Lighthizer’s View of the World and the WTO Leadership Issue

Once again, my intention to write about a Democratic trade policy has been overtaken by events. This time they were Ambassador Lighthizer’s piece in the New York Times last week and World Trade Organization (WTO) Director-General Roberto Azevêdo’s announcement that he plans to leave his position on August 31, a year before his term would normally expire.

With respect to Ambassador Lighthizer, we should congratulate him for the clearest description of the administration's trade policy that has come out so far. While he gets many things right, he gets some important things wrong as well.

He is right that offshoring has been a declining trend that began even before the current administration, and he is right that Covid-19 will accelerate that trend as companies seek to build resiliency and redundancy into their supply chains. He is partly right in explaining why companies moved offshore, but he ignores other reasons, primarily the desire to grow by accessing foreign markets. Not every company's business model consists of making things overseas and shipping them back here. In many cases, what they are making is destined for local and regional markets.

He is only partly right in blaming manufacturing job losses on trade. While there are recent studies showing that link for imports from China, the truth is that the United States has been losing manufacturing jobs since the 1970s, while manufacturing output and capacity have gone up. This suggests the primary reason is not offshoring but technology improvements that allowed companies to shed workers. The despair he talks about, which is a serious problem, is due not only to job loss but also to working-class incomes that have been stagnant for 20 years. The real culprit is companies' relentless focus on quarterly earnings and shareholder value instead of building enterprises for the long term that reward their workers with good jobs and steady employment with good wages and benefits. Addressing those problems is outside the ambassador’s portfolio, but it is hard to argue anybody in the administration has spent much time working on them.

While his comments about the difficulties of trading with non-rule of law states ring true for China, they do not for Canada, the United Kingdom, the European Union, Australia, New Zealand, Japan, and numerous other trading partners. Much of our trade is with countries that have rules like ours and attempt to adhere to them, and he is wrong to condemn our entire past trade policy for the sins of one, albeit very large, competitor.

Finally, he is wrong in his assessment of the impact of the president's policies. Offshoring has slowed down, although he acknowledges that was happening anyway, and I doubt he wants to take credit for further virus-related declines. What is missing is reliable data about the return of manufacturing jobs to the United States and about the collateral damage caused by the president's tariffs—both in farm states, where it has been widely reported, and in manufacturing centers no longer able to compete because of price increases on parts and components. His anecdotes about companies that have returned can be matched by those of companies that have closed all or part of their U.S. operations. Years from now, when historians write about this era, the headlines will not be about the return of U.S. manufacturing, but how the United States turned its back on the rest of the world at the very time when we needed it most.  

And, speaking of back-turning, WTO Director-General Azevêdo’s announcement of his early departure was disappointing. I hope the ship he is abandoning is not sinking, but it certainly is in rough seas. And his departure, although apparently intended to smooth the path to a more successful Ministerial Conference next year, simply adds one more problem to the pile the organization faces.

Those of you who follow the WTO know that replacing its leader can be a fraught exercise. The organization operates by consensus, which means all 164 members must agree on a candidate. In practice, that means countries as disparate as the United States, China, India, Japan, and EU members all need to agree. That will be exceedingly difficult both because they have very different short-term objectives, but also because they disagree on the purpose of the organization. Some, like the United States, see its primary purpose as conducting trade negotiations. Others view it as a kind of trade cop whose primary duty is to enforce the rules. Reconciling these different philosophies and objectives and achieving unanimity will be a challenge.

The Scholl Chair intends to follow the selection process closely and will be putting out a series of brief commentaries on each candidate as they announce themselves, and perhaps on some who do not announce but are lurking behind the curtain. The last time there were nine candidates, and you should expect a large field this time. There is already a movement to select an African director-general, since that continent has never had one, but it is too soon to say who will emerge. Stay tuned and watch our website for updates. 

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

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