So Long, Globalization?
Last week I wrote about Treasury Secretary Janet Yellen’s speech that was largely about China. It was followed a week later by National Security Advisor Jake Sullivan’s speech on international economic policy, which is the topic of today’s column.
On Sullivan’s speech, I have long supported the industrial policy initiatives he identified as key elements of the administration’s policy—the infrastructure law, the CHIPS and Science Act, and the Inflation Reduction Act (IRA). Helping our companies run faster and making our economy more competitive is something I’ve supported for more than 40 years, and I’m happy to see progress on that front, which is overdue, although some of the restrictions will delay the green transition rather than accelerate it.
Where I get off the boat is on his description of trade policy, both past and present. With respect to the past, I think his description of the failures of globalization misses some important points.
- The trade policy he attacked has lifted more than a billion people out of poverty and made the world a better place. Granted, most of them were not in the United States, but the policy deserves respect for its successes, and ignoring that is a reflection on the self-centered nature of our new policy.
- Arguing that past policy was just about tariffs is simply wrong. That may have been true in the 1950s and 60s, but even in the Tokyo Round in 1979 and certainly in the 1994 Uruguay Round, countries were refocusing their attention on nontariff barriers and issues like protection of intellectual property, government procurement, and later on, trade facilitation.
- The implication that trade policy was responsible for everything bad that happened economically in the past 50 years is also a gross oversimplification. Trade agreements create benefits; they do not distribute them. The trickle-down policies he also attacked have had much more to do with the inequality that currently plagues our population.
- Companies did indeed move offshore, sometimes for cheaper labor, sometimes because it was the best way to serve foreign consumers, and we were indeed buried in imports, many of them Chinese. I think, though, that was less a result of our trade policy than the application of basic economic principles, which the administration cannot repeal. David Ricardo may be dead, but his principle of comparative advantage is not, and saying the world now is more complicated than making cloth and wine is true but irrelevant. The real problem is that countries have figured out how to create comparative advantage through subsidies and protection. We are now responding in kind, which is the best short-term tactic, but not the best economics. Blaming U.S. companies for responding to economic realities at the time misses the point.
Sullivan’s defense of the new policy is equally flawed and ignores the contrast between the principles he articulates and what the United States is actually doing on the ground.
Most important, he ignores the concept of reciprocity in both the past and present. Those trade agreements he blames for our problems opened doors for U.S. exports, which for a mature economy like ours are essential for growth. Those doors were not opened for free. We had to give something to get something, which is the way all negotiations work.
In contrast, in the Indo-Pacific Economic Framework (IPEF) talks, the United States has been clear it does not intend to make concessions but is looking for an agreement that will reflect current U.S. standards and practices. That is not likely to produce significant results. CSIS’s research indicates the Asian parties are looking for “tangible benefits.” Instead, we are asking for many good things on labor, sustainability, decarbonization, anti-corruption, etc. but are offering little in return. As my colleague and fellow Trade Guy, Scott Miller, channeling Larry Summers, put it on our most recent podcast: When a developing country talks to the Chinese, they get an airport. When the country talks to the Americans, they get a lecture. It’s not hard to figure out which policy is more successful.
Our new policy is not really about trade. Instead of talking about the exchange of goods and services, we are talking about worker rights, sustainability, climate, human rights, and cooperation on supply chains, and so on. As I said above, these are all good things, but they cut much closer to how a country chooses to organize its society than dealing with non-tariff barriers. That makes the cost of agreement much higher, both economically and politically, which means the United States will have to pay a higher price to achieve its goals.
In fairness, trade agreements are often not about trade. They’re about geopolitics—cementing the U.S. profile in a region and displaying our commitment. But reaching any agreement requires give and take, and so far our policy is only offering words.
I am particularly sad at the gap between word and deed. We spent 75 years rebuilding war-devastated Europe, creating rule-of-law institutions, and arguing for economic policies that would promote global growth and prosperity—with a good deal of success, I might add. We say we are still for that but in fact are turning inward and focusing on what is good for us. We give lip service to global institutions like the World Trade Organization (WTO), but our actions undermine what we claim to support via protectionist restrictions designed to promote reshoring and lack of enthusiasm for getting the WTO back on its feet. In a long-ago column, I wrote that American exceptionalism has become a myth, that in reality we are just like everybody else. Sullivan’s remarks put an eloquent gloss on our policy, but our actions fall short of the promise.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.