The America First Trade Policy: The Knowable and Unknowable Consequences

Abstract

The "America First Trade Policy" initiated under President Trump signals a fundamental reshaping of US trade relations by using tariffs to address trade deficits and alleged national security concerns. This paper examines both the knowable consequences of this policy, drawing from recent natural experiments, including Section 232 and Section 301 tariffs, and Brexit, and also delves into the unknowable consequences based on the unexpected consequences to a historical precedent for the America First Trade Policy, namely the Nixon Measures of 1971. Conventional trade theory predicted inefficiencies and economic losses from these natural experiments and conventional trade theory was vindicated by the outcomes. This does not augur well for the prospects of success of the America First Trade Policy. Moreover, historical evidence suggests that the full impact of unprepared departures from accepted arrangements will drive unpredictable systemic changes in global finance, supply chain realignments, and geopolitical shifts due to the responses of myriad private and state actors responding in their own best interests. The paper concludes that the America First trade Policy is not only likely to fail to achieve its intended first-order objectives because of fundamental internal incoherence within the populist trade economics which informs it but also risks uncontrollable unintended changes in global economic relations.

Keywords: America First Trade Policy, Trade Protectionism, Section 232 Tariffs, Section 301 Tariffs, US Trade Deficit, Lerner Symmetry, Global Supply Chains, Trade Wars, Nixon Measures, Complex adaptive systems, Volatility

JEL Classification: F13, F14, F50, F62, N70