TTC and a New Thought

Last week, I thought about commenting on the sixth EU-U.S. Trade and Technology Council (TTC) ministerial meeting in Belgium, but I decided to wait for the dust to settle before writing anything. Well, it turns out there was very little dust to settle. There was no mention of the critical minerals agreement, which was hoped for. There was nothing new on the Global Arrangement on Sustainable Steel and Aluminum (GASSA), which was no surprise since talks on that have been punted into next year. There was nothing new on conformity assessments, which seems to be the last hope for harmonizing the two approaches to regulation. There was not even anything decisive on the TTC’s future, which will depend on the results of the U.S. election and European Parliament elections. Instead, they set up a lot of processes—dialogues and cooperation agreements on a wide variety of subjects. It remains to be seen whether any of them will produce anything. The TTC has had one big success, which was the collective sanctions on Russia after its invasion of Ukraine. Everything else has suffered the same fate as previous attempts to maintain a dialogue—devolution into talk, meetings, and, eventually, no agreement. We have seen this movie before, and it does not get better in reruns.

Unfortunately, that still leaves me with 600 more words to write, so I am going to present a new thought, at least for me, on how the United States should approach the global trading system and then invite readers to comment on it. It is fashionable these days to deride globalization as a massive outsourcing of manufacturing and jobs to other countries at the expense of American workers in a search for production efficiency. Critics argue this produced a “race to the bottom” that not only impoverished our workers but encouraged other countries to impoverish theirs. (This ignores the fact that the race to the bottom pulled a billion people out of poverty, and the U.S. economy seems to be doing fairly well compared to others, but those are other stories for a different column.) Instead, the Biden administration has refocused its trade policy on goals such as sustainability, worker rights, and human rights. In a perfect world, we could have both these values and maximum efficiency, but that does not seem to be happening at the moment.

One reason for that is the conflation of economics with national security, where the Biden administration and Congress are both saying we need to do things like building more resilient supply chains and restoring our innovation and manufacturing leadership in order to protect our security. Some of these leaders have acknowledged that this strategy will be less efficient and will cost more but is worth it if it provides better security.

I support those efforts but also think we should consider the longer term. We are already re-learning the lesson of the Cold War—that security is enhanced not just by defending the homeland but also by trying to create a world consistent with our values that deters our adversaries from destabilizing actions. That is why Ukraine matters and why we are working hard to make sure the same thing does not happen with Taiwan. We also need to look ahead on economics, where our main competitor is, and will be, China, whose ambition is to create global champions in key sectors that will outrun their Western competitors.

It is tempting to view that competition bilaterally: can U.S. companies win in China, and what should we do about Chinese imports into the United States? That misses the point. The real competition will be in the rest of the world, where the United States and China will go head-to-head in markets that are largely open to both. So, how do we win in Africa, Latin America, India, Southeast Asia, and the Middle East? So far, our trade policy for the workers does not seem to be doing the job, as China’s economic influence and market share continue to grow globally. This is a result not only of Chinese government policies like its Belt and Road Initiative but also of Chinese companies beginning to follow the Japanese and Korean path of multinationalization by moving manufacturing facilities offshore. In other words, Chinese companies are, belatedly, starting to follow the same globalization arc that U.S. companies did 30–40 years ago.

From the perspective of enhancing national security, my hypothesis is that the appropriate U.S. response to that will not be a values-based policy like our current one but, ironically, a return to efficiency-based globalization. But the rationale is different. In the past, companies went offshore to make more money through more efficient production without regard to the domestic impact on employment. In the future, the rationale will be that we enhance security by besting China in third markets. Succeeding in that goal, however, will require a return to efficiency-based production that relies on manufacturing in third countries. Trying to match China export-for-export will not be a winning strategy, nor will simply trying to protect our market from their imports. So, let me know what you think. Am I on the right track? Footnote: you may be tempted to tell me we can have our cake and eat it too—enhance our security by becoming more globally competitive without sacrificing our sustainability and worker rights goals. That may be true, but the downside risk is that by trying to do everything, we end up doing nothing. We may have to make a choice, and that is what I would like you to comment on.

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