International trade policy has played a major role in the campaign of U.S. President-elect Donald Trump. According to media reports describing the contents of a Trump transition team agenda for the first 200 days of the new Administration, the overriding objective is to bring back and keep high-paying jobs in the United States. It is too soon to determine whether this agenda will be adopted by the new President. Nevertheless, global businesses can begin to draw tentative conclusions and must plan accordingly, focusing on five key implications:

  1. The TPP Agreement will not enter into force; the U.S. will seek to negotiate future trade deals bilaterally. Neither the Obama Administration nor the Trump Administration is likely to pursue U.S. Congressional approval of the TransPacific Partnership (TPP) Agreement, and in the absence of U.S. participation, the TPP will not enter into force. The Trump Administration instead intends to pursue trade agreements one country at a time, seeking better terms than the Administration believes the United States secured in the TPP Agreement. One of the most highly publicized critiques of the TPP concerned the standards that protect innovative biologics, which could potentially be improved in bilateral agreements. In the absence of TPP, it seems likely that China, Japan and South Korea will press forward with their respective alternatives to create the core of an eventual free-trade area for the entire region, a long-stated goal within the Asia Pacific Economic Cooperation (APEC) forum. Companies active in the region should assess their cross-border sourcing needs, and advocate to address regulatory barriers through the U.S.-led bilateral, as well as other regional, negotiations. Meanwhile, companies should continue to take into account trade and investment treaty treatment when structuring cross-border investments and resolving disputes.
  2. Businesses that rely on access to the U.S. market through Canada and Mexico will need to re-evaluate. One of the benefits of the North American Free Trade Agreement (NAFTA) afforded to global businesses over the past twenty years has been duty-free access to the United States for goods produced in Canada or Mexico that satisfied applicable rules of origin. The Trump Administration will reportedly press Canada and Mexico to renegotiate the terms of the NAFTA, under the threat of U.S. withdrawal. Under a 1974 law, the President has the authority to renegotiate or withdraw from any U.S. trade agreement, and to proclaim higher tariffs, but the Congress would be consulted to approve new trade deals and to implement commitments in U.S. law. In the absence of the NAFTA, access for many Canadian or Mexican imports into the United States would not change dramatically, because the United States would be bound to charge duties on those imports at the “normal” rates of duty based on World Trade Organization (WTO) obligations. Those tariff rates are already low – 2.2% on a trade-weighted average, according to the WTO – but spike at nearly 30% for some products. Preferential quota shares for other imported goods would also be lost with the termination of NAFTA. Businesses will need to review carefully the impact of tariff increases in light of conditions in any particular sector, some of which may be severe.
  3. The Trump Administration may initiate more aggressive enforcement of violations of international treaty obligations, including against government subsidies, inadequate intellectual property protection and other trade-related measures in U.S. export markets. The Trump Administration reportedly plans to focus on challenging practices in the territories of U.S. trading partners that inhibit access for U.S. goods and services, or that otherwise disadvantage U.S. goods or services in third country markets. Aggressive use of U.S. authority under Section 301 of the Trade Act of 1974 has been a hallmark of all recent U.S. administrations, with the enforcement mechanism of choice having been the WTO’s effective dispute settlement procedures. Among the potential disputes, the Trump Administration may be expected to be even more aggressive than previous administrations in bringing WTO disputes against countries that fail to adequately protect and enforce intellectual property rights, particularly for the pharmaceutical, biotech and consumer electronics industries. Although only governments may participate directly in WTO disputes, affected businesses need to understand the process and engage actively with WTO member governments.
  4. Exporters and U.S. importers should anticipate greater use of import relief laws. The Trump Administration reportedly intends to declare China to be a currency manipulator under U.S. law, which would then require U.S.-China consultations. If those consultations did not satisfy U.S. concerns, the U.S. could take actions such as excluding China from U.S. government procurement. The transition team reportedly recommends a much greater use of available tools to curtail imported goods that are deemed to be unfairly traded. U.S. producers in a wide range of industries are likely to be emboldened to petition the U.S. Government to initiate investigations to target imports alleged to be dumped (sold at less than their home market price) or subsidized. Even the threat of such actions often results in price increases by exporters. U.S. import relief laws, and the administration thereof, are subject to WTO rules, and have been challenged in WTO dispute settlement.
  5. U.S. economic sanctions policy with respect to Cuba, Iran and Russia/Ukraine will likely change. Investments made in light of U.S. economic sanctions policy over the past eight years may be dramatically impacted by changes initiated by the Trump administration. Advisors to the Trump transition team have been vocal opponents of the Obama Administration’s opening to Cuba, and might eliminate or curtail current general licenses. If the Trump Administration re-engages and rejects aspects of the nuclear-related deal with Iran, it could re-establish so-called secondary sanctions, which would affect non-U.S. entities with dealings in Iran. In contrast, the Trump Administration might decide to scale back sanctions on Russia. U.S. sanctions with respect to Iran and Russia had been coordinated closely with European allies; whether that cooperation will be maintained remains to be seen.

The trade policy of the new Administration is likely to evolve over time, particularly in response to the reactions of trade partners, and to the viewpoints and abilities of the officials that Mr. Trump appoints to implement the agenda.