How Democrats Could Help or Hurt Trump's Next Trade Policy Moves

(Bloomberg) -- President Donald Trump may be encouraged to pursue more protectionism and could even get a hand from Democrats on his trade agenda -- a rare area of potential cooperation that will test his willingness to bargain with a new negotiating partner, likely to be Democratic leader Nancy Pelosi.

Here are some areas where the White House and a new Democrat-controlled House of Representatives may agree and disagree:

China Trade War

Until Trump campaigned for the presidency, seeking a tougher stance on China had historically been a policy issue for Democrats. With the Republican president aligned with them, analysts see opportunities for cooperation between the White House and Democrats, though they won’t see eye-to-eye on everything.

“Trump out-hardlines them and Democrats have been reasonably enthusiastic cheerleaders” for getting tough on China, said Edward Alden, a senior fellow at the Council on Foreign Relations. Democrats will largely support Trump’s China agenda, “unless it becomes clear that an escalating tariff war is starting to do serious harm to the economy,” he said.

One place Democrats could push for a tougher stance is on currencies. Trump promised on the presidential campaign trail that he would label China a currency manipulator, but has stopped short of doing so in the four foreign-exchange reports released since he took office in January 2017.

“It would not surprise me at all to see a more aggressive push on currency,” said Scott Paul, president of the Alliance for American Manufacturing, a coalition of domestic industry and the United Steelworkers. But he cautioned that it was very unlikely that there would be enough support in both the House and the Senate to pass a currency bill that Trump could sign into law.

New Nafta

At the top of Congress’ 2019 agenda is a vote on the U.S.-Mexico-Canada Agreement that was struck in late-September to update the North American Free Trade Agreement. Trump and his counterparts are scheduled to sign the deal on the sidelines of the Nov. 30-Dec. 1 Group of 20 summit in Buenos Aires.

Alden said that while Democrats will likely be skeptical of some of the provisions, including on patents, labor rights and environmental protections, they won’t want to kill the deal. Trump can withdraw from Nafta to put pressure on lawmakers to pass his new agreement by setting up a six-month period before the U.S. is no longer party to the existing agreement.

“I have no doubt Trump will pull the plug on Nafta if he can’t get the USMCA through Congress,” Alden said.

Democrats could leverage their vote on Trump’s trade deal and push for an infrastructure package that Trump has long promised and would align with their own priorities. “I don’t know how much, if any, traction that would get but that’s something that would be attractive for many folks,” Paul said.

EU, Japan

The Trump administration starts trade talks with Japan and the European Union early next year. With Democrats in command of the House, these negotiations are expected to focus on autos and agriculture.

There may not be a lot of daylight between Trump and the Democrats. Both will want to focus on those areas, and Democrats also have fewer concerns over labor and environmental issues in those talks.

The majority of Democrats say the EU and Japan are fair trading partners -- a perception that has dramatically shifted in the past 25 years, according to a June 2018 Gallup survey. The poll shows 70 percent of Democrats -- versus 42 percent of Republicans -- say the EU is a fair trading partner and 65 percent of Democrats say Japan is a fair partner. In 1993, only 51 percent said so about the EU and 27 percent did about Japan.

But Bruce Stokes, director of global economic attitudes at Pew Research Center, noted trade is a “very partisan issue” and said the survey results could therefore be more of a reflection of party politics and less a reflection of attitudes toward the matter.

National-Security Tariffs

Trump has threatened to impose tariffs on foreign cars and car parts in the name of national security. A Commerce Department report that could lead to tariffs is due by February and several attempts by lawmakers this year to limit Trump’s unilateral tariff powers have failed.

Lawmakers weren’t able to block the president from slapping duties on imported steel and aluminum on national security grounds earlier this year.

Alden said it seemed “highly unlikely” that would change with Democrats controlling the House because any legislation requires a two-thirds majority to override Trump’s veto.

Paul said that a “very aggressive action” on auto tariffs “could change the dynamic in the Congress somewhat.”

At the same time, he said “Democrats have a meaty agenda they will have to pursue, and reversing the Trump administration’s trade agenda is not at the top of the list -- especially because they happen to agree with him.”

Former Trump economic adviser Gary Cohn said he didn’t expect the Democrats’ election gains will speed an end of the trade war.

“I don’t think there’s an instant cure for the trade issue,” Cohn told Bloomberg’s New Economy Forum in Singapore as assembled business and political leaders digested the results Wednesday. “I wish that I could sit here and say, after the midterm elections, the White House and the administration understand they’ve gotta solve trade issues.”

To contact the reporter on this story: Jenny Leonard in Washington at jleonard67@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull, Randall Woods

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