How Trump’s Efforts to Reduce the Trade Deficit and Favor U.S. Companies Threaten the Way Foreign Companies do Business in the U.S.

By Michael Molinski and Sandra Rodriguez

Abstract

President Trump has made no secret of his intention to renegotiate virtually every trade agreement that comes before him which violates what he considers in the best interests of America. He has labeled trade agreements with Asia and NAFTA (the North American Free Trade Agreement) as probably the worst trade agreements that the United States has ever made.

Chinese steel, Canadian airplanes, Brazilian orange juice and South Korean electronic components are just a few of the products on the schedule of trade renegotiations still to come.

Foreign companies doing business in the United States have a long and arduous road ahead of them over the next three years, or seven years if Trump is reelected to a second term. The question is what should foreign companies do about it?

Should they fight trade agreements or anti-dumping sanctions against them in U.S. courts? Or should they put pressure on their own governments to renegotiate favorable trade deals? Or should they give up and turn to other countries to purchase their exports? Our recommendation is to pursue all three avenues. Our reasoning for doing so is discussed below.

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The Fate of Friendship: Renegotiating NAFTA in the Time of Trump

Presented and defended by: Blake Schierman

Abstract

In following through with his electoral promises, President Donald Trump is attempting to do what many trade observers never thought possible — renegotiate NAFTA. The monumental achievement of NAFTA stands nearly 25 years old, a proud testament to the advancement of free trade and international cooperation. This summer, however, preliminary talks are now underway to begin renegotiations, and the once-solid treaty is now in question.

Amidst fears of outsourcing and trade deficits, particularly with notable partners he has strongly criticized, Trump has vowed harsh measures to stem these perceived threats. In addition to Mexico being one of his prime targets, he has also accused certain Canadian industries of unfair trade practices supposedly detrimental to their US counterparts. Though Canada does not appear to be the primary cause for renegotiating NAFTA, it is nonetheless vulnerable to the harsh consequences that may ensue.

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Labor Productivity and Trade Liberalization: Evidence from China

Presented and defended by: Wang Bin

Published by Trendline Economics, in conjunction with Université Paris 1 – Panthéon Sorbonne

Advising Professor Sandra Poncet, Paris School of Economics & Université Paris 1 - Panthéon Sorbonne

Abstract

International trade is a very important part of China’s economy. And one of the most important issues is the trade liberalization on labor productivity. This paper is based on the theory of Melitz and Ottaviano (2008). We revise the empirical model developed by Chen et al. (2009) so that it will be more consistent with the theoretical model. We separate labor productivity into two dimensions: extensive margin labor productivity and intensive margin labor productivity. For the theoretical model, which takes intensive labor productivity more heavily into consideration, we take value added per unit per worker as the input labor productivity in the empirical analysis. The model is in the sector level. All the sector level databases are from CEPII and GDP data is from World Bank. We take China as the domestic country and 180 countries are included in the sample from 1996 to 2006. We make pairwise of China – foreign country – sector to estimate the short run effect by using OLS, fixed effect model and first order difference model, and to estimate the long run effect by using error correction model.

The results show that domestic trade liberalization has a positive effect on labor productivity, while foreign trade liberalization has a negative effect on labor productivity.

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