There is mumbling amongst the narrative class that legal action is being prepared to address some of President Donald Trump’s executive orders issued yesterday. I cannot say with specificity that Mr. Trump’s America First Trade Policy is among the executive orders targeted for legal action. I am particularly focused on the portion of his America First Trade Policy directive that is aimed at currency exchange rates between the United States and its major trading partners. Specifically:
“(e) The Secretary of the Treasury shall review and assess the policies and practices of major United States trading partners with respect to the rate of exchange between their currencies and the United States dollar pursuant to section 4421 of title 19, United States Code, and section 5305 of title 22, United States Code. The Secretary of the Treasury shall recommend appropriate measures to counter currency manipulation or misalignment that prevents effective balance of payments adjustments or that provides trading partners with an unfair competitive advantage in international trade, and shall identify any countries that he believes should be designated as currency manipulators.”
19 USC 4421 and 22 USC 5305 make no specific reference to Canada or Mexico, but both countries have been on the Trump tariff target list for some time. The United States, according to Mr. Trump, has been enjoying the benefits of trade pursuant to subsidies provided by the United States. Tariffs, among other remedies, would bring import and export activities for both countries into alignment.
As for Mexico, Mr. Trump allegedly wants to use tariffs as a means for punishing Mexico for an immigration policy that allows immigrants without proper documentation to cross into the United States.
Critics from the Great White North have expressed their disagreement with the 47th President, arguing that if there is any subsidization going on, it is due to Canada subsidizing the United States.
Writing for The Tyree, Jim Stanford calls Mr. Trump’s claims “laughable”, pointing out that the United States actually has a trade surplus in services and investment income flowing out of Canada into the United States. Mr. Stanford also argues that the United States is benefiting from access to secure and low-cost energy (oil, natural gas, and electricity) even where such exchange is a part of the U.S. trade deficit.
William Watson, writing for The Financial Post, argues that “if you have a strong economy, you will be sucking in imports. If it’s growing faster than your trading partners’ economies, they won’t be sucking in your exports nearly as quickly. That pushes you toward deficit.” Mr. Watson also points out that a strong currency gives U.S. domestic consumers an incentive to buy foreign products which would also lead to a deficit.
Mr. Trump could turn to his Department of Commerce’s Bureau of Economic Analysis (BEA) in response to Canadian critics, arguing that the trade deficit continues to widen, and that the U.S. has to hold a country or two accountable to provide a bail-in. In its 18 December 2024 release, the BEA reported that the United States’ trade deficit with other countries increased by $35.9 billion (13.1%) in the third quarter 2024. That amounted to a total of $310.9 billion.
Like good neighbors, the United States, Mexico, and Canada are expected to have a chat at the fence and discuss ways to alleviate their trade imbalances. After a year, if there is no progress, the United States could, pursuant to 19 USC 4421(c), take some remedial actions of its own including:
- Prohibiting the United States International Development Financial Corporation from financing projects inside of Canada or Mexico;
- Prohibiting the U.S. federal government from entering contracts to purchase goods and services from Canada or Mexico;
- Instructing the United States executive director of the International Monetary Fund to surveil Canada or Mexico’s macroeconomic or currency rate policies and consult on any instances of currency manipulation; or
- Instructing the United States Trade Representative to determine, when negotiating trade agreements, the extent to which Canada or Mexico have adopted policies to address currency undervaluation and trade surpluses.
I know. A mouthful. But are trade surpluses and currency valuations the prime reason for this America Trade First Policy? From a narrative perspective, I believe this directive provides the Executive and Legislative branches a script to follow when selling to the American public this route to expanding the power of the American state.
Speak directly on wonky issues like the administrative state, deep state, or globalization, and the public’s eyes roll back in their heads (just ask Vivek Ramaswamy). The narrative has to be couched in terms of economic fairness and strength in order to appease American cultural sensibilities.
It is not to say that this trade policy is not nationalistic. It is. Nationalistic narrative has to be spun a certain way to particular audiences to get them all onboard. The consumer public needs a nationalistic argument where they can see benefits flowing to them while the American banking and merchant class needs to hear a nationalistic argument that appeals to their trading desk spreads.
The Trump administration sees the world dividing into competing blocs, with one bloc, Western Europe, suffering from some erosion. It sees Asia, Africa, and parts of Eastern Europe exerting their strengths as resource-based economies. The United States has to secure its position as the center of the western hemisphere if it is to secure the cheap resources that can take it further into the 21st century intact.
Alton Drew
21 January 2025
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