2018: The Year of Trade – Part 3

As the entire world melts down over President Trump’s eminently predictable (see here and here), yet seemingly erratic moves on trade policy, I am thoroughly enjoying sitting back and analyzing the ins and outs of the much-needed shake-up in global trade practices. After more than a year in office, 99 percent of political observers still do not understand Trump’s negotiating style of aggressively attacking issues that have to-date been off limits to the corrupt political class by first placing hard-line bargaining chips on the table then backing off as concessions are made. (Side bar: This is precisely why the stock market is holdings up quite well in the face of D.C. “chaos”. The market knows full well this is the most business-friendly administration in modern American history and that it will not allow the globe to descend into a economically damaging trade war.)

For all of the full-scale hyperventilation about the “protectionist” direction Trump is taking the American economy, it is ironic (?) that he is doing the exact opposite. By aggressively engaging America’s trading partners, Trump is forcing protectionist countries such as China to open up their markets to American companies, thus making the global trading system more free and fair – quite the opposite of protectionism.

Just over a year in, this global trade shake-up is already paying dividends. Yesterday The Wall Street Journal reported that the US is close to amending its free trade agreement with South Korea that would see it reduce non-tariff barriers designed to protect its domestic auto market.

“South Korea no longer imposes tariffs on U.S. passenger cars and is phasing them out on pickup trucks, but U.S. auto makers say nontariff barriers remain, such as the requirement that cars must have a yellow taillight.

“The current free-trade deal allows U.S. auto makers to bring in up to 25,000 vehicles each year if they meet U.S. safety standards, even if they don’t meet the Korean ones. U.S. negotiators are asking South Korea to lift the remaining tariffs and remove the quota, according to people familiar with the issue.

“South Korea’s car market is still dominated by local brands Hyundai Motor Co. and its affiliate, Kia Motors Corp. Imports make up 15% of the market, and U.S. auto makers, while growing, have just 1% of that market share.”

* * *

Today on Fox News Sunday Treasury Secretary Steve Mnuchin succinctly outlined the Administration’s free & fair trade approach to trade policy, reiterating that there should be no surprise at recent actions given that trade policy is the third pillar of the Administration’s well-telegraphed economic growth agenda (taxes, regulation, trade).

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