Credit Risk Management

Billionaire Investor Wilbur Ross Jr. on Negotiations and Tariffs

Image Group
LA Times photo
Investor Wilbur Ross Jr., Donald Trump's pick for Commerce Department secretary, speaking at his senate hearing on January 18th.

One of the business world's top negotiators talks about the disadvantages of multilateral negotiating and why the 12-country Trans-Pacific Partnership (TPP) is a bad deal for the United States.

Wilbur Ross Jr., the chairman and chief strategist of W.L. Ross & Co., a private-equity firm, has amassed a fortune over the past 15 years by acquiring bankrupt companies in old-line manufacturing industries such as steel, textiles and auto parts and rehabilitating them, often turning a profit by selling to overseas investors, many in China.

Now, the 79-year-old billionaire has been tapped by President-elect Donald J. Trump to head the U.S. Department of Commerce, an agency responsible for promoting job creation and economic growth.  As commerce secretary, Mr. Ross will be charged with trying to bring home manufacturing jobs that have fled overseas in recent years in part due to multi-national trade agreements, such as Nafta, that many believe have benefited other nations often at the expense of U.S. workers.

More significantly, the views on trade of Messrs. Ross and Trump represent a shift away from the multi-national platforms that have become more popular in recent years and back to the more traditional bilateral arrangements that facilitated enormous U.S. growth in the aftermath of World War II.

In his senate confirmation hearing on January 18th, Mr. Ross explained that the simplicity of bilateral trade agreements makes them superior to the more complex multi-lateral agreements such as the Trans-Pacific Partnership and Nafta.  

The Trans-Pacific Partnership, or TPP, is a 12-nation trade pact that included nations on both sides of the Pacific Ocean including the United States but excluding China.  It was pushed by large multi-national corporations, mainly American, to more easily facilitate movement through international supply chains.  But, President Obama, who held up the signing of the U.S.-Columbia bilateral trade agreement for almost three years when he first entered office, sold TPP as a counter to growing Chinese influence.

Mr. Trump, however, sees TPP and other multilateral trade agreements as a restrictive measure that diminishes American trade influence and would ship more jobs overseas.  The North American Free Trade Agreement, or NAFTA, was created 20 years ago by the U.S., Canada and Mexico.

"In general, its's easier and quicker to negotiate bilateral agreements than multilateral agreements," said Mr. Ross. "My concerns about the multilaterals are not that there is anything inherently wrong with them, but as somebody who has negotiated a lot of transactions, I can tell you the more complex the environment within which you're negotiating, the less likely you are to get a sensible result."

In his testimony, Mr. Ross provided insight into the challenges of multilateral negotiations within in the context of trade. "Say you are negotiating with 12 different countries. You go to the first one and want some concession from them and they say yes, we'll give you that concession but we want something back," said Mr. Ross.  "You go to the next country and they want something. Keep doing that 12 times and the other countries get the benefit of things they didn't even ask for because you had to give them to someone else."

Multilateral agreements also limit a country's ability to use valuable trade enforcement tools such as the tarriff.  "The concept of TPP was to build a wall around the countries that were participants," Mr. Ross explained.  "But, in automotive, for example, they permit more than 60 percent of the content of a car to come from outside TPP and yet have all the tariff benefits."  That will have a big impact on jobs because as Mr. Ross added, "In automotive, about 70 percent of the jobs are in parts suppliers, not OEs."