The "bilateral deals" Trump and his team say they want with former TPP partners are close to worthless for apparel

The "bilateral deals" Trump and his team say they want with former TPP partners are close to worthless for apparel

US president-elect Trump's stated policies on international trade worry a lot of people. But the explanations given by his new business-friendly team worry Mike Flanagan a lot more. Here he explains why Trumponomics is not only bad for US apparel – but a blow for Brexiteers too.

At the end of October, Donald Trump made 29 commitments about his immediate actions once he was installed as US president on 20 January 2017. These included:

  • Renegotiating NAFTA or withdrawing from it entirely;
  • Directing the Secretary of the Treasury to label China a currency manipulator, later adding he'd raise tariffs to 45% if China didn't do as it was told;
  • Directing the Secretary of Commerce and the US Trade Representative to use every possible legal tool to immediately end foreign trading abuses;
  • Announcing US withdrawal from the Trans-Pacific Partnership  (TPP);
  • Introducing into Congress an End The Offshoring Act "establishing tariffs to discourage companies from laying off their [US] workers in order to relocate."

In 2001 America bought $31bn more goods from Mexico than it sold to the country; by 2015 this negative balance had more than doubled. Over the same time, America's negative trade balance with China has grown over fourfold to $390bn, while US unemployment more than doubled between 2001 and 2010, and is still 25% higher than its 2001 level.

You might challenge the wisdom of picking fights with Mexico and China, but it's easy to see why Trump claims America's trade policy with them hasn't been in its own interest. 

Why pick on the TPP?

The TPP has been widely criticised in other potential member countries for being hopelessly stacked in the interests of American businesses. So why is Trump so determined to walk away from it that he made this his first policy announcement?

He has consistently claimed the TPP simply lets more Chinese imports into America by the back door – even though years of negotiating time have been spent ensuring that's not possible. Until 30 November I assumed he opposed the TPP really because his voters hated it.

Then Trump's new team explained how opposing the TPP was central to their shared trade policy.

Trump will nominate financier Steven Mnuchin as Secretary of the Treasury, and former owner of spinner and weaver International Textile Group (ITG) Wilbur Ross as Secretary of Commerce. They called multinational agreements like the TPP horrible because they have "terrible rules of origin."

They want separate agreements with each country, with rules of origin like America's standard rules on apparel. Most garments enter the US duty free only with fabric made up in the country of assembly from yarn spun in the same country.

Does the world work that way?

Not any more, whether for coats, cars or cellphones.

The TPP's biggest apparel maker is Vietnam, which has very limited spinning, weaving or knitting capacity. The TPP required Vietnam to use fabric and yarn made in any TPP partner country. In saying the US wants trade deals only if they've got America's traditional "same-country" rules of origin, Trump's team are saying they want deals that deny tariff reduction to the overwhelming majority of countries these days.

The "bilateral deals" Trump and his team say they want with former TPP partners are close to worthless for apparel.

Ironically, these deals would work with China, although the US has no interest in free trade deals with China. They'd kind-of work with India – except it has next to no manmade fabric capacity, and its substantial cotton spinning and weaving capacity is getting increasingly marginalised as apparel moves away from natural fabrics. They work almost nowhere else.

So they're not going to help US retailers and brands find efficient alternative sources to a China they worry is getting pricier.

That won't concern Trump. He believes tougher import barriers will ultimately create more American jobs and, if he's right, US apparel would benefit like the rest of the US economy. I'm not here to challenge whether Trumponomics will work in the long run.

But there are powerful lessons for Britain

Britons convinced that leaving the EU will offer trade deals with fast-growing countries outside Europe won't like Trumponomics:

  • Trump's Rules of Origin make most modern international trade deals meaningless. Britain exports few clothes – and those few are almost all made from fabric woven or knitted elsewhere. Britain does export a lot of cars and machinery – and they're all full of imported specialist parts. The same is true in reverse: almost all Britain's high-tech US imports are chock-full of parts made in third countries.
  • Trump abandoned the TPP without consulting its partners, making trade negotiations with America a highly unproductive use of government negotiators' time.
  • Trumponomics opposes US firms relocating. Trump claimed he would persuade one US company, Carrier, to halve the jobs it was going to move to Mexico by offering tax concessions, while threatening to hike tariffs and cancel its holding company's defence contracts.

If US companies are going to be threatened unless they keep jobs in the US, why would anyone invest in a US business? And what's the point of a trade deal if the US government is going to prevent businesses buying overseas? If a UK firm sells better inspection equipment than its US competitors, is Trump going to bribe or fine those competitors' customers into buying American? Worse, still, for potential trade negotiators is the fact Trump's doing all this before his inauguration, and without Congressional approval.  

Trumponomics might well boost the US economy, but everything Trump and his team have said makes it clear they want foreign businesses to have less of a stake in it.

This follows a disastrous November visit by UK Prime Minister May to India, whose politicians made it clear they had no serious interest in trade deals. A few days later, a devastating report by the US Congress China Economic and Security Review Commission concluded that China "has no intention of opening up…key sectors of its economy to significant…foreign competition and control," and that things were getting worse. 

The last month has shown almost no major economy interested in new trade deals with Britain.

The best argument for Brexit is the greater ease with which Britain, once out of the EU, will have finding better trading terms with fast-growing economies in Asia and North America.

Trump's just blown that argument right out of the water.