Where will the biggest impact of President Trump’s Executive Actions be? The Transpacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TPP) look to be things of the past. The North America Free Trade Area (NATFA) will be undermined by the ongoing diplomatic and trade disputes with Mexico. Trade, not US trade, but the flows and patterns of trade around the world will be transformed if the decisions translate into real action.
The US will not necessarily be the main beneficiary of the “bi-lateralisation” of its trade policy. Longer term growth to 2020 presents US trade policy with several issues (Figure 1) irrespective of recent changes:
- Imports from Asia Pacific will grow at over 1.5 times the rate of exports to Asia Pacific. China is the exception, where exports will grow more quickly than imports. But as the US imports from China at nearly five times the rate that it exports to China, the faster rate of export growth is unlikely to have much long term impact on US net trade.
- Exports to NAFTA look likely to increase more rapidly than imports. NAFTA works well for the US and any trade war with Mexico or disintegration of the regional trade area could damage US exports as much as it hurts Mexico.
- Germany argues that the ECB keeps interest rates low which keeps the Euro low; President Trump argues that Germany benefits from the low value of the Euro and certainly the US will be importing from Germany at nearly twice the rate of growth that it exports to Germany. We expect faster growth in US imports from both the EU27 and the Eurozone as well.
Figure 1: Annualised growth in US trade with top ten partners and regions, 2015-2020 (%)
Source: Equant Analytics