In remarks to attendees at the World Economic Forum in Davos, Switzerland, President Trump proclaimed that “the world is witnessing the resurgence of a strong and prosperous America” that has dramatically cut taxes and eliminated burdensome regulations, and is reforming bureaucracy and ensuring its laws are enforced fairly. While acknowledging his “America First” stance, the president stated that this does not mean “America alone.” Instead, he indicated that “when the United States grows, so does the world. American prosperity has created countless jobs all around the globe, and the drive for excellence, creativity, and innovation in the U.S. has led to important discoveries that help people everywhere live more prosperous and far healthier lives.”

Regarding international trade, the president stated that his administration will continue to work to reform the system “so that it promotes broadly shared prosperity and rewards to those who play by the rules. We cannot have free and open trade if some countries exploit the system at the expense of others. We support free trade, but it needs to be fair and it needs to be reciprocal. Because, in the end, unfair trade undermines us all.” He stressed that the United States “will no longer turn a blind eye to unfair economic practices, including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning. These and other predatory behaviors are distorting the global markets and harming businesses and workers, not just in the U.S., but around the globe.” He concluded his remarks on trade by reiterating that the United States “will enforce our trade laws and restore integrity to our trading system. Only by insisting on fair and reciprocal trade can we create a system that works not just for the U.S. but for all nations.”

President Trump has released his first National Security Strategy (NSS), a statutorily mandated document that sets forth how the president intends to put his national security vision into practice on behalf of the United States. The strategy identifies four vital national interests, or “four pillars”: (1) Protect the American people, the homeland, and the American way of life; (2) Promote American prosperity; (3) Preserve peace through strength; and (4) Advance American influence.

To promote American prosperity, the NSS states that a strong economy is necessary to “restore our national power.” The NSS highlights that the United States for 70 years has embraced and advanced an international economic system “rooted in American principles of reciprocity, free markets, and free trade [that] served our economic and security interests.” Today, however, “American prosperity and security are challenged by an economic competition playing out in a broader strategic context” in which other countries do not share our belief in such a system and “espouse free trade rhetoric and exploit its benefits, but only adhere selectively to the rules and agreements.” In response, President Trump “will no longer turn a blind eye to violations, cheating, or economic aggression.”

The NSS sets forth a broad policy to promote free, fair and reciprocal economic relationships. The NSS reiterates the president’s commitment to address continuing trade imbalances, break down trade barriers, pursue enforcement actions and defend against economic aggression. To that end, the NSS sets forth these trade-related “priority actions” that the Trump administration will undertake:

  • Adopt new trade and investment agreements and modernize existing ones: The United States will pursue bilateral trade and investment agreements with countries that commit to fair and reciprocal trade and will modernize existing agreements to ensure that they are consistent with those principles. Agreements must adhere to high standards in intellectual property, digital trade, agriculture, labor and the environment.
  • Counter unfair trade practices: The United States will counter all unfair trade practices that distort markets using all appropriate means, from dialogue to enforcement tools.
  • Counter foreign corruption: Using our economic and diplomatic tools, the United States will continue to target corrupt foreign officials and work with countries to improve their ability to fight corruption so U.S. companies can compete fairly in transparent business climates.
  • Work with like-minded partners: The United States will work with like-minded partners to preserve and modernize the rules of a fair and reciprocal economic order. Together, we will emphasize fair trade enforcement actions when necessary, as well as multinational efforts, to ensure transparency and adherence to international standards within trade and investment projects.
  • Facilitate new market opportunities: The United States will partner with countries as they build their export markets, promote free market competition and incentivize private sector growth. We will expand U.S. trade and investment opportunities and increase the market base for U.S. goods and services.

At the introductory session for the 11th Ministerial Conference of the World Trade Organization (WTO), Ambassador Robert Lighthizer acknowledged that the WTO is an important institution but then proceeded in his opening statement to criticize the organization and its focus. He stated that the WTO is “losing its essential focus on negotiation and becoming a litigation-centered organization,” claiming that member countries “seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table.”

Lighthizer argued that the WTO “cannot sustain a situation in which new rules can only apply to the few, and that others will be given a pass in the name of self-proclaimed development status. There is something wrong, in our view, when five of the six richest countries in the world presently claim developing country status.” He opined that “it is impossible to negotiate new rules when many of the current ones are not being followed” and that some members are “intentionally circumventing” their obligations. He indicated that addressing these concerns and the transparency of the WTO will be a top priority for the United States.

In his remarks at the opening session of the General Assembly of the United Nations, President Donald Trump spoke on a wide range of topics, including international trade. On that subject, Trump said, “In America, we seek stronger ties of business and trade with all nations of good will, but this trade must be fair and it must be reciprocal. For too long, the American people were told that mammoth multinational trade deals, unaccountable international tribunals, and powerful global bureaucracies were the best way to promote their success. But as those promises flowed, millions of jobs vanished and thousands of factories disappeared. Others gamed the system and broke the rules. And our great middle class, once the bedrock of American prosperity, was forgotten and left behind, but they are forgotten no more and they will never be forgotten again. While America will pursue cooperation and commerce with other nations, we are renewing our commitment to the first duty of every government: the duty of our citizens. This bond is the source of America’s strength and that of every responsible nation represented here today.”

On April 29, 2017, President Trump signed an executive order creating the Office of Trade and Manufacturing Policy (OTMP) within the White House. Peter Navarro, who was previously named to head the White House’s National Trade Council which was never formally established, will lead the office.

OTMP’s stated mission is “to defend and serve American workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defense industrial bases.” It will serve as a liaison between the White House and the Department of Commerce and undertake trade-related special projects as requested by the president.

With the Trump administration preparing to release its tax reform plan in the next several weeks, the Congressional Research Service (CRS) has just released a timely report on the border adjustment tax (BAT). The report offers an analysis of House Speaker Paul Ryan’s proposal of a destination-based cash flow tax (DBCFT), a type of national consumption tax, as part of the “A Better Way” tax reform blueprint. One component of the DBCFT proposal is the implementation of a BAT, which has generated considerable interest since the November presidential election.

The report states that although there are many important issues surrounding a BAT that require careful consideration, the response of exchange rates is one that has received much attention. “Standard economic theory predicts that under certain conditions exchange rates would react to a BAT in a way that would leave exports and imports unchanged. That is, exchange rate movements would offset the effects of the tax, leaving the U.S. trade balance unaltered. Some observers, however, have speculated that such a response may not occur in a timely fashion or that exchange rate movements may not completely offset the tax. If either of these two situations were to occur, or if impact across industries was asymmetric, there could be implications for U.S. businesses and consumers, and as a result, the U.S. trade balance.” The CRS report provides a basic framework for understanding how and why exchange rates could respond to a BAT.

The report concludes that replacing the current corporate income tax system with a DBCFT with a BAT would be an “unprecedented shift in U.S. tax policy.” While such a change would bring uncertainty, CRS analysts stated that “economists tend to agree that any tax-induced advantage for U.S. exports or tax-induced costs on U.S. imports would be offset by adjustments to the exchange-rate value of the dollar. In other words, if the dollar appreciation occurs as economic theory predicts, there should be no changes in the trade balance resulting from tax.”