A Trade Policy for the 20s, Continued

Continuing with the discussion started last week on the new trade policy we can expect from the Biden administration, this week I want to talk about labor. First, I think we have to distinguish between trade politics and trade policies. President Trump has mastered trade politics when it comes to labor. He doesn’t talk about inequality or economic growth. He talks about jobs. He also invokes nostalgia, promising to take us back to the days of the 1950s with a chicken in every pot and a car in every garage, recreating in our imaginations a United States that no longer exists, if it ever did. He blames the loss of jobs on foreigners and promises to bring them back, a promise he has failed to keep, but for which he has escaped accountability.

Democrats have said the same things but have learned it is hard to beat Trump when it comes to attacking foreigners. They have also muddled their message by talking about income and wealth inequality and the evils of big corporations. Those are important messages, but they have not resonated as well. Most voters cared about their jobs or those of their friends and relatives. They were less focused on whether the rich were getting richer at their expense, and they did not regard bigness as inherently bad—after all, many of them shop at Walmart or get shipments via Amazon. The result was that Democrats may have had a good policy message but a less successful political message for the largely white, male, non-college-educated cohort whose votes they were trying to capture.

But let’s take a look at their trade policy as it applies to labor. From the perspective of organized labor, there appear to be three parts: making sure the benefits of trade accrue to workers and not corporate executives, stopping the movement of jobs offshore, and beefing up enforcement of our partners’ labor laws.

The first one is not really about trade policy; it’s about how companies distribute their gains and how they treat their workers. Much of the problem is directly related to corporate management, at the behest of Wall Street, emphasizing quarterly earnings and increases in stock prices at the expense of long-term growth strategies. The ideal solution is persuading CEOs to change their priorities and manage their companies differently, but there may also be domestic regulatory measures that could encourage that change.

Another result of that misalignment of goals, however, is relentless cost-cutting, including by moving manufacturing processes and jobs offshore; here, trade policy can play a role by creating disincentives to offshoring, although that may not be the most efficient approach. President-elect Biden’s campaign proposals address this issue and propose tackling it through tax measures—carrots for companies that return to the United States and sticks for those that do not. It is a nuanced proposal; for example, it does not target companies that have moved overseas to service foreign markets through local production but instead focuses on companies that have built foreign production into their supply chains and are shipping back here. But the key word is “tax,” not “trade.” The incoming administration believes changes in the tax code would be a more effective means of influencing corporate behavior, and they are probably right about that.

There are trade-related measures intended to achieve the same result, and two are illustrated in the recently negotiated U.S.-Mexico-Canada Trade Agreement. The first is eliminating or narrowing investor-state dispute settlement, which limits the recourse U.S. companies have when treated unfairly in other countries, increasing their risk and decreasing their interest in offshore investing. The second involves rules of origin that require a high percentage of content to come from among the agreement partners if the item is to be afforded preferential tariff treatment. The latter can be difficult to administer. If the content levels are too high, companies will simply import and pay the tariffs; if they are too low, they will not achieve their objective.

The third goal is stronger enforcement of labor laws. This is both altruistic and self-serving. Ensuring that national labor laws are aggressively enforced is good for workers and good for democracy. It is also good for U.S. workers because it increases their competitors’ costs and decreases the advantages of moving offshore to reduce labor costs.

Of the three, the last will receive the broadest support. It is hard to argue that countries should not be required to enforce their own laws. The first should be fought in venues other than trade policy, and labor would be wise to place the blame where it belongs—on misguided corporate management and lax regulatory policies rather than on trade agreements that are not capable of solving the problem. The second goal—converting offshoring to reshoring—is where the policy battle is most likely to occur, and I will be taking a closer look at that in the future.

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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