Finding a Trade Policy

Those of you who read this column regularly or listen to our Trade Guys podcast know that one of my themes has been trying to figure out what a “trade policy for the workers” actually means. I’m now pleased to report that after three years of searching, I have finally found an explanation, albeit with a little help from conversations with administration officials and others. The source in question is in an unlikely place—a request for comments from the U.S. Trade Representative (USTR) on Promoting Supply Chain Resilience. The following quote provides the context for the new policy and a description of what it means:

“Over the last several decades, however, U.S. trade and investment policy— including rules related to supply chains—were designed to incentivize short-term costefficiency and drive tariff liberalization, with the goal of creating an unfettered global marketplace. This approach helped shape producers’ decision-making that, in many cases, fostered geographically concentrated and operationally complex supply chains. . . . In geopolitically fraught regions, the challenges are frequently even greater; when low cost is the driver of sourcing decisions, and absent incentives for improving standards over time, production becomes increasingly consolidated in economies with lower labor standards, weaker environmental protections, and transparency and governance challenges. This is the race to the bottom. . . .

[Our] approach also entails collaborating with trading partners and allies to incentivize a race to the top through stronger coordination and alignment on labor and environmental protections within trusted networks, and to build our middle classes together, rather than pitting them against each other. Through trade negotiations, efforts to enforce fair trade, and other engagement with trading partners, USTR seeks to advance and implement these principles of supply chain resilience—transparency, diversity, security, and sustainability. To promote transparency, USTR confronts supply chain risks arising from unfair trade and competition practices among our trading partners. To enhance diversity, USTR creates opportunities for businesses of all sizes to increase sourcing options, including those located domestically and in underserved communities.2 To bolster security, USTR takes trade action to facilitate the strengthening of agile supply chains with trusted networks sharing our values, including through friend-shoring and near-shoring in furtherance of high-quality economic growth. And to support sustainability, USTR works to promote respect for labor standards and environmental protections governing global supply chains and to strengthen those standards and protections.”

These are helpful explanations of the administration’s thinking. With respect to their views on past policy, it’s sad to see that low costs and efficiency are not only no longer goals of our trade policy but also have become bad things. We are now pursuing a policy that will lead to higher costs, more inflation, and less efficiency. In the beginning, the administration did not acknowledge that costs would increase, but now they say yes, but it will be worth it, and consumers will cheerfully pay it. (We’ll see about the latter claim.) The old policy they reject brought nearly a billion people out of poverty. Most of them were not Americans, but it was a noteworthy accomplishment and hardly a race to the bottom. For all our current problems, people throughout the world today are healthier, better fed and better off through globalization. For the United States, the administration sees the glass as half empty because it looks only at imports, while many of us see it as half full because we also focus on exports. (If you’re an engineer, you think the glass is the wrong size.)

The new policy lays out goals that few would disagree with, and I certainly do not. But you have to read between the lines and also see what’s missing. “Collaborating with trading partners and allies” so far has meant us trying to persuade them to adopt our principles while providing no incentive to do so. We may have a “new paradigm,” but our trading partners are firmly stuck in the old one, which expects reciprocal market-opening concessions, something we have taken off the table. “Transparency” is defined as confronting our trading partners’ unfair practices without acknowledging or doing anything about our own, even when World Trade Organization rulings go against us. “Security” ostensibly means friend-shoring or near-shoring—a laudable and inevitable goal—but most of the administration’s efforts have been on re-shoring even while acknowledging it cannot be entirely achieved. Missing is any thought of concessions, particularly on market access. When pressed on that point, the latest response has been that there are incentives we can offer outside of market access that will be attractive, but that has been a very short list, with more apparently to come.

In looking at this policy, it appears the administration has not learned the first law of negotiating: in order to get something, you have to give something. Trade negotiators are cynical, and offering noble ideas is not going to be good enough. Other countries also know to watch what we do, not what we say. Our actions undermining the World Trade Organization by ignoring its rulings and setting up massive subsidy programs undercut our rhetoric. Finally, it has become clear that our policy is not one of trade expansion but of redistribution, even though with 95 percent of the world’s consumers outside our border, our long-term growth will increasingly depend on exporting. I support redistribution of benefits, but that is easiest when the pie is growing, and the game is win-win, not zero-sum. Our policy is best when it focuses on how to grow the benefits of trade. Instead, we seem to be spending time rearranging the deck chairs, hopefully not on the Titanic.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.