Zachary Karabell is head of global strategy at Envestnet and author of The Leading Indicators: A Short History of the Numbers That Rule Our World. He is a contributing editor at Politico Magazine.

Finally, the endless campaign of words has given way to the first flurry of action, or at least to the first flurry of executive orders and announcements emanating from the White House. Two of those have pertained to trade, with the administration making the U.S. withdrawal from the Trans-Pacific Partnership official and declaring its intent to begin renegotiating NAFTA with Canada and Mexico, the other signatories to that 20-plus-year old agreement.

The death of TPP was criticized by many across both parties who had supported an expanding arc of trade liberalization. Republican Sen. John McCain was particularly blistering, stating that withdrawing from the agreement is a “serious mistake that will have lasting consequences for the American economy and our strategic position in the Asia Pacific region.”


As for renegotiating NAFTA, no one quite knows what that means or entails. Yes, Trump has said that he would penalize companies for locating factories in Mexico that could otherwise be built in the United States. But it remains to be seen how that can be done legally without alienating trading partners that together accounted for more than $1 trillion in trade with the United States in 2016, including more than $200 billion in U.S. exports to Mexico. These tensions erupted in full in past days with Trump’s repeated demand that Mexico pay for the construction of a more extensive border wall, followed by the cancellation of the planned summit between the president and Mexican leader Enrique Pena Nieto and the subsequent floating of a possible 20 percent border adjustment tax on Mexican exports to America. Former Mexican president Vicente Fox announced that Mexico is “ready for the trade war.”

National and global reaction to both announcements has been heated, with repeated warnings that Trump is on the verge of unraveling decades of trade pacts and casting the global economic system into chaos. That is one possible future outcome, but for the moment, that’s all it is—and a highly unlikely one at that. A closer look at what Trump is actually proposing shows that, like many things Trump, his announcements this week are more words than action. And while that could change—if he wants to gamble with his legacy and popularity—the global trade order is not so easily disrupted. It is controlled far more by the demands and needs of a booming global middle class and a robust affluent class than it is by tariffs or trade agreements.



Withdrawing from the TPP seems dramatic, but remember: withdrawing from a pact that has not yet gone into effect does not change the status-quo at all. Yes, the formal and high-level declaration is the most explicit sign yet of a pause, if not a retreat, from the multi-decade official American commitment to expanding global free trade. But that pause pre-dates Trump and would probably have persisted had he not been elected. It is unlikely Hillary Clinton would have been able to fight for the revival of TPP given that she also came out against the pact during the campaign. At best, she might have slowed the process, hoping for a different political climate in late 2018 or early 2019 after the mid-term elections, but that too would have been a sign that the political and social support for increased free trade has hit a rather significant wall—maybe not as significant as the actual wall that might be built on the Mexican border, but significant nonetheless.

Symbolically, the official death of TPP is important. But to ascribe that to Trump is, like many things Trump, to overemphasize him at the expense of larger trends. That is true of renegotiating or updating NAFTA as well. Trade pacts such as the WTO are constantly being updated, and tweaking NAFTA to account for the trade realities of the present does not change the status-quo per se. Trump’s language and occasional threat clearly depart from business as usual, but what he actually can do and has done, far less so.

In a classic case of closing the barn door after the horse has bolted, Trump is announcing an intent to stop jobs from moving from the United States to Mexico after the jobs have already moved there or been automated—and by most economists’ estimates, far more jobs have been automated than outsourced. Yes, as with the much-touted Carrier plant deal that saved 700 or so Indiana jobs that had been slated for elimination with a new production facility opening south of the border, there are a few thousand jobs to “save.” But Mexico has become a vital market for American exports even more than it is a place for U.S. outsourcing. U.S. manufacturing has for the most part been “reshoring” in the past two years, where U.S. exports to Mexico have been growing. In other words, Trump’s proposed NAFTA reforms aren’t going to change much.



That’s not to say that there will be no economic consequences of recent orders and announcements. But they won’t be extreme as you think. For one, while TPP offered the promise of a more fluid economic system that would see trade magnify, that was only speculated. Yes, we know that global trade has ballooned in the past decades with the World Trade Organization and NAFTA and the EU. But the rate of trade expansion has also plateaued in the past three years as global growth has slowed. Many of TPP’s supporters and detractors would appear to believe that trade rises or falls based on trade pacts; that is highly debatable. What isn’t is debatable is that trade rises or falls based fundamentally on global GDP growth and overall consumer demand.

Furthermore, Trump is unlikely to want to take any seriously disruptive actions. Many fear that the president might use NAFTA or his border adjustment tax to throw economic relations with Mexico into turmoil, and, in the spirit that animated withdrawal from TPP, might go on to take such a protectionist approach to China and the world that the multi-trillion-dollar trade economy that currently helps fuel the U.S. economy will be severely disrupted. But if Trump does that, it would be the ultimate self-inflicted blow, and the Trump administration has exactly zero incentive to do itself such harm.

But it’s worth remembering that even if he does go down the path of disrupting global trade pacts, even if the move toward globalization halts, we still cannot return to some imagined past. A return of some manufacturing to the United States is possible and has already been happening, care of technology that makes the cost of making stuff in our expensive country less of an issue. Factories today, however, are output machines, not job machines. A new factory employs hundreds of skilled workers, adept at robot programming or high-end value-add work; it does not employ thousands of shift workers. The myth of manufacturing today is that jobs will come back, but most of the jobs that disappeared over the past decades can never exist again. Period. American withdrawal from the TPP, or changing the terms of NAFTA will not alter that.

More than that, trade across borders and among nations is likely to continue and increase modestly regardless of what the trade regime is as long as the global middle class continues to expand. The United States is central to that, and will be for years to come even if its relative importance decreases somewhat. Governments can add or reduce friction to trade, but demand and cost and meeting the needs of billions of middle class citizens around the world drives where things are produced, bought and sold more than trade pacts and tariffs. For instance, U.S. companies have been selling into China for the past 20 years even as the difficulty of doing so has been significant and the costs have been considerable. China is simply too attractive a market for companies to ignore, even with a government that hardly welcomes foreign competition. The United States is an even larger market, which means that a U.S. that is less welcoming to foreign business is still too desirable a market for foreign companies to forgo simply because Washington raises hurdles.

Sure, the Trump administration can certainly make trade more complicated and costly for both domestic U.S. companies and foreign companies. But trade is not an on-off switch that a presidential administration can toggle at will.

Separate from whether these initial trade moves are wise or foolish, they are not nearly as consequential as the Trump administration would have us believe or as various critics would contend. They are mostly words codifying current trends, rather than actions that set America in a new direction. We live in an elaborate system of trade and tariffs that has many moving parts, tens of thousands of permutations and regulations, trillions of dollars of goods and services. Executive actions are easy; altering the global trajectory of trade, that is an order of magnitude harder.