For months, one of the hottest debates has been centered on trade and specifically tariffs. Under the Trump administration, the President has been adamant that the United States has received the short of the end stick in regard to trades for many years. As a result, Trump is pushing to right the trade imbalance through both formal negotiations and tariffs for countries who are less willing to work towards the American-desired goal.
This Trump administration push to balance trade, as well as jump-start the economy through tax cuts, is similar to the efforts of President Ronald Reagan in 1981. During his presidency, America was having trouble keeping up with Japan in the auto industry. At first, the Reagan administration, led by trade policy expert William Brock, was considering taking tough action against Japan. Instead, they had peaceful discussions with Japanese leaders and allowed Japan to create their own voluntary quota, which restricted the number of cars that they sent to the United States each year. The deal, which was agreed upon for a three-year term, actually lasted for more than a decade. During that time, the American auto companies were able to experience a significant comeback.
In addition to the increase in profits for American automakers, Japanese companies took an interest in establishing their business in the United States. In the 1980s, Toyota, Nissan, and Honda all built their own plants in the Mideastern part of America to boost production and ensure they did not go over the voluntary cap they had agreed upon.
The biggest takeaway from the Reagan automotive industry situation is the long-term impact that can occur from a well-negotiated, voluntary deal. The restraints negotiated by Brock were placed in 1981, and 37 years later, the economy is still reaping the benefits of this agreement which allowed both Japanese and American auto manufacturers to continue to grow in healthy competition. In the current trade war, there may be a situation in which to do much of the same. The Trump administration has an opportunity to encourage voluntary action from other countries rather than the abrasive approach using tariffs. However, this would require a level of diplomacy and wisdom not yet demonstrated by the Trump administration. Whether or not the administration or other countries will seek to capitalize on this is still up for question. Only time will tell how the trade war is resolved or if the trade imbalance will become righted.
The Trump administration shares another similarity to that of the Reagan administration. Like Reagan, Trump broke tradition by commenting on the United States’ monetary policy and criticizing the central bank of the US, the Federal Reserve. In recent years, the so-called Rubin Rule was observed by the Bush and Obama administrations, leading them to follow the precedence to not publicly question central bank policies. During the Reagan administration, he pushed to Federal Reserve to follow “a policy of gradual and less volatile reduction in the growth of the money supply.” Similarly, Trump commented, “I don’t like all this work we’re putting into the economy, and then I see rates going up.”