In his inaugural address, U.S. President Donald Trump pledged that economic nationalism would be the hallmark of his trade policy. “We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs,” he said. Within days, he withdrew the United States from the Trans-Pacific Partnership (TPP), announced that he would renegotiate the North American Free Trade Agreement (NAFTA), and threatened to impose a special tax on U.S. companies that move their factories abroad.
Although Trump’s professed goal is to “get a better deal” on trade, his brand of economic nationalism is just one step away from old-fashioned protectionism. The president claimed that “protection will lead to great prosperity and strength.” Yet the opposite is true. An “America first” trade policy would do nothing to create new manufacturing jobs or narrow the trade deficit, the gap between imports and exports. Instead, it risks triggering a global trade war that would prove damaging to all countries. A slide toward protectionism would also undermine the institutions that the United States has long worked to support, such as the World Trade Organization (WTO), which have made meaningful contributions to global peace and prosperity.
At the same time, not all tariffs are bad. Congress is considering corporate tax reforms that would involve a “border adjustment tax”—a tax that would apply to all imports to the United States but not to exports. If implemented fairly, such a measure would not be protectionist. Likewise, not all trade threats are bad. Although it is true that closing the market to foreign competition is the wrong way to improve U.S. economic performance, the threat of closing the market has sometimes helped ensure compliance with international trade rules. But this is a high-risk strategy that must be used with care, since it could spark damaging foreign reprisals.
It is all the riskier given the growing nationalist sentiment around the world. According to the WTO,