfilled.

Just last week, the non-partisan Peterson Institute for International Economics (PIIE) released a comparison of Hillary Clinton and Donald Trump’s trade policies, with a strongly worded conclusion. “Make no mistake, the proposed trade policies of both Hillary Clinton and Donald Trump, the 2016 Democratic and Republican Party candidates for president, would deeply harm the American economy,” writes the institute’s president, Adam Posen, in the document’s preface.

It should be noted that the PIIE is notoriously pro-free-trade, and that another report released last year on the benefits of the Trans-Pacific Partnership (TPP) to the US economy estimated gains of US$130bn by 2032, more than double the amount projected by the US International Trade Commission (US$57bn).

Still, the analysis voices popular concerns regarding the two campaigns’ tendencies to blame social inequalities on trade globalisation, and comes out with a clear verdict: “While Clinton’s stated trade policy would be harmful, Trump’s stated policy would be horribly destructive.”


Clinton: Pressured shift

Hillary Clinton has a history of supporting free trade. As first lady, she backed the North American Free Trade Agreement (NAFTA). As secretary of state for Barack Obama, she negotiated the terms of the TPP. As New York senator she voted in favour of six trade deals with Chile, Singapore, Australia, Morocco, Bahrain and Oman, though she opposed two others.

But she also has a habit of changing her tune in campaign times. During her 2008 Democratic primary campaign against Obama, she called NAFTA “a mistake”. And in the past six months, she has made negative comments about agreements she previously supported, including NAFTA and the TPP, promising to renegotiate them to provide better protection for US workers.

This new development is largely due to her need to rally supporters of Bernie Sanders, a more left-wing candidate who opposed her during the primaries, but it may make it difficult for her to change sides again once in power. Still, it is unlikely she would look to scrap the agreements altogether.

“She has been a free trade advocate virtually her entire career. Therefore, I wouldn’t be completely surprised if we saw an effort by Clinton to do some type of modest revision, either after the lame duck or in her own administration to be able to move some type of trade agreement forward with Asia, if only for political or statecraft reasons,” says John Raines, US political analyst at IHS Markit.

Her main point of focus would most likely be on preventing abuse by trade partners. For example, she plans to create a “chief trade prosecutor” position, reporting directly to her, triple the number of staff dedicated to monitoring agreements and create an early warning system to detect implementation issues.

As mentioned in our Clinton vs Trump on China analysis, Clinton also plans to introduce tougher rules against currency manipulation, and regarding the TPP specifically, she has talked about improving the ‘rule of origin’ clause to bring more benefits to US auto workers.

All in all, if Clinton gets elected, sources in the market largely expect a continuation of the Obama administration’s trade policies, with slight modifications, but broadly following the same idea.


Trump: The wild card

It is widely acknowledged that a Trump presidency would be extremely damaging to US trade. His campaign promises to reverse years of trade liberalisation, including “ripping up” recent trade agreements (including the TPP), renegotiating NAFTA (or withdrawing from it if he doesn’t get the terms he wants), and impose tariffs on Chinese and Mexican goods (45% and 35% respectively).

For the PIIE, which confirms that a President Trump would indeed have the power to act on these promises, listing all the laws (sometimes outdated) that make it possible for a president to enact such drastic measures without Congress approval, these policies would lead to nothing short of a trade war.

“At least for a few years, a President Trump would have the stronger legal hand and his actions would very likely survive challenges in the US courts and Congress. If Trump is elected, if he actually withdraws from US trade agreements, or if he imposes high tariffs, even as a threat or tactical manoeuver, foreign countries will soon retaliate. It would be a mistake to suppose that the US courts will intervene to stop a trade war,” the report says.

Indeed, countries could bring cases to the World Trade Organisation (WTO, which Trump has also threatened to leave in a less realistic statement), but these cases can take up to 18 months to be processed, and presidents can choose to ignore WTO verdicts. It is therefore more likely that countries affected by Trump’s policies would retaliate, a more immediate defence.

It is difficult to assess the likelihood of a President Trump implementing all his promised trade policies in office, mostly because they have often been expressed in the heat of discussions, not as official plans, and without any supporting documentation.

“The scariest thing is the uncertainty, because it’s not as if Trump and his campaign has laid out a clear set of policy goals that you don’t agree with and you think might be damaging. It’s that there’s no indication of any coherent stream of thought,” a US insurer, who asked to remain anonymous, tells GTR.

The PIIE evaluates the economic impact of a Trump administration’s trade measures according to three scenarios: full trade war (the US imposes the promised tariffs on China and Mexico, which respond by imposing the same tariffs on US exports); asymmetric trade war (China and Mexico do not retaliate symmetrically, NAFTA is dissolved); and aborted trade war (US tariffs are imposed for a year and China and Mexico yield to US demands, or Trump is forced to remove the tariffs by US courts or public outcry).

For all scenarios, the institute forecasts a slowdown in consumption and growth (up to a 0.1% drop in GDP in 2019 with a full trade war) and a rise in unemployment.

Trump trade policies impact on GDP

The sectors projected to be worst-affected by a full trade war are auto and construction equipment manufacturing and iron ore mining, with around 10% of jobs expected to be lost.

Despite this anticipated disruption, it seems as though most people in the trade sector don’t believe in Trump’s chances in the election, and therefore have not adjusted their business to prepare for the possibility of his win.

“I haven’t been to one meeting overseas in the last nine months where somebody didn’t ask me about Trump, so it’s certainly on everybody’s mind, but we haven’t seen any submissions for political risk insurance in the US, and I haven’t heard of any transactions that are being placed on hold in advance of the election,” adds GTR’s source. “Only in the last two weeks have people started to realise this [a Trump presidency] might actually happen, so in the next month things might change in the market but we haven’t seen that yet.”