Trump Will Be His Own Trade Czar

In 2000, when he was contemplating a run for president under the banner of Ross Perot’s Reform Party, Donald Trump released a book on his plans if elected, titled The America We Deserve. The chapter on trade policy opened audaciously. “What I would do … would be to appoint myself U.S. trade representative,” he wrote. “Our trading partners would have to sit across the table from Donald Trump and I guarantee you the rip-off of the United States would end.”

Now, with the surprising decision to pass over his first-term chief trade negotiator Robert Lighthizer for a major role in his new team, Trump appears to have done just that. With a young and relatively inexperienced nominee for Lighthizer’s old post of U.S. trade representative (USTR) and an unlikely mix of trade hawks and traditional Republicans in senior economic positions, Trump has left himself firmly in charge of the trade portfolio. He has foreshadowed the likely result with wild threats to slap tariffs on Mexico and Canada, as well as some developing countries if they stop using the U.S. dollar: a far more chaotic and unpredictable approach than the first time around.

The issue for Trump’s second term is not the shopworn choice between free trade and protectionism; the free traders have decisively lost that battle in the United States. The question instead is what form protectionism will take in the new administration—and how difficult it will be for trading partners and companies to respond and adapt.

Whereas Trump’s first term was a major departure from the historic U.S. commitment to open trade and the norms of the international trading system, it was not without precedent. Under Lighthizer’s direction, Washington raised tariffs against U.S. allies on steel and aluminum, and against China on a wide range of products. The process was familiar to veterans of the U.S.-Japan trade wars of the 1980s. Similar tools were used in many other trade skirmishes prior to the creation of the World Trade Organization (WTO) in 1995, including lengthy investigations of trade practices. Tariffs established by congressional authority like Section 301 and Section 232 were imposed, followed by negotiations that often led to some mutual deal. There were real costs for U.S. trading partners, but the process was known and predictable, and there were well-established mechanisms through which companies could seek product exclusions and other tariff relief. Countries and companies knew what to expect and how to react.

This time around, with Lighthizer sidelined, the president-elect’s first tariff threat is to impose 25 percent tariffs on “ALL products” coming in from Mexico and Canada as soon as he takes office Jan. 20. That idea was never uttered during the dozens of campaign rallies and press interviews when he mentioned trade. The new tariffs, he wrote on Truth Social, would remain in effect until the two countries somehow manage to stop fentanyl smuggling into the United States and block “all Illegal Aliens,” two of the least tractable problems in border management. That threat sent Canadian Prime Minister Justin Trudeau on a pilgrimage to the Trump estate, Mar-a-Lago, to plead his case, while Mexican President Claudia Sheinbaum immediately called Trump and wrote a letter warning that tariffs would hurt the United States as well.

The president-elect followed that shortly with a threat to impose 100 percent tariffs on India, China, Brazil, and other BRICS countries if they seek to develop “a new BRICS currency” or otherwise move away from using the dollar for international transactions. The threat seems aimed at a phantom risk, since any shift away from the U.S. dollar for international transactions has so far been very modest. But the unexpected suggestion added to the uncertainty about what Trump might target next. Tariffs on European countries that don’t raise defense spending? On Japan and Korea if their companies continue to source inputs from China?

The revolutionary nature of these threats is hard to overstate, even by Trump’s own audacious standards. He toyed with some of the ideas late in his first term, announcing in mid-2019 that he would slap a 5 percent tariff on Mexican imports that could escalate to 25 percent unless Mexico reduced illegal migration to the United States. But he withdrew the threat 10 days later after Mexico pledged to beef up patrols at its southern border with Guatemala.

The same may happen this time—both Mexico and Canada have promised tougher actions against drug gangs and illegal border crossers. But if he carries through and imposes the tariffs, it would go so far beyond the norms of trade relations over the last 75 years that it would be all but impossible for Canada, Mexico, and the affected U.S. companies to respond in sensible ways. The case is the same with the BRICS-dollar threat—no CEO with investments in those countries could possibly plan for such a radical and unexpected contingency.

The U.S. Congress has in the past linked U.S. market access to other issues, pressuring countries to raise their environmental standards, protect workers’ rights, or improve governance. But never before have tariffs been a free-for-all tool allowing presidents to cut off access to the U.S. market to pursue whatever unrelated issue they wish.

