Why the Lighthizer/Trump Controversy Really Matters

Trump's failure so far to include his former trade representative in his new administration doesn't mean tariffs-heavy policies are out, but likely won't help.

At this late point in the Trump transition, it’s looking very much like his first term U.S. Trade Representative Robert E. Lighthizer won’t be part of Trump 2.0 – at least not in any official role. That’s a real disappointment for trade realists (like me), but I’m not yet convinced that the President-elect is certain to back off the tariff-heavy policies he proposed during the campaign.

Many of my trade realist counterparts seemed crushed by the news that uber-successful hedge fund manager Scott Bessent is Mr. Trump’s pick for the Treasury Department, which is widely seen as a president’s most powerful economic advisor. But as I’ve seen it, Lighthizer was never likely to win that post, mainly because his experience and expertise are much too narrow. Treasury has trade policy responsibility – Lighthizer’s wheelhouse. But it also handles taxes, financial regulation, and sanctions, along with conducting the bond auctions that help the federal government to raise revenue. His long-time trade policy focus also made the former trade representative a dark horse to run the White House National Economic Council (NEC), which, like Treasury, deals with a wide range of issues.    

As for me, I was most disappointed by the Trump choice of another Wall Street heavyweight – Howard Lutnick – as Commerce Secretary – not, however, because I don’t think Lutnick will be enough of a “tariff man,” as Mr. Trump has famously called himself. Rather, it’s because the President-elect has specified that Lutnick “will lead our Tariff and Trade agenda, with additional direct responsibility for the Office of the United States Trade Representative.”

One problem with this decision is that trade is manifestly not Lutnick’s wheelhouse. Much bigger problems are that Lutnick serving effectively as a trade czar-type certainly rules out the much better qualified Lighthizer for that mission, and that his nomination seems to nix the possibility of Lighthizer returning as trade representative. After all, why would a full trade professor want to report to a trade freshman? Indeed, after his yeoman’s work as trade chief in Trump 1.0, why would he want to report to anyone on this issue other than the president?

As a result, a Lighthizer-less second Trump administration will likely wind up conducting a trade policy lacking any genuine vision of how a tariff-focused international economic policy (if chosen) should position the United States in the world economy – and especially with regard to China – and lacking a credible strategy for getting there.

All hope for the trade hawks, however, need not be lost. After all, Trump 1.0 contained a NEC chief (former top Goldman Sachs executive Gary Cohen), who actually tried to sabotage some of the president’s trade moves (at least according to legendary investigative reporter Bob “Watergate” Woodward), and a Treasury Secretary (former investment banker – and film producer! – Steven T. Mnuchin) who at best was lukewarm.

(Commerce Secretary Wilbur Ross, another former major financier, and economist Peter Navarro, who headed a White House Office of Trade and Manufacturing Policy, did support Trump’s trade aims. But the then-president viewed the former as an ineffective trade diplomat, at least as reported in numerous articles like this. Although true believer Navarro remained an effective voice, he was never given negotiating authority.)  

And yet despite much internal opposition and indifference, Mr. Trump still pushed through major tariffs, especially on China. Given his own strong feelings on the matter, and his…ah…unconventional governing style, he could still brush aside whatever intra-administration dissent he encounters. That’s my bet. The President-elect might also find a role for Lighthizer that completely ignores the standard bureaucratic flow charts and fully employs his strengths. And who knows? Bessent could be more Trumpy than widely expected on trade – like former Trump NEC chief Larry Kudlow.  

At this moment, though, it’s also my bet that without Lighthizer, his trade and tariff decisions will lack a clear set of priorities and world-class negotiating skills (both on Capitol Hill – on which he long worked – and with foreign governments).

Economists use the term “opportunity cost” to describe “potential benefits that a business, an investor, or an individual consumer misses out on when choosing one alternative over another.”  At a time when an effective trade policy will require making tough trade-offs between go-it-alone and multilateral initiatives, without