It is hard to imagine a Lighthizer-led trade policy trafficking in such threats. Raising tariffs across the board in North America would be a dagger to the heart of the U.S.-Mexico-Canada Agreement (USMCA), a deal that Lighthizer negotiated, Trump signed, and Congress overwhelmingly ratified during his first term. There is nothing in the agreement that remotely authorizes such an action by any of the three countries. Lighthizer successfully opposed a similar move in the first term, arguing that it would undermine his efforts to win congressional assent for the USMCA.

The damage from such tariffs would be massive; since the original North American Free Trade Agreement (NAFTA) was enacted in 1994, businesses in North America have designed their sourcing strategies around the legal assurance that trade in the region—with small and exceedingly rare exceptions—would not be blocked by tariffs. With one threat, Trump has blown up that assurance.

Lighthizer also had a record of cooperation with Congress. During the USMCA negotiations, he worked with congressional Democrats to insist on tougher labor rights standards in Mexico. USMCA received overwhelming support from both Democrats and Republicans in Congress, far stronger than the original NAFTA received. This time around, Trump dropped his bomb without so much as a heads-up to congressional leaders.

Congress has never, either implicitly or explicitly, given the president powers to impose such an array of tariffs linked to such a wide range of non-trade issues. Under the Constitution, Congress has clear authority over foreign trade, but it has also given the president many tools to raise tariffs under certain defined conditions, including the Section 301 and 232 provisions used by Lighthizer. If Trump goes ahead with the either the Canada-Mexico or the BRICS-dollar tariffs, however, he will have to invoke the International Emergency Economic Powers Act, a 1977 law that has never been used for such purposes. To initiate the act, Trump would have to declare that drug smuggling and illegal entry from Canada and Mexico, or efforts to build alternatives to the U.S. dollar, constitute an “unusual and extraordinary threat … to the national security, foreign policy, or economy of the United States.” Congress would be completely frozen out.

It is not entirely clear why Trump passed on Lighthizer this time around. During the first term as USTR, he was an effective warrior for Trump’s agenda, trusted by Congress and experienced in negotiating with U.S. trade partners. The negotiations with Mexico and Canada went nowhere until he was formally put in charge. The same was true for China; Trump had originally tasked Commerce Secretary Wilbur Ross with leading the negotiations, but in 2017 he came back with a “deal” filled with meaningless Chinese promises. According to journalists Bob Davis and Lingling Wei, Lighthizer told Trump it was a terrible deal; the president shut down the negotiations and put Lighthizer in charge. He got much farther with his “Phase One” China deal, though the economic disruptions caused by the COVID-19 pandemic and growing U.S.-China tensions meant China never came close to its agreed targets for increased U.S. imports. And Lighthizer has been loyal to Trump throughout, refusing to break with him over the Jan. 6 insurrection that turned so many of Trump’s first-term appointees against him.

In exchange for his record and his loyalty, Lighthizer was hoping to be tapped as Treasury or commerce secretary, or at least as a super-empowered White House “trade czar.” Why he was snubbed by Trump in the end? Some reports suggest that Lighthizer failed to play the game of camping out at Mar-a-Lago to kiss the ring and jockey for a post. Axios reported that Trump told friends he rejected Lighthizer because “he’s too scared to go big.”

In Lighthizer’s place, Trump’s economic team does not obviously scream “big” on tariffs. Yes, he has brought back Peter Navarro—a radical protectionist who served four months in prison for refusing to testify to the Jan. 6 commission—to again serve as a senior White House counselor for trade and manufacturing. The new USTR, 44-year-old Air Force veteran Jamieson Greer, was Lighthizer’s chief of staff, but that is his only experience in government. Hedge fund manager Scott Bessent is in the mold of traditional Treasury secretaries and likely to be concerned mostly with market reactions to Trump’s economic policies, including tariffs. Trump has said his trade and tariff strategy will be spearheaded by former Cantor Fitzgerald CEO Howard Lutnick, the nominee for commerce secretary; Lutnick has no experience either on trade or in the U.S. government. And Trump somewhat surprisingly chose Kevin Hassett, a traditional Republican free trade economist, as the director of the White House National Economic Council.

The eclectic mix suggests that, as in Trump’s first term, there will be vigorous internal debates over decisions on tariffs and trade. But without Lighthizer, there will be no experienced hand in the room to create order out of the chaos. Instead, the disrupter in chief will be in charge. The rest of the world should buckle up.